Technology has fundamentally changed how we send and receive money, purchase insurance, or even think about currency. It will continue to transform nearly every conceivable financial activity.
But technology’s biggest impact on financial services may be on lending.
Traditionally, lending to underserved consumers has been time-consuming and costly for financial service providers (FSPs). Today, innovations in digital lending are enabling providers to offer better products to more underserved clients in faster, more cost-efficient, and engaging ways.
Knowing this is one thing, but implementing it is another. There is often a gap between an FSP’s vision of digital lending and the reality it must navigate to complete a digital transformation. In addition, digital lending brings with it new risks and challenges that can have unintended consequences for both institutions and clients.
Accion’s latest report, Demystifying Digital Lending: How Digital Transformation Can Help Financial Service Providers Reach New Customers, Drive Engagement, and Promote Financial Inclusion, draws upon discussions with more than 100 digital lenders to explore this evolving space, and help FSPs assess their current digital lending capabilities and identify next steps toward adopting a successful digital lending methodology and mindset.
The paper answers five key questions relevant to any FSP that works — or is considering working — in the digital lending space:
- What’s the big deal with digital lending? In today’s increasingly digital world, lenders can leverage improving connectivity, increasingly available customer data, and new technologies to effectively and sustainably extend high-quality financial products and services to more underserved communities and businesses.
- What is digital lending? There are a variety of responses to this question, some focused on the products themselves, others focused on process. But there are three key components for digital lending: the use of digital channels, the use of digitized data, and a focus on customer experience and engagement.
- What is the process? The report breaks down each step of the lending process — from customer acquisition, to approval and analytics, to disbursement and repayment, to collections — and explores how FSPs can best leverage digital channels and digitized data and algorithms.
- How digital is my institution? The Digital Maturity Matrix offers a practical framework for FSPs to assess their digital capabilities and identify next steps for digital transformation.
- Where do I start? With this context and framework in hand, lenders in any market or at any level of maturity can take steps to advance along a continuum toward increased digitization. The report identifies those steps, as well as potential risks and challenges FSPs should consider to avoid negative effects on both institutions and clients.
We’ll continue looking for the best ways to help our partners responsibly leverage digital technologies to provide families and entrepreneurs with the financial products and services that they need to build better lives.