The digital lending market is experiencing exponential growth, driven by rapid technological advancements. The US digital lending market size is expected to reach $303 billion by the end of 2025. With a medium market concentration, it is expected to grow to $560 billion by 2030. While large fintechs are major adopters of digital lending systems, small community banks are also realizing the power of digital lending capabilities.
However, the adoption of a digital loan platform is considerably slow at small community banks. Small banks rely primarily on relationship-led lending through traditional methods. They are slow, lack consistency, and are prone to miscalculating risks. Traditional lending processes are also vulnerable to bias from human evaluators. As a result, scaling revenues becomes challenging for small financial institutions. Even if they use some form of siloed digital lending software, it does not meet the modern borrower demands or help streamline overall lending workflows.
Digital lending has addressed these roadblocks by offering unified lending solutions that encompass the entire loan lifecycle. They bring automation, optimization, end-to-end tracking, real-time reports, and much more.
In this article, we will explore the top 8 ways to increase loan revenues using a fintech digital lending methods. It will help small community banks strategize their investment in a digital loan platform more effectively while strengthening relationships with SME borrowers.
8 Loan Revenue Increasing Tactics Unlocked by a Digital Lending System
1. Automating the Entire Loan Lifecycle
Automation saves a great deal of time and money spent on manual processes like data entry, onboarding, application process, KYC, and loan approvals. Functions that previously took days or weeks can now be completed in minutes, enabling digital lending banks to approve more loans and increase revenues. Digital loan platforms can help banks and credit unions significantly reduce the loan-processing cycle, resulting in increased throughput and a rise in loan origination. Additionally, automation of a loan origination system improves underwriting efficiency, minimizes errors, and ensures compliance with regulatory requirements.
For small regional banks, digital lending systems can process a larger volume of loan proposals without the need for additional staff. This directly enhances loan revenue across all loan products. It allows banks to automate processes such as document approval, credit verification, and documentation (among others), which increases the scalability of their operations with the help of automation, turning it into a constituent of the fintech digital lending approach.
2. Elevating Retention through User-Friendly Customer Experiences
Modern borrowers expect an easy, fast, and convenient digital lending process. Digital lending systems enable small banks to leverage cloud-based digital banking and lending features without incurring increased infrastructure costs. A digital lending platform can offer omnichannel account opening on mobile apps, real-time loan application status tracking, and API-led connectivity with other financial services. Financial institutions that invest in easy-to-understand digital platforms can effectively deepen their customer relationships over the long term.
It is crucial to emphasize the importance of word of mouth from existing customers in onboarding loyal, long-term customers. In small and regional banks, customer experience excellence can become a key differentiator. Presenting an intuitive and accessible digital loan platform, small banks can compete with larger competitors and attract more customers, improving their market share in the digital lending solutions sector.
3. Expanding Market Reach to New-To-Credit Applicants
Digital lending systems enable banks to reach new customer segments, including those underserved by traditional banking services. By leveraging alternative data sources and advanced analytics, banks can generate accurate credit scores for borrowers who might not qualify for traditional lending services. For small and regional banks, this means tapping into new markets and diversifying their loan portfolios.
Digital loan platforms can facilitate lending to small businesses in rural areas or to gig economy workers, segments often overlooked by larger institutions. By expanding their market reach, small regional banks can increase their loan disbursement volume, directly boosting revenues. It also allows banks to target niche markets, such as underserved communities, where traditional lending has been limited, further solidifying their role as digital lending banks.
4. Forecasting Trends for Early Mover Advantage
The ability to utilize big data and sophisticated analytics is one of the most powerful features of digital lending systems. By automating vast amounts of data in near-instant timelines, banks can quickly dig deeper into borrower behavior and formulate strong risk assessment strategies early. Artificial intelligence enhances data interpretation to provide risk concentration based on geographical and macroeconomic trends.
Predictive analytics can be used to identify prospective defaulters early on, transforming risk management into a proactive function. Similarly, the machine learning algorithm can be customized to suit individual customer requirements, offering loans and increasing the probability of conversion. The implementation of a digital lending system will enable such banks to lend smartly and minimize the risk of losses in their fintech digital lending initiatives.
5. Expanding Loan Product Portfolio Digitally
Digital lending systems enable banks to offer a range of loan products on a single platform, connected seamlessly with the core banking systems. By catering to the diverse needs of customers, from personal loans to SBA loans, a small bank can become a one-stop provider of every loan a borrower might want to explore. By doing so, the customer abandonment rate can be significantly reduced, as you can cross-sell a better-suited loan directly on the platform itself.
Digital lending systems also reduce the development, deployment, and launch timelines of new loan products. They are easily configurable, requiring minimal coding. The microservice architecture prevents downtime of other lender functions while a new product gets seamlessly integrated into the dashboard.
6. Leveraging Preventive Analytics for Boosting Collection Success Rate
Digital lending systems powered by artificial intelligence and machine learning algorithms can dramatically boost collections success. AI-powered risk analytics enables early identification of vulnerable borrowers. The system instantly alerts collection officers about potential defaulters, along with early intervention strategies to prevent the default. Based on a financial institution’s unique credit policies, a customized repayment structure, extended timelines, or renewal terms can be offered.
By predicting business trends through cash flow and bank accounting trends, small banks can offer financial counselling to small business owners. This will reduce the chances of them turning into non-performing assets while strengthening the emotional connection with your bank. Having an effective digital loan servicing practice can not only empower decisioning, but also reduce the risk of revenue loss by increasing buffer time to take adequate measures.
7. Collaborating with Large Fintechs
The trend of collaboration between small banks, credit unions, and large fintechs is skyrocketing. According to the FDIC 2024 Small Business Lending Survey, small businesses prefer approaching small banks rather than large fintechs. However, due to limited resources, a lack of credit scoring technology, and capital constraints, small banks are unable to scale loan volumes to such entities.
Large fintechs typically have the necessary digital lending technologies, ranging from loan origination systems to loan portfolio monitoring. Non-digital lending banks face disruption challenges and a lower revenue share because they must borrow technology from large fintechs. When small banks equip themselves with a digital lending platform that can integrate easily with large fintech systems, collaboration becomes much more profitable. Through seamless integration, small banks can also gain access to the required capital from large fintechs to approve more loans while increasing their revenue share within the collaboration.
8. Preventing Non-Compliance Penalties
An often-overlooked aspect of increasing revenue is preventing loss. Digital lending compliance in the US has become a complex process, consisting of multiple regulatory authorities imposing frameworks and demanding reporting.
By using an AI-powered digital lending system, small banks can automate compliance logging and reporting. Underwriters using loan origination solutions can eliminate bias, errors, and misinterpretations from their decision-making process, maintain consistency across decisions, and instantly generate compliance reports on demand.
Digital Lending Future-Proofs your Revenue Growth
The revenue growth tactics are not the only benefits that small banks unlock with a digital lending platform. Modern borrowers expect their lenders to be as tech-savvy as themselves. Digital lending banks that meet the expectations of modern borrowers will do more than just increase their revenues. It can unlock new revenue streams through innovative lending methods, such as Point-of-Sale credit options, seamless connectivity with third-party payment systems, and finance trackers.
Ready to scale revenues and stand head-to-head with large fintechs?
Biz2X has designed a comprehensive suite of digital lending solutions to equip banks with the technologies only large fintechs could afford till now. Get a free glimpse of our capabilities configured to your needs.
FAQs about Digital Lending Systems
1. What are the essential parts of a digital lending system?
It comprises several key components that simplify the lending process. These are tools of customer onboarding, such as identity verification and KYC, credit scoring based on alternative data, a loan origination system to automate approval and document e-signatures, a loan servicing system to automate payment collection, and risk management to detect any fraud. All these elements make lending an efficient and convenient process.
2. How can a digital lending system help small banks compete with large fintechs?
The ways through which small banks may compete are niche markets, customized services, and partnering with fintech opportunities. Investing in a digital lending system will enable them to offer quick and convenient lending processes, serving under-served populations, such as local businesses or rural areas. Small banks have an opportunity to differentiate themselves by integrating community-centred service and high-tech technologies.
3. What are the costs of a digital lending system?
Various fees are associated with implementing a digital lending system, including software development, integration, and staff training. These costs, however, are recouped through long-term savings resulting from automation, reduced errors, and increased loan volumes. Small banks can also utilize the Biz2X ROI calculator to calculate potential returns in both the short and long term.
4. What are the advantages of the risk management of a digital lending system?
Digital lending platforms also enhance risk assessment, with AI and machine learning enabling them to analyze a wide range of data sources, including credit history and alternative data. This will allow a more accurate evaluation of the credit and prompt direct action against impending defaults. Minimizing risk and optimizing loan pricing enables banks to maximize profits and minimize losses.
5. How do I request a demo of the Biz2X business lending platform?
By clicking here, you can customize the demo to your unique requirements and challenges and understand the software’s capabilities in action.
