Go Green: The Rise of Paperless Personal Loans!

Jul 2018 | Team Rubique

 

Digitization is transforming every aspect of financial transactions. Going cashless has taken priority, ever since India’s latest demonetization phase. But with cutting-edge innovations and strategic use of technology, now paperless agreements are on the rise.

By definition, paperless lending is the exchange of funds without the need to provide physical documents. Especially within the lending industry, where heavy documentation requirements such as contractual agreements and stringent KYC information are tedious, the paperless regime is a definite step ahead.

Alternative lending is the term used for the developing industry of digital lending platforms outside of traditional bank loans. This form of lending is on the rise, and studies showed that by October 2016, over USD 199 Million worth of funding was received for alternative lending in India.

Digital marketplaces that connect borrowers and lenders are the most widely used form of alternative lending. These platforms are partnering with leading banks and NBFCs to create effective lending solutions for borrowers. In order to find the perfect customization, technological algorithms are used to trace services offered by loan providers to specific borrower requirements.

How do Paperless Loans Work?

Lending has now become possible through online portals and mobile applications. FinTech companies have entered the lending sector and are providing paperless personal loans to borrowers at competitive interest rates. As of 2017, more than 225 alternative lending companies were established in India.

  1. To initiate a paperless loan application, an internet connection and availability of documents are two prerequisites.
  2. The application form can be filled through the portal directly. With the digital signature feature that lets you e-sign the documents, your transaction is 100% paperless. This saves the hassle of downloading the form, filling it manually, and signing it physically.
  3. The next step is to scan and attach your personal documents such as address proof, identity proof, bank statements, and salary information online. Scanning is a one-time procedure through which you can permanently save your documents in your database. This can be reused for future transactions.

With the seamless integration of online lending, instant loan approval is now a reality. Automation has made collection and verification of consumer information immediate. Digital loan origination, business process automation, and credit assessment are powered through the use of machine analytics.

In 2016, the Reserve Bank of India introduced account aggregators as a category of non-banking financial companies. Account aggregators that are licensed by the RBI are authorized to collect consumer information related to financial assets. They can then share this information with recognized entities. Through this mechanism, lenders can track their customers’ financial footprints in minutes.

Further, based on the online CIBIL score, historical information and other relevant data, repayment ability and creditworthiness of a consumer can also be analyzed. This has contributed vastly to the speed at which paperless personal loans are sanctioned.

Advantages of Paperless Personal Loans

Paperless transactions are the future. They are a highly advanced form of a modern lending system. With digital loans, borrowers can process applications from anywhere and at any time. This promotes flexible accessibility.

Quick Processing

The lack of involvement by middlemen makes the process of obtaining instant loans much quicker. Digitization eliminates the requirement of face-to-face interactions and other forms of human intervention.

Efficiency

Another advantage of paperless loans is efficiency. With digitized processes, there is no scope for human error. Gathering documents, providing photocopies, and manually authenticating them are now outdated steps of getting a loan. Online verification of data is highly effective as it is more streamlined.

Convenience

Convenience is one benefit that cannot be ignored. Lending has become tremendously simplified and effortless with the introduction of the paperless and cashless schemes. Further, it has also increased borrower safety while cutting down on efforts drastically. Consumers no longer need to waste time on travel, document procurement, or to wait for fund disbursement.

Instant loan Disbursements

Loan disbursements are nearly instant. With the traditional lending process, fund release used to take longer than one week. But technological advancements have now shortened this time to 24 hours. This is possible because all the documents provided by the borrower are verified online instead of being done manually.

Reduced Risk

On digital lending platforms, workflows can be organized to track payment defaults, collection lags, and configure lending agreements. As personal loans are unsecured, this automation reduces the risk faced by lending institutions due to the lack of collateral.

Challenges of Providing Paperless Personal Loans

Transitioning into a digitized environment is not an easy task. There are a few obstacles that need to be sorted out before being able to totally convert to paperless loans.

Multiple Changes

This process involves many facets such as adhering to legal compliance, modifying policies, and budgeting the cost of transformation. Above all, human skill is required to handle and operate these systems on a regular basis.

Resistance to Change

Resistance to change could be a potential obstacle that banks, NBFCs, and other financial institutions will need to overcome. As Indian consumers are usually conservative in their approach, building trust and confidence towards paperless personal loans is going to be an uphill task.

Data Security

Security of consumer data is another risk factor. With the rise of digitization, there has been an increase in cyber crimes as well. Due to this, identity theft is one of the biggest fears of paperless data procurement. Though SSL certification ensures privacy and protection of data used, promoting the digital shift within Indian consumers is a challenge that has to be met.

The Future of Paperless Lending

Personal loans that are processed through digitized documentation reduce frauds. Through thorough risk assessment, technology can identify individual borrower risk.  New capabilities such as web analytics and online marketing are investment areas that financial institutions need to focus on. This will help create tailor-made lending options.

The need for banks to collaborate with FinTech lenders is on the rise. Digitized lending solutions are bridging the gap between the increasing customer expectations and the conventional lending scenario. Lenders are now seeking new digital tools in an attempt to gain and retain consumers. At the end of the day, paperless personal loans in India are a great contribution to enhancing superior banking experience.