Before the pandemic, innovations in banking technology drove customer demand for a greater speed of service. Fintech companies have spearheaded this change in attitude toward lending for years. Some fintechs even offer immediate short-term loans for purchases online. By using alternate methods for approving loans or determining creditworthiness, fintechs have begun to change the way borrowers think about lending.  In this article, we’re going to explore some of the top challenges for lending in 2023 and into 2024.

But fintechs aren’t the only drivers of change in the lending world. During COVID-19 these changing expectations were reaffirmed and strengthened. This year, the pandemic accelerated the push for fully digital lending. As fully digital lending becomes commonplace so does the expectation of speed. This need for speed spans loan origination, dispersal of information, and divergent regulation management. 

New Consumer Lending Challenges in 2024

Below we consider four of the top challenges for lending in 2024 and how digital transformation has helped companies face them. 

Incorporating artificial intelligence

Digital lenders are trying to find high-ROI ways to deploy AI and machine learning to smooth the lending process and identify target borrower personas. With demand for digital lending growing, loan processors face the challenge of meeting the speed, accuracy, and 24/7 service consumers expect

AI can help improve many different workflows for loan processors, including applicant comparisons and verification and automating tasks to help moderate demand fluctuations. 

Unified data management

Lending is a paper-heavy process that requires lots of documentation and many rounds of review during underwriting. Loan processors face the challenge of consolidating this information and completing reviews in a timely, organized manner while continuing to interact transparently with borrowers. 

Proper data management and consolidation are crucial to making complex and quick decisions. To accomplish this and keep the pace, many lenders are turning to the cloud and all-in-one platforms that provide a data repository synced to communication channels so loan applications are processed as efficiently and accurately as possible. 

More challenges faced by lending institutions

Speed of Loan Origination process

Small business owners’ biggest complaint is that in comparison to online lenders, big financial institutions are too slow at making decisions. Many online lenders offer approval or declination within days if not hours. One of the biggest challenges for traditional lenders this year has been finding a way to match this speed. 

Depending on the type of loan, COVID-19 put even more pressure on a system if it was not fully digital. The pandemic disrupted the supply chain serving loan origination. Mortgage loans got bogged down in not being able to complete in-person appraisals. Financial institutions demanding to meet prospective borrowers face to face found themselves with no one to meet with. 

Digital lending helps lenders overcome challenges posed by COVID19. Meetings can be held over video chat and appraisals can be in part carried out digitally. Digital lending alos helps financial institutions increase the speed of the loan origination process. 

Smoothing the loan process 

The lending process can be long, clunky and involve more than just the borrower and lender. For better, smoother results, lenders can integrate everyone involved in the origination of the loan. Online lending speeds and smooths the origination process by digitally putting everyone at the same table. Less back and forth, more forward motion. When everyone in the origination process can interact without relay, the likelihood of shorter closing times increases. 

Finance is a touchy subject for many folks and the more they can do on their own the better. Online lending lets them do just that. Whether in loan origination, loan management or information gathering, customers can explore on their own through most digital lenders’ portals. 

Borrowers have never wanted to wait for months to find out whether or not they would be approved for a loan. They have always wanted a streamlined process, and for information about their loans to be available without having to personally show up to a branch. 

Divergent Regulations

2024 threw plenty of regulatory curveballs at lenders. Those willing to step up to the digital plate found themselves in an advantageous position to knock it out of the park. 

The CARES Act upended mortgage servicing. It made navigating forbearance options for distressed customers even more convoluted than usual. The PPP loan introduced an entirely new type of loan and with it a new set of regulations.

While online lending does not solve the complication of navigating regulations, it can help lenders organize and keep up to date. Online resources, forums and surveys link financial institutions together to form a stronger, more informed network. 

Cost Effectiveness 

Cost effectiveness is a challenge all businesses face. In 2024 large financial institutions had started to realize how important integrating digital lending was. In 2024 that importance transitioned to imperative. Financial institutions could not do business without integrating online actions into their core. Financial institutions that had been slow to implement online lending were faced with the need to develop online interfaces as well as to train employees how to use new systems and technology. However, these costs can be viewed as a high ROI. 

Online lending reduces the cost to originate, process, close, and deliver loans. It can also increase productivity. Whether that be by way of agents or using AI technology. 

As the economy begins to recover from the sharp contractions brought about by the pandemic, lending institutions that acted fast to adopt digital innovation in their screening and servicing processes will be the best positioned for what’s next.