Like everything else in today’s fast-moving market, loan finance has become digitised. Today’s banks and lenders are moving away from traditional manual loan processes to modern loan origination systems (LOS) to meet customer and market demands for efficiency, accessibility and transparency. Managing the entire loan process in a digital platform brings many benefits, but also challenges. We will take a closer look at what those benefits and challenges look like, as well as the legal requirements that lenders need to comply with. In addition, we will look at what is required of a loan software to meet the demands of today’s, and tomorrow’s, modern loan finance.
How modern loan finance works today
The digitisation of the loan market is currently taking place at an almost explosive pace. According to Allied Market Research, the global lending software market was valued at USD 4.8 billion in 2022 and, with a projected CAGR of just over 10%, is estimated to grow to USD 12.2 billion by 2032. This expected growth demonstrates how important modern loan finance processes have become in streamlining, automating and evolving today’s lending market.
This development is driven by the same customer demands as most other markets. Applying for a loan should be simple, fast, transparent, offer many choices and be done on the customer’s own terms. In practice, this means that today’s customers opt for a digital process where they apply for a loan online or via an app.
Automated algorithms then assess creditworthiness based on data such as credit reports, historical data, advanced risk assessments, etc. The data analysis is also used to assess loan amounts, interest rates, terms and conditions, etc. allowing the loan offer to be customised to the customer’s circumstances and needs in real time.If the customer chooses to accept the loan offer, all documents are created and signed digitally. The entire process takes place directly in the software without the customer having to visit any office or obtain any documents. The subsequent processes of payments, loan management and any reminders are also handled digitally in the loan system.
The benefits of a modern digital loan process
Today’s consumers place the same demands on the loan market as they do on every other process in their lives.
Applying for a loan should be digital and direct, loan offers should be personalised and transparent, it should be easy to compare different offers, and it should be possible to get an immediate answer. A fast and smooth digital application process that makes it easy to apply for a loan improves the customer experience and makes it easier for more people to apply for a loan.
More new customers and new business opportunities are not the only benefits for banks and lenders. Automating the loan process in a digital solution removes many time-consuming manual steps, allowing more loan applications to be processed with fewer resources. This leads to a leaner and more cost-effective organisation. Data analytics and algorithms can assess credit risk more quickly and reliably, reducing risk and increasing the possibility of granting the right type of loan to the right customer. Moreover, a flexible system allows the lender to quickly set values according to rules, limits, policies and more, so that the lending process can always be adapted to market, regulatory and other factors affecting loans.
Another key benefit of modern digital loan management is that automated data management leads to higher data quality, reducing risks as it becomes easier to track, analyse and validate relevant information. The ability to collect and analyse large amounts of timely data in real time also leads to new insights. These insights lead to better decisions on issues such as credit risk, market trends and customer behaviour. In this way, lenders can work more proactively to stay ahead of the curve, develop new offerings and reach new customer segments.
The challenges of modern digital loan management
With so many benefits for both customers and lenders, it’s no wonder that the market for digital loan management solutions is growing both rapidly and strongly.
Today, the future of lenders depends on being able to offer the modern loan process that customers expect. But moving to a digital loan process should be done with thought and planning. With an increasing share of sensitive customer data being handled digitally, it is important that the system behind it maintains a high level of security to protect against breaches and other data security risks.
Another challenge of modern loan finance is regulatory compliance. The system must be able to adapt to current laws and guidelines. In the EU, the European Banking Authority (EBA) has developed comprehensive guidelines on loan finance and the use of automated models to ensure that banks and other lenders maintain high standards in their loan processing, credit scoring and risk management.When it comes to the digital side of loan processing, the guidelines address factors such as clear and transparent information; the use of automated credit scoring systems and models being validated and explained; mechanisms in place to detect potential errors in the algorithms; internal control and monitoring systems; and measures applied to identify and prevent illegal activities.
What the technology behind modern debt finance needs to do to meet today’s demands and tomorrow’s needs
To choose an appropriate system for their modern debt financing, lenders need to consider data security and regulatory frameworks. They should also look at factors such as competition and customer expectations, new technologies and flexibility to grow and meet future needs. Looking more closely at what a modern loan management system needs to be able to do, we can list a number of key points.
- Ease of use and customer experience. The loan process should be carried out at the customer’s convenience, from any device and with an intuitive and user-friendly interface. It should be easy to identify yourself as a customer while maintaining a high level of security. It should also be easy to find information and get support.
- Data integrity and security. Loan finance systems need to have robust security systems, advanced encryption methods, strong protection of customer data and be able to fulfil standards such as ISO 27001 to comply with regulations and meet customer expectations for security.
- Regulatory compliance and flexibility to meet new rules. The system must be able to meet regulatory requirements such as GDPR, PSD2 and EBA guidelines, but also be able to be updated to quickly adapt to new future rules.
- Integration capabilities. In a rapidly changing lending market where customer behaviour, regulations and the technical environment are constantly changing, an open system with APIs is needed to make the solution easy to integrate with external functions, tools and systems. Integrations also make it easier to bring together functions such as customer service, marketing, AI and data collection in the same system as the loan financing.
- A scalable architecture. Modular composable systems can be quickly scaled up and adapted to new markets, needs and conditions. This gives lenders the ability to grow unhindered and to handle more loan cases without having to acquire new systems.
How Aptic can equip you to meet the demands of modern loan finance
At Aptic, we specialise in software solutions for the financial sector. We recognise the need for holistic thinking and flexibility to meet the needs of the future. That’s why we’ve built a powerful and flexible platform that supports a wide range of banking services. Not least modern loan financing. Our CLVR platform is based on open APIs for easy integrations with other systems that enable new services as well as the power to meet future conditions.
Aptic’s loan software allows you to manage your loan processes in a safer and easier way. For example, you can customise the system to your needs, automate your loan processes, integrate with credit reference agencies, streamline the risk assessment process with an automated rules engine, and get reports along with trends and graphs for complete control and the ability to do comprehensive analysis. At the same time, you can keep your customers happy by welcoming them into the loan process via a modern and easy-to-navigate solution, customising account types and flows for each client, and providing customers with notifications in selected channels. In addition, you provide a clear loan overview via an easy-to-use web interface and offer simple but secure identification processes, increasing peace of mind for all parties.
Would you like to know more about modern loan financing and the opportunities it offers? Contact us and we will help you!