Digital lending companies have made it easy for students and business owners to get loans without undergoing the stress of physical interviews, trying to present collateral, and all. This has led to more accessible access to cash for intentional business owners. Now funding about 80% of SME loans, coupled with their low-interest rates and timely processing of loans, digital lenders are here to stay. But these wins come with their difficulties. Digital Lenders are faced with several challenges that pose a risk to the growth of their business. We have outlined several challenges digital lenders face and how they can mitigate them.
Avoiding Bad Debt
There’s an exciting joke which says Nigerians don’t like to pay their debts. We even wrote an article about it here. How can digital lenders profile their customers well enough to know their financial health to make the right credit decision? This is where we come in.
With the data we provide, Merchants, Fintechs, Lending Agencies & MFBs can take an instant look at the health of a user’s account, analyze financial behavior and then make accurate credit decisions.
The rate of cyber attacks seems to rise every year, and no sector has a possible immunity towards this intrusion. Hackers target sensitive information like financial data and intellectual property (IP). Access to this information automatically breaks the company’s confidentiality rule, which may lead to a tainted reputation and an increased risk of money loss.
Loan Process Automation
Customers come to digital lenders because they want their loans approved quickly. The goal is to eliminate paper-based contracts and automate the whole process from the point where customers apply for loans to them receiving the funds.
User Retention and User Experience
User engagement is a common challenge of digital lending companies; this leads to a low user retention rate. Digital lenders need to understand that a user-friendly interface would make it easier for customers to use and thus increase sales. Also, digital lenders should begin to deploy AI strategies to increase personalization. Digital lending platforms can use AI, in the same way, to cross-sell and up-sell loan products and services. For example, an AI engine can detect changes in the user’s behavior and account details, such as when they get a new job and relocate to a different city.
The rise in digital lending has been rapid as more and more people have started to embrace the convenience of online transactions. As a result, we see many more opportunities for customers to access credit without going through traditional brick-and-mortar banks.
This is fantastic news for both borrowers and lenders:
Borrowers can quickly get loans from anywhere in Africa without traveling or spending money on transport. The process is also much faster than it used to be because there’s no need to fill out forms or wait around at the bank branch!
Lenders can easily offer loans across borders—no longer do they have to find local partners; instead, they can partner directly with other financial institutions around the world (and so secure their business).