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ComplianceFinanceJune 15, 2022

The evolution of digital lending

Until recently, the principal functions of the lending process hadn’t changed for years. There were tools to speed things along, but financial assets remained paper documents, signed and held by originating companies or those purchasing or investing in the loans for payment streams.

The uptake toward digital was gradual, and then the “Big Bang” event for digital lending came with the global pandemic. Suddenly, it was no longer feasible to transact in person. Fortunately, the legal and technical infrastructure existed for the broad adoption of remote, contactless transactions. Consumers loved it, and now the digital option has become the preferred method of borrowing.

Three generations of digital lending

The first generation of digital lending focused on loan origination. Traditionally, this required face-to-face meetings to determine creditworthiness. Today, with so much relevant information available digitally, origination is increasingly automated, though confirming identity is always critical. This has dramatically improved access to credit. Even if you’re among the unbanked, you can now establish credit and gain access to the money you need.

The second generation of digital lending focused on execution and the customer experience – with technologies like remote online notary (RON) and eSignature for verification and self-service workflows to push processes along. Second-generation digitization has enabled you to schedule post-credit events, including appraisals and fully digital closings. All of this is tracked for compliance and all documentation is managed remotely and shared between borrower and lender.

We’re now in the third generation of digital lending, where the focus has shifted to linking the various aspects of the process together on a single platform for a compliant, seamless process. In traditional consumer lending, the process is sequential, with a handoff from one participant to the next – from origination to asset monetization in the secondary markets – with many steps in between.

In this third generation, platforms have a greater awareness of the end-to-end process. Lenders can move out of sequence knowing that compliance is monitored throughout the process and that the appropriate data and documents are all kept and managed in one place. The result is a smoother, faster process with fewer bottlenecks. For example, finance companies on the Wolters Kluwer eOriginal® platform manage a “flow securitization” process on a dramatically faster timeline. This involves preparing securities offerings, engaging with all required participants, getting rated by a recognized agency, and finalizing the close – all done in weeks rather than months. Other financial institutions can execute the secondary market collateralization funding processes on a next-day basis. The capital efficiencies are dramatically improved.

The benefit of Digital Asset Certainty

One of the most significant benefits of digital lending is Digital Asset Certainty. With traditional loans, up to 20 percent of documents are sent back through the mail or courier due to incomplete data or missing signatures. Digital lending eliminates this because the process will not move forward if incomplete, giving you confidence that you’re always dealing with true, trusted data and documents.

Ultimately, lending is about risk management. The more trusted, verifiable, and usable information and data that you have, the less risk you will incur. By enabling organizations to access and analyze relevant data, digital lending and its capital markets will move toward true Digital Asset Certainty.

No turning back

For consumers, digital lending has changed everything. The process is faster and easier. There’s less hassle and fewer interactions. And there’s less of a hard sell. The consumer is in the driver’s seat. They determine who they want to do business with, when, and where. People are buying houses and other types of assets in other states without even looking at them. Everything is virtual – from the property tour through to closing and funding. Although this accelerated during the global pandemic, it never would have been possible without the processes in place to support it.

Right now, most digital processes are replicating the paper world. Instead of paper, there are PDFs or other digital replicas. What happens when lenders fully transform – when it’s all about data and not documents? This is when the true value of analytics will create the fourth generation of real-time digital lending without maintaining formal document structures.

Speak to a product specialist to see how Wolters Kluwer’s eOriginal can help you take the next step.

Stephen Bisbee
Senior Advisor, Applied Technology, Wolters Kluwer Compliance Solutions
Fuel greater capital efficiency by transforming how digital assets are closed, collateralized, securitized, and sold into the secondary market
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