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Introduction
Changing regulations have initiated convergence and unification in the lending industry, making it challenging for banks, credit unions, and other financial institutions to develop sustainable revenue streams. With stakes this high, the lending industry must assess the best ways to streamline processes, maintain compliance, and mitigate operational risk. This credit restraint requires optimised lending operations and reduced cycle times to ensure maximum ROI.
Studies estimate India will have one billion smartphone users by 2026. Amid increasing digital penetration, the lending landscape in India has been shifting rapidly with the high demand for digital-first platforms for lending and loan management.
Lending institutions need to build foundations for an agile framework to leverage emerging technologies across multiple channels. This is essential for a customer-centric approach prioritising speed and convenience.
Current Challenges in B2B lending
For several decades, the lending industry has been tightly regulated. Existing systems were built to cater to the demand several years ago, based on available resources, before widespread digitisation.
Numerous lenders today continue to use manual and paper-based loan approval procedures. Commercial loans vary in size and complexity. The traditional methods used to underwrite were not designed for this purpose.
Data entry is highly labour-intensive, time-consuming, and might lose uniformity over time. There is always a high risk of data duplication, inaccuracies, and more. Additionally, this poses problems for storage, lineage, retrieval, and portfolio insight.
With the enormous influx of loans today, the systems are unwieldy, leading to inefficiency and extended wait times. Lending organisations receive thousands of applications every month. However, only a small percentage of these applications pass through all the pre-set guidelines. With many applications not being adequately evaluated, streamlining operations is crucial.
This leads to sluggish decision times and internal data management problems that lead to more work, accompanied by a lack of transparency for both management and external examiners. Further, this inevitably increases operating costs.
Why automate lending?
A loan application has to clear multiple evaluation stages set by the financial institution. Clearing these stages is where the bottleneck occurs, depending on the time between different stages and the influx of applications. This focus today is on removing these bottlenecks.
Automation in such an environment can ease the flow of work orders to reduce turnover time and process applications at a much higher speed.
How does a 25% reduction in loan disbursal time help B2B lenders?
Let us take a look at the different processes within the lending lifecycle and how automation will impact them.
Customer information
The foremost step in any loan decision is collecting customer information. Each loan application consists of a physical file and includes multiple forms and documents attached by customers. Collecting the relevant financial data from applicants is usually long-winding and cumbersome.
Manual entry of this information makes it highly error-prone, often leading to data inaccuracies. Automation of this step significantly reduces process time and errors. With the data digitally documented and stored in the cloud, access is easy.
Automation speeds up application screening allowing lenders to establish whether an applicant is ready to proceed or if further documentation is needed.
Application submission
The next step is the submission of the loan application. Today financial institutions are seeing several first-generation entrepreneurs and applicants with limited know-how reaching out. This often leads to incomplete applications which are rejected without adequate feedback.
Leveraging automation here allows for applications with missing information to be flagged and returned to applicants to be modified. With the digitisation of documents - any additional documents required are submitted and evaluated almost immediately. This streamlines the entire process, ensuring the systems adhere to the preset guidelines.
This eliminates the need for manually checking applications for missing fields and automatically ensures all applications are compliant. This further reduces the overheads and increases the number of applications that can be processed each day.
Application Processing
Systems in place today were built to handle the volumes that were the norm several years ago. Today, the landscape has changed, as has the influx of applications.
Automation makes it faster and easier to process extensive data in minutes. For instance, providing a pre-screen value to each application increases the chances of acceptance or immediate rejection.
With a centralised system and faster financial analysis, automation significantly reduces the time taken per application, reducing costs and standardising the process.
Risk and credit assessment
With MSMEs, applicants often start with a lack of networks and know-how of domestic and international markets and limited credit ratings. Typically, credit and risk assessment is a long-winded, manual experience, especially for new borrowers, where analysts carefully review all the information. Additionally, with all the data in physical files and no proper archival system, analysis is time-consuming.
Automation offers accuracy in data capture and real-time monitoring of the risk. Any discrepancy in data can be immediately cross-checked, decreasing the decision time. An automated credit scoring system streamlines the assessment of credit score, risk, and borrowing potential.
Additionally, leveraging Optical Character Recognition (OCR) and other machine learning systems can accurately evaluate the financial credibility of borrowers. These quick assessment tools break down data for analysis giving comprehensive risk analysis reports and forecasting models gauging the risk almost immediately.
Credit decisions
Automation ensures a consistent, unbiased approach is taken across all decisions.
For instance, leveraging technology automates responses after a credit decision is reached. The system can be configured to modify the loan amount or interest rate if the applicant doesn’t meet the criteria for their specific application.
Another way to do this is to retain manual control over decision-making but leverage automation for clearer end-to-end application visibility. Today, most organisations use a combination of both approaches, where automation is deployed to handle simpler decisions while retaining manual control over higher-risk decisions.
Sector focus
With reduced turnaround time and faster fund disbursement; financial institutions can maintain a high sector focus. This allows institutions to focus on the sectors of their choice and, if necessary, train/upskill personnel.
Automation provides institutions with a better pick of the sectors they want. For instance, certain institutions are focusing on the MSME sector, given its rapid growth. MSME lending requires a different approach, and sensitising personnel is a necessary step.
Fund disbursement
Automation allows funds to be released faster as soon as the loan is approved or on a previously agreed date. This provides visibility into the arrival of funds and takes the pressure off the lending team, allowing up to focus on other mission-critical tasks.
With smoother processes and visibility, automation significantly reduces overhead costs as lesser intervention is required. Additionally, faster processes lead to better ROI. With better and faster fund disbursement, the lending institution can now generate more funds to be deployed.
By deploying automation, B2B lenders can ensure consistency and uniformity across all processes. Further, automation will make it will be easier for quality control by assessing the application against internal and external regulations before being sent for approval.
Agile, digital ecosystems pave the way for smoother customer experience, streamlined operations, and reduced operations costs. Digital transformation is imperative to participate and flourish in the current financial ecosystem.
How Thence transformed a leading B2B lender's digital journey reducing their loan disbursal time by 25%
The Client
Today, there is a palpable shift toward digital platforms, APIs everywhere, and open-source technology infrastructures that allow for sophisticated, customer-centric applications. This allows businesses to scale based on demand, freeing teams to focus on mission-critical tasks that help their firm stand out.
As a leading lender in India, the client makes institutional lending digital-first. By leveraging technology and data, they offer various solutions based on the credit requirements of emerging segments and small businesses.
Having raised over INR one trillion in funds for its clients since its inception in 2009, they have disbursed over 6 million loans to retail customers across individuals, households, and small businesses.
The Problem Statement
The client was using traditional processes to handle their financial product offerings, processing, and fund disbursal. This led to severe bottlenecks in each step, some of which were:
- Highly labour-intensive
- High turnaround time
- Reduced efficiency
- Increased overheads
- Data entry errors
- Reduced customer satisfaction
The systems in place were not capable of smoothly handling the volume of applications coming in today’s landscape. The client needed a centralised system capable of handling large data volumes that allowed for streamlined operations. Due to manual errors, personnel needed to physically review and verify data before analysis leading to extended wait times.
The client needed an end-to-end digital transformation of existing processes to enable speed, transparency, and efficiency for a multi-stakeholder ecosystem.
The Thence Approach
Our scope of work was supplying end-to-end design and product management capabilities for an expanding portfolio of digital applications across lending and investing.
Thence has been the Product Partner for their digital ecosystem since 2018. Our services include UX research, product design, and FE engineering.
We helped develop and implement turnkey solutions through our UX Design Studio and Product Consulting Practices, including the following:
- Streamlined product design lifecycle management for the client’s loan origination systems.
- An MVP design for the client’s alternative investment platform.
“The differentiator for us as a traditional financial institution has been in going digital, furthering our niche. In this regard, Thence has been an instrumental partner in understanding the nuances of our business and being able to translate it to digital in the best way possible.”
- Head of Markets, India
The Outcome
- Usability score of over 90% in UAT testing with a controlled user group
- Time to market accelerated by 15% for the Lending Facilitation Platform
The Impact
The client was able to onboard over 75 NBFCs through their LOS with adoption at 100% and ‘time to disburse’ was cut down by 25%.
Increased customer satisfactionHigher relevanceImproved efficiencyFaster fund disbursementMinimized errorsGreater scalabilityHigher sector-focusImproved risk management
“With the entire workflow from documentation to e-stamping digitized, today, all our term loans are digital term loans. This is a 360-degree change in terms of how term loans are offered in India. The overhauled platform has cut down the lead time by 25% of the earlier workflow.”
- Senior Director - Origination & Digital Business"
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