Digital Lending: Advantages And Disadvantages

Advantages of Digital Lending

Dscuss about the importance of digital lending to the customers in present business condition.

In the current scenario, digitalization is playing a significant role in providing customer services. The customers are now using technology as a mean to shop, communicate, buy and sell with the businesses. New market entrants as well as the established financial institutions are battling for obtaining market shares recently within the unsecured lending spaces. The global technological giants such as Google, Apple and Samsung are recently eyeing up the opportunities to succeed in the financial technological sector (Christie, 2015). The investment provided in the financial technological space has increased tremendously between 2013 and 2014. In today’s digital age, only the business model that will put their customers first would be able to win the unsecured lending race. The business leaders need to concentrate on three major issues for profit maximization. This includes personalization, information and trust (Watkins, Denegri-Knott & Molesworth, 2016). The money lending industry has recently applied efficient strategy to ascertain their customers need and providing them relevant offers.

Most of the banks are now offering money tracking services to its customers, where they can analyze their various spending patterns. Recently ‘pocketbook’ a budget planning app was installed to allow its customers to consolidate their overall personal financial information in a particular area. This approach would facilitate the customer in analyzing their financial related habits. Financial savvy consumers are applying strategy for having more control over its banking products. The Commonwealth Bank of Australia (CBA) is using Lock, block and limit services for its potential customers (Reddy & Reinartz, 2017). Through these services, the customer can easily personalize its account using as per their current preferences through international payments, blocking cash advances of ATM, limiting their expense per transaction, and putting temporary lock on their cards.

As per Christie (2015), trust is the vital reason for the smooth running of traditional banking and lending services. The businesses has not disrupted due to trust and loyalty of customers. The banking sector should lay more emphasis on anti-fraud and security measures so that it can regain their customer’s confidence. Trust equation in today’s times is the concept of true and fair value exchange (Holmlund et al., 2017). The businesses that could offer the best value to its customers will win the race. The customers should not feel that they are overpaying for the achieved services. NAB has eliminated and reduced several loan limit fees and late fees, which has enhanced in promoting the organization’s goodwill. Therefore, digital lending can only gain popularity if power is given to its potential customers by restoring their trust.

Disadvantages of Digital Lending

Positive Impacts

The positive impacts of digital lending to the customer are as follows:

Easy and quick process: the loan application made through digital lending process is completed within few minutes. Net banking provides the bank details, which is cheaper, quickest and most secured technique of sharing the required information (Hagberg, Sundstrom & Egels-Zandén, 2016). Moreover, the EMI payment and cash transaction is done digitally.

Cost effectiveness: minimal documentation is required for digital lending platforms. Only smart phones and internet access is needed. The endless paperwork and photocopies are no more required.

Social authorization is required for credit history: the organization and bank using digital lending platforms only requires connecting with the social media profiles like Face book, Google+ and LinkedIn (Yuksel & Sener, 2017). This helps the customers to be identified as the borrower and saving its time but also aids in improving customer’s chances for getting their loans approved.

No prepayment penalty- the customers are allowed to clear their loan before completion of its loan tenure. This provides the customers in building and maintaining a positive credit history related with platform for future loans.

Increasing accessibility and transparency: the digital lending delivery is quiet easy, simple and continuous experience (Mbama, 2017). It provides the customers easy techniques to check their loan status. Moreover the customers don’t require entering the data over and over again. This would further make the customers easier to check the loan status without speaking to the financial agents.

Negative Impacts:

The digital lending has though bestowed heaps of benefits it has also various drawbacks:

Personal relation is not established with the organization: the traditional approach mutual bond was developed between the customers and financial institution but that is not the case in digitalization of customer lending services. With no proper guidelines, the customer has to often face hassle while making the financial transactions.

High interest rates: The lending rates through digitalization are generally quiet high. This often generate problem for the average customers (Busby, 2017).

 Issues with the transaction: The digital lending transactions are complex in nature. Sometimes the online transferring of services might get fail and hamper the mode of transfer. In that case, it is better to resolve the issue personally or face to face.

Security issues: in the recent times, theft is a major issue in providing digital services to the customers. If the encrypted software is not secured then the entire confidential accounting information will be leaked in the web (Johnson & Verdegaal, 2016). This would further pose serious threats to the financial transactions.

Importance of Trust

In the era of globalization, digital lending is increasing at a rapid rate among the top companies. It is the procedure in which loans are made electronically from to start to finish. In the fast growing market, web based companies providing financial services are maximizing their productivity. Start up lenders related to digital lending have also originated billions of dollars in the recent years. It is a straight through process in which the loans are easily made available to the potential customers no matter how difficult is the existing circumstances. Providing maximum customer satisfaction is the main aim of the businesses. It has made our life easier. If we have an adequate internet connection, we can bank anytime and from anywhere. Customer support team is available to handle the issue if internet is not available. Digitalization in providing banking services has made our life faster, easier and efficient. Customers can always track their financial transactions and keep a firm check on their account balance through this mode of banking.

Digital lending provides a platform for those people who can lend their money to the potential borrowers looking for loans. This approach enables the borrowers and lenders all across the globe to connect with each other. In need of emergency, like travel, health, wedding   and home improvement the required fund can be generated without wasting any time. Large successful enterprises are now entering into this unsecured lending sector to gain advantage in the existing fierce market condition. For gaining this competitive advantage the customer needs to be given prior importance by the business houses. If the consumers are allowed the power it will help in restoring and maintaining their trust by the organizations. Advances in digital technologies as well as expectations of mobile consumer’s are shaping the future of business organizations. This technology has automated the entire loan process from risk rating to the ongoing monitoring system. The simple technique has enabled rapid and accurate decision making process through online credit check. Moreover, the organizations are ready to fulfill their customers unfulfilled needs by providing flexible loans that is easily obtainable and accessible at the point of need. The digitally powered decisions making process has further enabled high customer acquisition processes. Maintaining and retaining the trust of customer in this digital age is a biggest challenge for the emerging business enterprises

References:

Busby, D. (2017). Adopting the best approach for a digital banking solution: Combine the benefits of the ‘build’,‘buy’or ‘outsource’options. Journal of Digital Banking, 2(1), 43-50.

Christie, R. (2015). Digital lending revolution: ‘The battlelines are drawn’. Finsia.com. Retrieved 26 January 2018, from https://www.finsia.com/insights/news/news-article/2015/08/18/digital-lending-revolution-the-battlelines-are-drawn

Hagberg, J., Sundstrom, M., & Egels-Zandén, N. (2016). The digitalization of retailing: an exploratory framework. International Journal of Retail & Distribution Management, 44(7), 694-712.

Holmlund, M., Holmlund, M., Strandvik, T., Strandvik, T., Lähteenmäki, I., & Lähteenmäki, I. (2017). Digitalization challenging institutional logics: Top executive sensemaking of service business change. Journal of Service Theory and Practice, 27(1), 219-236.

Johnson, M., & Verdegaal, M. (2016). How traditional banks are innovating the basics to provide customers with an Uber-like mobile banking experience. Journal of Digital Banking, 1(1), 33-44.

Mbama, C. (2017). Digital banking, customer experience and bank financial performance: UK customers' perceptions. International Journal of Bank Marketing.

Reddy, S., & Reinartz, W. (2017). Digital transformation and value creation: Sea change ahead. GfK Marketing Intelligence Review, 9(1), 10.

Watkins, R. D., Denegri-Knott, J., & Molesworth, M. (2016). The relationship between ownership and possession: Observations from the context of digital virtual goods. Journal of Marketing Management, 32(1-2), 44-70.

Yuksel, A. N., & Sener, E. (2017). The Reflections of Digitalization at Organizational Level: Industry 4.0 in Turkey. Journal of Business Economics and Finance, 6(3), 291-300