How digitalisation has revolutionised the loan market

In the lending industry, the digital revolution has completely changed the way both businesses and consumers operate. What was once a traditional industry, very much reliant on paperwork and face to face interactions, is now dominated by digital processes.  

Within the lending industry, the unsecured loan market has been particularly transformed by the shift to digital. Online lending platforms but also loan comparison sites, such as Laina Heti, now dominate the market, and banks are virtually a thing of the past. Digital processes are complicated and demanding to manage behind the scenes, but for consumers there are huge benefits.

For consumers, unsecured loans are easier to get hold of, the funds are delivered more quickly, and loans are easier to repay. Loans are also cheaper, the options are clearer, and there are more choices at the outset.

The digital loan market is estimated at $45.332 billion in 2024 but is expected to reach $79.534 billion by 2029 with a CAGR of 11.90%.

What is an unsecured loan?

An unsecured loan is a loan in which the borrower does not provide a guarantor or any collateral when they take out the loan. You should always compare unsecured loans before you take out the loan. Loan comparison is fast and easy on loan comparison websites, of which the Luotto site is a good example.

Increased loan accessibility

Digital technology has made loans more accessible by increasing the accuracy of lending risk assessments.

With traditional lending systems, lenders used to rely on narrower and more basic assessments of loan applicants’ risk levels. With digital technologies, however, more information is available. Lenders are also able to make more complex and accurate analysis of the information they receive. More eligible loan applicants are identified, and so more people can take out loans.

Many loan applicants who would have been rejected under traditional loan approval systems are approved under digital systems.

People who have a poor credit history but who are, in fact, financially stable enough to take out an unsecured loan may now be approved where they were previously rejected.

Not only are lending practices fairer and more positive for borrowers, but it’s also good for the lenders. Lenders increase both their own turnover and customer satisfaction.

Reduced borrowing costs

Digital lending processes are cheaper to operate for loan providers, and this reduces the cost of borrowing for consumers.

Where lenders used to do business in physical branches and with higher staff numbers, borrowing processes are now managed online. Many processes that used to be manual (involving paperwork and telephone calls) are now automatic, reducing the need for staff input.

The majority of short-term, unsecured lenders now operate entirely online, with no physical branches.    

Improved consumer choices

As well as reducing costs, the digital revolution has increased the number of lenders that are operating and made it easier for consumers to compare lenders.

With a larger number of lenders, there’s more competition. Prices are more competitive, and standards of service are improved. There are also more options and types of finance available as well. 

On top of all this, it’s easier for consumers to compare interest rates, borrowing limits and terms and conditions between lenders. Online searches are fast, and it’s easy to compare a large number of lenders. Comparison sites, such as Lainojen Yhdistäminen, are available as well, making it possible to make an instant comparison according to an individual consumer’s specific needs.

Improved customer experience

Digital lending processes have completely transformed the customer experience when it comes to applying for, receiving and paying back a loan.

Application processes for unsecured loans are fast and easy. Online application forms usually take a few minutes to complete, and they don’t require applicants to submit sensitive or hard to retrieve information.

Following on from this, lending decisions are made quickly or even immediately. In many cases, the funds are also received in the applicant’s account immediately or on the same day.

Paying back loans is easier as well. Payment notifications are delivered in more effective but less intrusive ways, and payments are easier to make. With A2A payments, for example, borrowers receive a payment due notification with a link they can click to quickly make the payment.

Customer experience is constantly improving. With Open Banking, for example, it may be possible to complete a loan application and set up a repayment plan in just a few clicks.

Mobile technology and loan customer experience

Mobile technology has been crucial to the successful digitalisation of unsecured borrowing. Having the technologies that underpin lending accessible from mobile phones makes it easy for consumers to complete loan applications, make repayments or contact their lender at a convenient time and place.

Conclusion

Digitalisation has completely transformed the unsecured loans market and the loans industry in general. Lending is no longer the domain of banks but is now an industry dominated by online businesses and online consumer interactions.

The technology that underpins digital lending is complicated, but there are far better options for consumers and the lending process is much easier to engage with. Lenders can also offer more loans, reduce their overhead costs and do more business.

The future of digitalisation and the loan market

New digital technologies make their way into financial systems quickly, and the future of the lending industry is likely to be dominated by digital changes.

Blockchain, AI and Open Banking are all technologies that look likely to be increasingly adopted in unsecured lending. AI could be used in loan approval processes, for example. Otherwise, loan applications could be handled in one click through Open Banking.