Key Digital Lending Challenges Facing Fintechs

James Robertson, Banking CIO Outlook | Thursday, April 28, 2022

A loan origination system based on a rules engine enables business users to develop, track, and amend rules

Fremont, CA: Lending Alternatives or Alternative Business Lenders fintechs have gradually eroded Banks' share in SME loans, to the point that fintechs now fund about 80 percent of SME loans. Low cost of capital, increased risk tolerance, improved service in processing time & documentation needed, and the fact that SMEs are more computer savvy millennials provide fintechs with considerable power to utilize technology to disrupt the way loans get supplied and serviced. In order to obtain a loan, 48 percent of SMEs believe they do not need to speak with a loan officer.

Many fintechs in business attempt to focus on attracting clients and funding sources to satisfy newer loan needs, tend to put technical difficulties on the back burner and end up surrendering by not making necessary adjustments or embracing short-term alternatives.

Below mentioned are some key digital lending challenges faced by fintechs:

Managing Business Rules

The majority of fintechs handle rules using business logic built into the software. Changes in business rules as a result of regulatory changes necessitate IT work. Some of these changes occur so regularly that a major bandwidth of IT support is dedicated to continually modifying these rules and generating newer regulations.

A Loan Origination System based on a Rules Engine enables business users to develop, track, and amend rules. Because the business users themselves produce the rule engine-based policies, the IT team's engineering and user testing efforts get reduced.

Tracking Sales productivity and pull-through ratios from the Loan Origination System

Dashboards or analytics are important indications for management to monitor the effectiveness of Sales Executives. Pull through ratio reports assist management in understanding the slack in operations and taking the required actions to improve efficiency.

Acquiring customers

Most fintech companies rely on credit reports & third-party underwriting tools to assess a customer's risk profile. Regarding loan quantity or interest rate eligibility, the fair playing field leaves little space for aggressive play. Top fintech is beginning to leverage unorthodox sources such as social media to gather more information about their customers and create analytics from around data to create innovative risk models to supplement traditional approaches.

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