Digital Lending has been an exponentially growing global phenomenon over the past years. It may have been initially dismissed as a ‘buzzword’ with no universally articulated definition, but the bold foray of Fintech startups and tech giants into the grey space has resolved all market doubts. And the result has been spectacular.
The global market size of digital lending platforms is now expected to grow from USD 5.1 Billion in 2018 to USD 12.1 Billion by 2023. This translates to a Compound Annual Growth Rate (CAGR) of 18.7% during the period.
Increasing consumer demands and expectations have created new markets for alternative methods of borrowing money. And businesses have been quick to understand the importance of customer experience as a differentiating factor. They are proactively leveraging the opportunity to drive efficiencies, cut down on costs, and expand.
Here’s a close look at the primary factors that are driving this revolution and contributing to superior customer experience in digital lending today:
An influx of tech-savvy Millennials and Generation Z consumers into the financial markets has brought a fundamental shift in consumer ideologies and behaviours. ‘Instant gratification’ is the key for them and digital habits such as online food delivery, cab booking, and grocery/essential shopping has only reiterated this mindset. They have a stronger emotional connect with technology and new-age brands such as Apple, Uber, Amazon, and Google. The perceived ease of use and delight of digital-only products (e.g. Dropbox) is sought to be emulated across all digital experiences.
Hence, this is both an opportunity and a threat for financial organizations. To stay relevant in the market and fend off competitors, there was a dire need for both short and long-term financial instruments that fit into the profiles of such consumers.
The proliferation of smartphones in consumer habits is driving more than half of the traffic on the Internet today. With access to a number of digital services, engagement is being driven like never before. The result is an accumulation of data points that can be smartly leveraged by financial companies.
The silver lining? Lenders have the ability to actively analyze the spending habits and repayment schedules of users and profile them with unprecedented accuracy. With such abundant data sets, significant value in the financial sector can now be driven.
Added capabilities in their arsenal include:
The inception of multiple digital lending business models to meet varying customer needs and regulatory requirements has only made the case stronger. With niche operations, companies are now able to reach customers who were not able to access financial services in the past. Innovation in the space has fended off challenges related to geography, higher transaction costs, and transparency.
Primary digital lending models today include:
With the economic benefits of digital lending now evident, governments around the world have been embracing the shift. In fact, they have been coming up with regulatory frameworks that protect the interest of all the involved stakeholders. Prominent motivators in the sector by global governments include:
With a legal and officially recognized framework of operations, market inhibitors have been efficiently combated. For instance, due to the legal, regulatory vacuum in China, ‘shadow banking’ participants prevailed in the market. This often led to funding mismanagement and liquidity issues for key stakeholders.
Digital lending is backed by technologies that eliminate operational bottlenecks and significantly speed up the process of loan approvals and dispersals. An ideal tool can automate the underwriting and approval processes. As a result, lenders are now able to:
At the same time, digital lending business models are much more cost-effective than traditional banking models. Lenders do not have to maintain brick-and-mortar structures or pay for expensive legacy IT systems. Hence, with a significantly lower cost structure, customers receive more affordable loans and access to new financial tools.
Let’s take a quick look at the existing digital lending ecosystem and look at what global market players are offering in the space:
With a plethora of such players in the market today, it is indeed becoming increasingly difficult for companies to differentiate their offerings. This is precisely where customer experience takes precedence. A great digital customer experience involves understanding user needs, creating a strategic design framework, creating design with emotion and empathy among others. With all other key variables being in a level field, customer experience in digital lending is set to be in the driving seat.
Here are some primary factors that you need to keep in mind while designing your product/service:
As we venture into a bold new era of digital lending, customer experience is set to play the lead role in the story of financial empowerment. Lenders that are able to smartly manage the ever-changing customer expectations, emerging technological capabilities and shifting market conditions will always be a step ahead from their competitors. As sources of consumer data grow every year, lending institutions will be able to increasingly focus on consumer needs.
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