- Innovative technology impacts consumer lending by enabling more comprehensive evaluations of consumer creditworthiness.
- Fintech and embedded finance are making inroads in the financial services industry, creating challenges for some and opportunities for others.
- Artificial intelligence enables better loan monitoring and intervention opportunities.
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Recent events escalated what was already a fast-moving digital transformation across all financial services sectors. Technology-driven innovation offers huge opportunities for evolution in the consumer lending sector for those firms that take advantage of it.
Today, consumers have a number of options for finding loans and convenient access to lenders through various digital platforms. To succeed, lenders need to focus on efficiency, responsiveness, intelligent solutions, and an optimized experience.
The following is an overview of some of the most critical ways that innovative technology impacts consumer lending.
An individual’s FICO credit score has long been central to a lender’s evaluation of a loan applicant’s creditworthiness. It is supposed to offer a singular view of the risks in lending to a particular person. However, thanks to more holistic data access and predictive analytics driven by artificial intelligence, lenders now have a more comprehensive way to consider loan risks.
The intent of risk assessment in consumer lending is to determine the likelihood that a borrower would repay a loan. Employment history, spending patterns and other details of an applicant’s income history add substance to a credit rating.
One of the biggest finance industry developments to come out of the COVID pandemic has been the rapid growth of fintech. This growth is visible through the expansion of virtual banks (which do not have physical branch locations) and embedded finance.
Due to their limited physical infrastructure, digital banks are able to maintain lower cost structures and offer better interest rates relative to traditional financial institutions. To compete, traditional banks need to find ways to minimize costs and amplify virtual offerings. Some banks have increased the use of remote workers to minimize physical space requirements.
Embedded finance means loan funds are offered to consumers through non-banking providers. In particular, more retailers now offer direct buy-now, pay-later, or other financing options to consumers at the time of purchase. In real estate, some brokers now offer direct loan access to home buyers within the buying process. These offerings are typically fueled by partnerships with fintech applications. Conventional lenders are exploring their own opportunities for fintech collaborations to make financing more available and convenient to consumers.
Since the early days of the internet, the pace at which consumers expect delivery and response from businesses has escalated exponentially. The rise of cross-channel digital access, along with embedded finance, has enhanced options for consumers to gain fast access to funds.
The same point applies to communication. Consumers have grown accustomed to having immediate access to support resources on demand. They want help at the time they need it and on the preferred communication channel at that moment. Lenders that have unified communications systems are more prepared than counterparts to engage consumers seamlessly across all popular platforms, including social media, chat, or instant messaging.
Surveys, questionnaires, and other historical methods of gathering consumer data are slow in comparison to digital data-gathering techniques. Many lenders offer chatbots and live chats, and use AI analysis to extract feedback data from the interactions.
Lenders can also seek feedback from consumers immediately after interactions with digital features on a website or app, or following service interactions. This feedback is collected, organized, and mined for useful information.
Artificial intelligence presents another way in which lenders can assess risk. In particular, it allows opportunities to monitor borrower activity to identify early signs of trouble. Through holistic, intelligent monitoring, lenders might step in early to help borrowers stave off worst-case outcomes.
Historically, lenders were not able to detect problems with a borrower’s ability to repay the loan until payments started arriving late. By the time the lender stepped in to address the growing problem, it was usually too late to help. Intelligent monitoring detects budding problems early by looking at the overall financial picture of the consumer, including spending habits.
The uncertainty of not knowing whether a loan will be approved is stressful for consumers. This feeling is common between the time of a loan application and the time the decision is communicated.
Digital platforms make it easier for lenders to mitigate the stress and enhance the consumer experience with more regular updates. Through individual user dashboards and automated communications, you can outline the typical steps in the loan process, identify the completed steps and those that remain, and provide details to the consumer as to what activities are in process at the current stage.
Each time a step is completed, you update the progress and send automated messages to the applicant. In addition to better insight into the state of the application, the regular updates give the applicant trust that the lender is working on their behalf. In addition to transparency on loan progress, guidance, information, and tips along the way bolster the applicant’s faith in your process and intent.
Technology has sped up the time frame in which consumers expect loans to be processed. It has also made the industry more competitive with traditional banks competing with, or in some cases partnering with, fintech solutions. Digitization has placed a greater onus on financial institutions to ensure security.
RingCentral has a best-in-class cloud-based communications platform that equips consumer lenders with efficient and safe methods for interacting with prospects and clients. Representatives can engage consumers across multiple platforms seamlessly, which gives consumers the convenience they want. Market-leading security makes RingCentral ideal for financial services, bolstering consumer confidence in your financial brand.
Learn more about how RingCentral works for lenders by scheduling a demo today.
Originally published Jun 03, 2022, updated Oct 20, 2022