In traditional lending, a risk profile assessment of the borrower’s credibility is done through a proxy. This essentially evaluates the capability and pattern of behavior of the borrower towards repayment of a debt. For people with a credit history, this is done in the form of previous debt repayment history.
Why digital lending is important in 2018?
For people who have no financial history, this can get complex. After a cumbersome data collection by the bank’s staff to assess the borrower’s disposable income, a loan is issued. A hefty interest rate is also levied for people without credit reports. Digital lending aims to create an online platform to directly originate loans to customers, as well as small to medium enterprises. This also automates some of the loan application processes through the use of electronic data, digital signature, automated underwriting and document capture.
This automation process is done through a bank developed technology, which resides on the bank’s servers itself or can be offered as a software.
Non-bank lenders have already created a market by creating and meeting various demands of borrowers that banks do not accommodate. Unusual credit profiles are evaluated and accepted. Whereas these non-bank lending systems started with the traditional and limited range of loan types for lending, they have extended services towards meeting mortgages, student loans, and even commercial real estate loans. They have also created agile, online lending solutions. This not only puts the banks at the risk of losing accounts but also put debtors at the danger of falling into debt traps and later getting exploited. Overall, this puts the entire economy at risk. To avoid this, digital lending at is being adopted by http://topcash.fi . This range of automation has enabled the banks to be able to deliver loans quickly while maintaining the original compliance and pricing practices which is much less risk for borrowers.