Technology
Automated Lending Platforms - A Deep Dive into the Future of Lending
In recent years, the financial landscape has undergone a transformative shift with the emergence and growing significance of Automated Lending Platforms (ALPs). These platforms represent a pivotal evolution in lending processes, leveraging cutting-edge technologies to streamline operations, reduce fraud, and increase profitability! As businesses seek innovative solutions to meet the evolving needs of borrowers and lenders, ALPs are becoming an essential tool for any lender. This time on the Business Warrior blog we will comprehensively explore the intricate facets of ALPs including a deep dive into the features, benefits, costs, and future of automated lending platforms.
Understanding Automated Lending Platforms
ALPs have evolved from the first use of taking borrowers' information digitally to sophisticated machine learning systems and now Artificial Intelligence, marking a significant technological advancement. The historical trajectory of ALPs mirrors the broader evolution of financial technology, paralleling the industry's commitment to embracing efficiency and data-driven decision-making whenever possible.
In the modern financial ecosystem, ALPs play an integral role by connecting borrowers and lenders seamlessly and efficiently. Traditionally, the lending process involved extensive paperwork, manual assessments, and prolonged waiting times as a human underwriter was needed at each stage to check, verify, and approve or deny. ALPs have revolutionized this by automating key lending components, reducing processing times, and providing a more streamlined experience for both borrowers and lenders. With ALPs the process is more often than not instant. We know, no one wants to hear about tech replacing humans or jobs but the fact of the matter is that automated underwriting is faster, more efficient, and removes the chance for human error. Not to mention freeing up those man hours to work elsewhere.
The key differentiating factor lies at the core of ALPs. Algorithmic decision-making, integration with financial data, risk assessment, and streamlined application processes form the bedrock of these platforms. Algorithmic decision-making, driven by machine learning algorithms, allows quicker and more accurate assessments of a borrower's creditworthiness. Integration with financial data ensures a comprehensive understanding of a borrower's financial health, contributing to more informed lending decisions.
The benefits don’t end with approval either. All of these tools also assist in the ability to collect on and servicing of a loan. Developing a streamlined and robust workflow allows for lenders to easily track the status of each loan and automate the touchpoints necessary to get a loan repaid. We’re talking about a platform that knows (thanks to tens of thousands of data points from thousands of users) the best way to contact your audience and how often to do so, to encourage repayment on the loans.
In short, automated lending platforms perform the necessary and optimal steps of the lending process automatically, without requiring human intervention or action.
Benefits of Adopting an Automated Lending Platform
The adoption of ALP technology comes with a huge number of powerful benefits.
- Loan Processing in an Instant
Businesses experience increased efficiency and speed in loan processing, significantly reducing the time required for approvals. The days of waiting weeks for a loan decision are a relic of the past. ALPs enable swift and automated evaluations, providing borrowers with faster access to capital, and lenders with paying customers, faster. A borrower’s application to approval time happens in an instant! All of this means the time from a new borrower is browsing for a loan to repaying a loan is faster than ever.
- Enhanced Decision-Making Accuracy
Advanced algorithms enhance decision-making accuracy, leading to more informed and data-driven lending decisions. Traditional lending methods were susceptible to human error and subjectivity, resulting in inconsistent outcomes. Where one lender might approve a borrower, another might not because of an unrecognized bias. For example, they see a name of a town or a zipcode that they have preconceived notions of subconsciously, which may influence their judgment. ALPs mitigate these challenges by relying on data-driven insights, ensuring a more objective and reliable assessment of borrowers.
- Improved Customer Experience and Accessibility
The streamlined application processes improve customer experience, making lending more accessible and inclusive by breaking down traditional barriers. ALPs often feature user-friendly interfaces, simplified documentation requirements, and quick response times, creating a more user-centric lending experience. This accessibility is especially crucial for small businesses and individuals who may have been overlooked or faced challenges with traditional lending avenues. The days of people having to find time to walk into a bank during banking hours are over. Now they have access to lending whenever and wherever they are.
When considering the adoption of ALPs, businesses must carefully evaluate and choose the right platform based on specific needs. Key factors to consider are customization options, integration capabilities, scalability, and robust security measures. Finding an ALP that works for the lender is more important than just picking any ALP off the rack.
Costs of Automation
While the benefits of ALPs are evident, businesses should also be aware of the associated costs. These vary by platform and by provider.
All of them have a time cost to implement and to convert any existing systems from manual processes into ALPs – but the time saved in the long run will ALWAYS more than make up for it.
Set-Up
The initial setup costs involve investments in technology, staff training, and integration with existing systems.
Custom Development
In building out an ALP that is customized to your business needs, there is rarely an out-of-the-box solution. There will be a few necessary steps and development to tailor the tech to your processes.
SaaS
Software-as-a-Service has ongoing costs associated with using their technology. The software is always being updated and enhanced over its lifetime, so there are fees associated with that continued service.
Servicing Costs May Apply
There are likely to be ongoing maintenance expenses, and other time costs typical of software updates, cybersecurity measures, and staff training to keep pace with technological advancements.
However, businesses can expect a significant reduction in operational costs over time as the efficiency gains from ALPs translate into lower overhead costs and better loan performance results by making data-driven underwriting decisions. Just be aware of the upfront time needed to get the platform just right. The long-term return on investment should be more than worth it.
Future Trends in Automated Lending Platforms
The future of automated lending platforms is shaped by emerging technologies. Industry experts predict continuous evolution in ALPs, further influencing the lending landscape. While promising, this evolution comes with potential challenges that businesses must navigate. Insights on overcoming these challenges will help organizations adapt to the dynamic landscape of automated lending.
Emerging technologies like open banking, artificial intelligence, bank-to-bank transactions, realtime payments, and blockchain are poised to play pivotal roles in shaping the future of ALPs. Open banking facilitates seamless data sharing between financial institutions, further streamlining lending. Artificial intelligence, with advancements in natural language processing, can contribute to more sophisticated risk assessments and personalized lending experiences. With its secure and transparent ledger system, blockchain can enhance the security and traceability of transactions.
However, along with these opportunities, challenges such as data privacy concerns, regulatory compliance, and the need for continuous adaptation to technological advancements arise. Businesses must proactively address these challenges to ensure a smooth transition and sustained success in the evolving world of automated lending.
Automated lending platforms are a paradigm shift in the financial industry. ALPs offer a glimpse into the future of lending, combining efficiency, accuracy, and inclusivity. Lenders should explore the potential benefits of adopting ALPs to stay ahead in this new reality, where automation reshapes the future of finance.
The benefits of increased efficiency, improved decision-making accuracy, enhanced customer experience, and inclusivity demonstrate the transformative power of ALPs. As businesses navigate the associated costs and leverage ALPs for their own success stories, they position themselves to thrive in the present and adapt to the future trends that will define the next chapter in the evolution of automated lending platforms.
Want to find out more about an ALP you can trust?
Book a demo of PayPlan and see what this premiere lending solution can do for your business!
