Financial institutions are facing a gap between traditional and tech-focused models caused by insufficient attention being devoted to digital transformation. According to Oliver Wyman, banks today confront a challenge: creating the business of the future from the legacy they have today.

For instance, the launch of a Paycheck Protection Program (PPP) in the U.S. showed that onboarding and prequalification steps turned out to be cumbersome and time-consuming. In this vein, at the basic level, banks require a more agile approach to loan management, which may be addressed through digital lending platforms and automation.

Hence it appears that core system providers and lending software vendors are expected to become some of the early winners in the post-pandemic world. 

Spring 2020: It's Always Darkest Before the Dawn

In a time of coronavirus and economic shutdown, big and small financial institutions are preoccupied with finding a quick solution to the problem created. Since mid-March, everything — including digital transformation, launching new lines of business, and entering new markets — has been put on hold while businesses waited for the situation to stabilize. 

Tightened lending standards, restricted offerings, and rock-bottom interest rates were everywhere. Financial institutions that lacked the capacity to change their credit products quickly had to stop loan issues for days or weeks. Thus, the value of an agile digital infrastructure has become important as never before.

3-1-0 Rule in Lending as a New Normal

There will always be unpredictable events and unexpected phenomena. What is extremely important is the ability to quickly adapt to a changing world. The pandemic accelerated the digital roadmap, with the result that the lending sector is rapidly revising business models and restructuring processes. In April and May, we at HES Fintech saw a 35% increase in lending software demonstration requests. Lenders either wanted to launch first and fast or needed to replace their current systems with more advanced ones.

COVID-19 forced the acceleration of digital transformation. Lenders now are actively seeking to implement a 3-1-0 lending approach: 3 minutes to apply, 1 second to approve, 0 humans involved. The framework was first introduced by Ant Financial in 2018.

Digital lending platforms with automated workflows, flexible calculations, product engines, and faster decision-making highlight a far broader range of possibilities for lenders. Furthermore, the use of AI and machine learning can easily correlate hidden dependencies amongst the vast reams of data. Thus, a digital approach can save hundreds of hours of manual work for risk officers and data analysts, build high-performing scoring, churn, and propensity models; and improve loan portfolio return.

In summation, digital lending software in conjunction with automation and AI makes lending today much more convenient for both borrowers and lenders. Given that many banks and fintechs are already moving towards digitalization, it is just a matter of time before digital becomes a “new normal.” Indeed, lenders without digital capabilities are likely to be outcompeted by their high-tech counterparts.