Lending 3.0 has transformed the way that businesses can borrow money. By using real-time data, lenders can make quicker and more accurate lending decisions that stand to benefit both themselves and their customers.
From a lender’s perspective, having ready access to this data can help them to improve their efficiency, reduce operational costs and prevent fraud while continuing to meet regulatory requirements. It can also increase customer satisfaction and loyalty, at the same time as providing greater opportunities for innovation and growth.
Essentially, Lending 3.0 provides four key benefits: speed, accuracy, efficiency and access. Let’s look at each one of these in more detail.
Instant decisions
When it comes to applying for a loan, the speed of the decision is paramount, particularly when a company needs to secure financing to meet its financial obligations or to invest in growth as a matter of urgency. By using real-time data, lenders can make instant decisions, enabling them to approve more than 90% of loans in a matter of seconds.
As well as providing the borrower with a quick decision, it also makes the application process far easier and more seamless. They no longer have to fill out reams of paperwork and then wait days or weeks for a decision, as with traditional bank loans.
They also get unparalleled access to funds when they need them the most. And because their expectations have been met and their overall experience is better, they are more likely to be satisfied with the service that they have just received, and, therefore, show greater trust and loyalty to that particular lender, which, in turn, results in a stronger relationship and higher retention rates.
Lending 3.0 also has multiple benefits for the lender too. It makes the whole lending journey more efficient as they can swiftly analyse a vast amount of data from bank transactions and credit scores to online behaviour and social media activity, and then make an informed decision on whether to approve the application or not.
Because the need for manual reviews is minimised and bottlenecks are eliminated in the approval process, lenders can, thus, handle a significantly higher number of loan applications. This is all achieved with the ability to maintain accuracy and quality.
Better lending decisions
One of the biggest problems with traditional lending is that it has often relied on historical data, which may not accurately reflect a borrower’s current financial position. But Lending 3.0 overcomes this issue with the use of real-time data to ensure that lenders have the most up-to-date information available and are given a more holistic view of the borrower’s situation.
This enables lenders to make much quicker and more accurate credit decisions. It can also benefit borrowers who may have been previously overlooked or turned down for a traditional loan due to having an outdated or incomplete credit profile.
Using a standardised set of factors, allows lenders to apply objective criteria across all applications they receive. Ultimately, this ensures a fair, transparent and consistent approach to approval decisions, while preventing bias or subjective judgments from being made on the application.
This can also enable lenders to make personalised credit decisions based on a business’ specific financial needs and circumstances. That may include adjusting the loan terms, interest rates or borrowing limits.
Optimum operational performance
Another key advantage for lenders is the ability to harness data analytics to streamline processes. This results in significant cost reductions, and enhanced fraud detection and regulatory compliance.
Previously, lending involved many manual and time-consuming tasks, from collecting and arranging large data quantities to verifying that it was accurate and authentic. But Lending 3.0 can simplify and automate these processes.
Using advanced algorithms and machine learning techniques, lenders can quickly analyse and interpret this real-time data, identifying key trends and patterns that will allow them to more easily assess an applicant’s creditworthiness and make better credit decisions.
By removing the need for manual labour, this also frees up workers and resources to focus on more value-added activities. The time and effort saved in data collection, analysis, verification, reporting and monitoring can be spent on strategic initiatives to drive growth instead.
Additionally, by using real-time data, lenders can more easily and accurately monitor borrower activity, detect any potential risks, and ensure compliance with anti-money laundering and know-you-customer regulations. This protects them against any legal repercussions and improves trust and confidence in them among their customers.
Wider customer reach
In the past, firms with limited credit histories or unconventional financial profiles, particularly those in new and emerging industries, have often struggled to get access to much-needed capital to fund their business. But thanks to Lending 3.0, borrowing is now available to a wider group, with the ability to take into account more meaningful data such as recent revenue, cash flow and customer engagement to get a clearer picture of the borrower’s financial behaviour.
It also benefits lenders, who, as a result, can diversify their portfolios. Therefore, they can better spread their risks and capitalise on new market opportunities.
Moving forward, Lending 3.0 is the key to faster, and more accurate, efficient and accessible decision-making on loan approvals. As increasingly more businesses turn to this innovative form of lending, it stands to benefit the many, rather than just the few.
Chirag Shah, founder and CEO of Nucleus Commerical Finance and Pulse.io has over 20 years of experience in the financial services industry and a deep understanding of the needs of UK SMEs.
In 2011, he founded Nucleus, a leading alternative finance provider, to offer flexible and tailored solutions for SMEs across various sectors and stages of growth. With an understanding of the challenges that UK SMEs face in the current economic climate, Chirag launched Pulse in October 2022, a free-to-use service that helps businesses and accountants gain insights into financial performance with AI-powered data visualisation and personalised dashboards. Chirag is not only committed to driving growth and innovation in the UK business ecosystem, but he’s also helping SMEs better understand their data to boost their profitability and guide them towards success.
