As Australia continues to recover from the impacts of COVID-19, it is evident that many industries have fundamentally changed, and financial lending services are no exception. Throughout the pandemic, banks have experienced overall lower demand for consumer loans while customers have been more fiscally responsible when it comes to larger purchases. Further, some customers who received government stimulus money have used this to pay off existing debts.
The worst economic impacts were felt in Q2 2020, with GDP dropping by a record 7 per cent. In July 2020, the unemployment rate reached a 20-year peak at 7.5 per cent. Though the economy largely appears to be on the upswing, with GDP forecasted to grow to 4.1 per cent in 2022, recovery remains uncertain.
The rise of consumer lending innovation
Consumers have come to want, and in many cases expect, the same speed, convenience and transparency from their lending experience that they receive from other services. This is only possible through digital lending. Throughout the pandemic, consumers have used online channels more than ever, which has led to a number of fintech companies creating new digital lending opportunities.
These opportunities include innovative practices like using psychometrics to assess a consumer's creditworthiness or utilising artificial intelligence (AI) to provide personalised rates for individuals. One company that is doing just this is Driva, a fintech startup that allows customers to compare personalised car loan options from a panel of more than 30 lenders. Not only does AI software allow for these personalised rate options to be generated, but it also facilitates simple data sharing with lenders - which speeds up the process for both customers and lenders.
Other new practices in the consumer lending space include using accounting integration software to facilitate short-term financing and using blockchain technology to speed up the lending process. These all encompass the industry shift to prioritising digital innovation in order to provide consumers with a seamless experience.
Digital lending into the future
Looking to the future, it is evident that even in a post-pandemic world, the demand for digital lending processes will continue to grow. In order for lenders and financial institutions to meet the needs of their customers, they must focus on digitising and simplifying the borrowing process, and ensuring that there are adequate lending options available.
There are several specific changes that are likely to become the foundations of digital lending:
- Accessible interface - as most consumers (and lenders) would be aware, traditional loan applications can be extremely tedious. Financial institutions that succeed in the digital lending space will speed up the notoriously time-consuming process by using tools like data pre-fill and ensuring that the application process is intuitive and easy to complete. Customers will be able to enjoy a more transparent and efficient lending experience and be able to track their progress in the application and funding process.
- Utilising AI technology - with so many advances in AI technology, brokers and lenders should be able to better assess creditworthiness and personalise rates for customers.
- Faster pre-approval - by allowing customers to receive virtually immediate pre-approval (pending necessary documentation), they will be able to enjoy a more efficient and transparent borrowing experience, and lenders will be able to optimise their internal processes.
- Data-driven decisions - by harnessing data, lenders can do far more than just deliver loan decisions quickly; they can use data to inform nearly all business decisions, from tailoring marketing campaigns to determining growth opportunities.
- Improved financial literacy for customers - not only does the digitisation of financial lending make it more accessible for individuals to get finance, but it’s also an opportunity to improve their financial literacy. The combination of AI technology and financial literacy means that lenders can give their customers the appropriate information so they can make the best financial decision. This has a positive impact on the reputation of the lender and reduces the risk of a customer defaulting on their loan.
Though COVID-19 has had a considerable impact on the digitisation of the financial lending industry, there have been several other factors that have also contributed to this transition. Rapid technological growth and innovation from traditional and non-traditional lenders, in addition to regulatory bodies becoming more favourable towards digital lending, has meant that the rise of digital borrowing has always been an inevitability.
While this transition period may be difficult for some more traditional financial institutions, it offers a wealth of opportunities for digital lenders, and those who are willing to implement new practices, as well as a more equitable and streamlined finance process for consumers.