In recent years, digital lending fintech companies and digital lending banks have started to dominate the small business loan market, changing how credit scoring is evaluated, approved, and disbursed. 

Many banks are also transitioning to digital lending solutions as a means of staying competitive in a rapidly changing industry.

The new year is a good time to evaluate, plan, and update goals around software upgrades, policy changes, and marketing strategies in order to stay competitive.

In this article, discover how fintech and digital lending can help you grow.

Why Digital Lending?

With digital lending solutions, banks can offer loans online through cloud-based platforms or even through mobile apps. Many small business owners today want an easier and faster way to get financing. Digital lending meets this need by eliminating manual underwriting processes and the need for extensive paper-based loan applications.

By utilizing modern technology and alternative data, workflows are more efficient from end to end, allowing lenders to assess creditworthiness in real-time. Depending on your financial institution’s policies, this process can render instant loan decisioning.

Furthermore, a digital lending solution can quickly assess which loan products are best suited for individual business needs, thereby enhancing the customer experience and potentially increasing profitability for banks.

Many banks partner with fintech providers for their digital lending platforms. These platforms are technology-rich and integrated with existing bank systems. Banks can also offer more customizable lending solutions to cater to diverse business needs.

Benefits of Digital Lending Solutions

Digital lending offers numerous benefits for financial institutions, as well as the small business owners who are their customers.

Advantages for Lenders

  • Improved Operational Efficiency - Digital lending platforms automate much of the loan origination process, including:
    • Application intake
    • Verification of borrower information
    • Underwriting and loan approval
    • Risk management
    • Compliance with regulations
  • Data-Driven Assessments - Digital lending solutions harness AI-driven analytics to make better loan decisions and improve risk assessments.
  • Scalability - A loan origination system can help a bank grow its loan portfolios and scale operations quickly by processing more loan applications in shorter periods. It can also serve more borrowers from different geographical areas without having to open physical branches near them.

Advantages for Small Business Owners

  • More Convenience - Digital lending solutions negate the need for borrowers to visit a physical bank branch. They can apply from their mobile device or laptop at any time and from anywhere they want.
  • Faster Loan Approvals - The credit policies implemented by banks and credit unions on their digital lending platforms ultimately determine how quickly loan decisions are made. But many platforms provide same-day approvals.
  • More Inclusive Access to Financing - The limitations of traditional bank underwriting prevent many small business owners from qualifying for a loan. However, with a richer set of data to work from, more borrowers can qualify for financing with digital lending solutions.

How Digital Lending Platforms Can Help Banks Close Out the Year

Regardless of when your bank or financial institution closes its fiscal year, it affects how the bank handles its tax filings, audit preparation, and planning for the following year.

Financial institutions need a detailed and well-organized plan to ensure success for the next year and beyond. This includes ensuring that all financial records are accurate and up-to-date, and that strict reporting standards are met for regulators such as the Office of the Comptroller of the Currency (OCC).

Digital lending solutions can help with some of this by automating data collection, generating accurate financial reports, and reducing the time spent on manual reviews. A digital platform ensures banks stay compliant with evolving regulatory laws and can help banks prepare for year-end reviews more efficiently. 

Credit Loss Accounting for Banks and Financial Institutions 

One primary task that banks must complete at the end of the year is calculating expected credit losses, which is an estimate of how much money they might lose from credit loans that borrowers are unable to repay. 

To achieve this, financial institutions employ two primary accounting methods: the Allowance for Loan and Lease Losses (ALLL) method, which is an older approach, and the Current Expected Credit Losses (CECL) model, a more recent method. Many banks have replaced the ALLL method with the CECL method.

ALLL previously looked at losses that had already happened or were very likely to happen soon. CECL instead requires banks to look ahead and predict future losses over the full life of a loan. This means banks have to consider past data, current economic conditions, and forecasts to come up with a more complete picture of potential losses.

Because CECL is more complex, banks are setting aside more money in reserve to cover future loan defaults. These larger reserves and the detailed forecasting required can place a heavy burden on a bank’s staff and resources.

To manage this, many banks are investing in digital lending solutions that include risk analysis tools. A digital lending platform can automate CECL calculations and offer real-time projections using predictive analytics. These platforms can also generate detailed reports for regulators. And it does it in a fraction of the time it would take manually.

Looking Ahead 

While the closing of a fiscal year at a banking or lending institution can be cumbersome, planning for the year ahead must also remain a priority. The profits shown in the current and previous years should be used as a starting point for lenders to optimize their upcoming growth strategies. 

Whether next year’s goals include reducing the CECL and minimizing risk, increasing revenues, or improving customer satisfaction, a new year is the perfect time to implement digital lending solutions to maximize your bank’s strategies. 

Here are some factors to consider when looking ahead: 

Minimize Risk 

Historically, banks managed risk using historical data and a manual underwriting process, but advanced lending technology has allowed many institutions to migrate to using alternative data. Using digital lending tools, Mastercard’s Small Business Credit Analytics solution can reduce portfolio risk by providing real-time data-driven insights.  

Adjust Pricing Strategies to Reduce Loss 

Another way banks and lenders can minimize financial losses in their loan portfolios is through repricing, which means increasing the interest rate on a loan after the initial repayment terms have been distributed. 

Streamline the Onboarding Process for New Accounts

A common theme when planning for future periods is figuring out how to increase profits. For banks and credit unions, more revenues can be achieved through a growing loan portfolio and increased deposits. 

Financial institutions can do this by streamlining the account opening process. Faster, more user-friendly account opening procedures can help credit unions and banks widen their deposit base by making it easier for potential clients to do business with them.  

Leverage AI to Grow Loan Portfolios

Lenders that can reduce bias in lending decisions with the help of AI-powered digital lending solutions can expand their loan portfolios to include underserved populations, like startup entrepreneurs and small businesses with less-than-perfect credit histories. 

AI algorithms can analyze transaction history, utility bill payments, and even social media activity to create a comprehensive financial profile, which allows banks to extend credit to individuals who would otherwise be deemed high-risk. 

Final Thoughts

Digital lending solutions are no longer just a trend. They have become essential tools in loan processing, meeting compliance, and improving customer experience to foster long-term growth. 

By automating complex processes like credit loss accounting and loan approvals, financial institutions can reduce manual work, stay compliant with regulations, and gain deeper insights into their loan portfolios. 

These efficiencies also help banks close out the year more smoothly and position them to be more competitive in a fast-moving financial industry. 

Looking ahead, a new year presents banks and financial institutions with a fresh opportunity to build on their progress through digital transformation. Whether it's reducing risk through smarter analytics, streamlining customer onboarding, or expanding access to credit with the help of AI, digital lending platforms can support a wide range of strategic goals. 

With careful planning and the right technology, financial institutions can improve their services, reach more customers, and drive stronger performance in the years to come.

FAQs About Digital Lending Solutions

1. How can a digital lending platform help our bank during year-end closeouts?

It can help streamline many year-end processes that are typically done by hand. These platforms can automate loan data collection and generate compliance-ready reports, both of which are useful for audit preparation and credit loss accounting. This can help banks fulfill regulatory requirements and keep operational costs down, freeing up staff to focus on next-year planning.

2. Can digital lending solutions improve loan management and customer experience?

Yes. A digital lending platform can process loans faster with fewer errors and a smoother borrower experience. It also helps your bank tailor its loan offerings to fit specific business needs. This ultimately improves customer satisfaction and retention.

3. Why are digital lending solutions critical for our bank’s commercial lending growth?

Today’s digital lending market share is being captured in part by fintech companies. That’s less revenue for your bank and a shrinking market share. If your bank wants to stay competitive and continue growing its loan portfolio, it should consider implementing a digital lending solution.

4. What should our bank prioritize when exploring digital lending services for the new year?

Look for flexible, scalable digital lending platforms that will integrate easily with your bank’s existing systems. The best digital lending solutions will also automate CECL calculations, diversify your bank’s loan offerings, use AI for better risk management, and streamline account opening. 

5. What are the advantages of partnering with a digital lending fintech company?

Using a proven platform can help your bank make the transition more seamless and friction-free. With all of the right functionalities in place, a digital lending Fintech company can help speed up loan approvals so your bank can serve more small business owners without increasing its risks.

Want to future-proof your financial institution’s success with a digital lending solution? Biz2X is a leading Fintech with years of experience helping banks take the next step toward digital success. Contact our team for a demo to learn how our platform can help your bank with year-end processes and set the stage for exponential growth in the years to come.