To get into the real lending game thirty years ago, one needed immense resources. And not just cash in store for funding the consumer or business borrowers, but also money for opening and maintaining offices and branches, originators, servicing managers, underwriters, collectors, analysts, etc. Even ten years ago, when FinTech craze was conquering the business world at full speed, only a big-name bank could afford to run a digital lending operation which would still be incredibly cumbersome and would take developing proprietary solutions for all elements of the lending process and integrating systems which would hardly be able to communicate with each other.
Now, e-lending technology has caught up with the expectations of both the lenders who need to be able to deploy ready-made automation in a matter of days, and possibly even more importantly, the borrowers who require financing when, where, and how they want it. Lending overhead can be reduced or eliminated thanks to automated AI-driven underwriting, origination, and servicing, and collection; and there’s no need for branches maintenance in a world where all the lending-related operations can be done under the umbrella of a single lending management system, fully online.
And even though lending technology isn’t as cheap e-commerce due to the complexities of credit scoring and numerous business logic options, the credit industry entry barrier got lower than it has ever been allowing a business owner to become a lender powered by cutting-edge software at a fraction of the price.
In this post, we’re looking into the expenses a business will have to spare in order to enter the alternative credit, embedded finance, or traditional lending game.
Of course, the final sum will differ for each lending business type, jurisdiction, and the scale of the launch. We’ll give you a rundown of what you’ll most probably have to spend money on to digitalize your lending business.
Lending processes automation for digital lending
Different lenders have different automation needs. Some only require a module for borrower evaluation, decisioning, and funds disbursement, some need a hand in servicing, some in the collection, and then some need automation of their entire lending process. Arguably, going with end-to-end automation of the lending process using one software solution is preferable since you want all the functional modules and integrations to interconnect smoothly and transfer data in between them effortlessly and without any losses.
For a lending business, the end-goals of digitalization are:
- Replacing outdated processes with software tailored to any business’ needs.
- Eliminate unnecessary paperwork throughout the lending process.
- Reduce operational cost and overhead of running a lending business.
- Get rid of any human error in the entire crediting process.
- Reduce the cost and time-to-market of launching an e-lending business.
- Cutting credit risks, thanks to AI-driven credit scoring.
In order to achieve that, the perfect case scenario is when a lending business is willing to create their digital presence from scratch rather than build upon a legacy solution as it usually takes an enormous amount of effort to integrate outdated software with an end-of-the-line modern platform and maintain their compatibility in the future. Extracting and moving data from a legacy system may take some time, but in the long run, it’s well worth it. And solutions like TurnKey Lender provide you with ready-made functionality to import data into the system in batches, making up for simpler transition.
That said, savvy lenders try to get as much automation as they can from a single provider rather than turn to different vendors for separate modules. This way you run lower risks of software failures, databases uncompetitiveness, and system downtimes. Not to mention, getting separate functional modules from different providers will require much more money and will increase the time to market of your new digital lending platform.
Parts of the lending process you will need to automate to run a digital lending business include:
- Loan origination
- application processing
- running multiple credit products
- loan applications’ management
- Underwriting
- risk scoring
- borrower evaluation
- credit decisioning
- Collateral management (for secured lending)
- Servicing
- managing the repayment schedule
- automatically charging installments
- tracking the repayment of the loans
- Collection
- Reporting & Analytics
- Borrower communications
- API management & Integrations (more on that later in the article)
As you can see, that’s a lot, but with the right lending automation solution it’s as easy or easier to run than an e-commerce store. Here’s what the basic loan lifecycle looks like in TurnKey Lender. But keep in mind, that for Enterprise clients, our software is capable of incredibly complex and unique flows configured in the no-code platform by our expert team.
Now, the problem here is that the vast majority of lending automation providers don’t have a wholesome system that you can just plug in and work. More commonly they focus their efforts on some particular aspect like risk evaluation or servicing. At TurnKey Lender went another way and took our time to create a modular all-in-one solution. This way with us lenders can choose either variant:
- Get an end-to-end solution to automate every step of their lending process with us
- Just get a module they need (origination, servicing, collection, etc)
- Get the module they need and then upgrade to implement new functionality from our system
The final price depends on the type of lending operation, the size of the business, the amount of required system customization, and other influencing factors. You can reach out to our sales staff for a quote or get a free trial to see for yourself exactly what we can do for you.
We have been working with lenders for several decades now. We know their pains and needs. To address them, TurnKey Lender team came up with an innovative pricing model in which the final amount depends on the number of loans customer issues with the software rather than a flat fee. This way the company stays invested and highly motivated to help every client achieve better results and help their business succeed.
Keep in mind, that with products this complex, if someone tells you the exact price right away, it usually means that their margin is so high that it has the maximum possible customization included into the price they charge you even if you don’t use it.
Lending-related paid integrations you’ll need
Credit bureaus – If you already have a lending business up-and-running and just want to go digital, you already have access to data from one or more credit bureaus. But for a completely new lending operation, you’ll need to research your market and get access to credit bureau data to use in your credit decisions. Of course, many digital lenders rely on alternative borrower evaluation approaches, but most still factor in credit bureau data into their decisioning process to improve accuracy.
Needless to say, different jurisdictions have different credit bureaus and the price of the plan will depend on the amount of data you’ll need, detalization, accuracy, number of requests, etc.
Payment providers– In order to achieve a truly digital experience for your users, you will need seamless integration with a modern payment system like Authorize.NET, PayEasy, or PayPal. This will let you put collection and payment processing on autopilot which otherwise would be rather daunting tasks.
SMS/Email systems – a system like TurnKey Lender comes with all the functionality required for effortless email and SMS communication built-in. But you will still need to get integrations with providers like BulkSMS, ActiveCampagin, Mandrill or Gmail in order for it to actually send out notifications to your borrowers (or potential clients).
Bank account verification and statement providers – Digital lenders are on constant lookout for agile, reliable, accurate, and intelligent borrower evaluation approaches. Observing the performance of our clients, we’ve noticed that even in the pre-corona economy it was a lot safer and more profitable to utilize both traditional and alternative borrower evaluation approaches. And in today’s digital space, on-the-fly bank account verification and bank statement scoring are a must both from the usability perspective and as means of improving the accuracy of credit scoring based on real-time financials of a borrower.
E-signatures – to ensure proper online document management, you’ll need to get your lending platform integrated with e-signature software like Adobe e-Sign, SignNow, or eSignLive, which in most jurisdictions is also important in terms of regulatory compliance.
Staff expenses of a digital lending operation
Even though automation of lending comes with a drastic reduction of expenses compared to a brick-and-mortar operation, you will still need people to oversee the system.
For example, our AI-powered algorithms can automate the origination processes fully without the need to involve people in risk evaluation or credit decisioning. But generally, lenders still prefer to have a real person making the decisions.
Put real simple, it goes something like this:
the system analyzes all the data and evaluates all the risks and then presents your underwriter with an easy-to-understand interface where they have all the data to make a credit decision within seconds. Then they either decline an application, approve it and send it further in your business workflow or request additional data from the borrower.
To cut a long story short, you will need far fewer people on your staff, but there will still be staff expenses.
Web presence for a digital lending business
Now that we’re done with the part of expenses related strictly to lending, let’s go over the other things a successful digital lender has to pay for to build a decent online presence.
Website – a digital lending business begins with a website. That’s the first thing that meets the potential client’s eye and you want to make a good impression. Because the thing with digital lending is that the borrower doesn’t even need to go across the street to strike a deal with a competitor. Rival’s website is already opened in the very next tab.
So if you’re on a tight budget, you may get a ready-made website template and fill if with content yourself. Of course, this way your expenses can be as low as $70 for a website template, $100/year for hosting and $10 for a domain name. But that’s not the look and feel a reliable digital lender wants to convey. So if you can, consider investing in a proper website.
Design and development – investing in the design and development of a custom website may seem like an overkill, but that’s the 101 of making a memorable brand. The competition out there is fierce so you need to stand out.
Marketing – build it and they will come doesn’t work with digital lending. Even with superior user experience and competitive interest rates, you need to invest in copywriting, ads, SEO, email marketing, and other kinds of online promotions. Marketing can be expensive but it’s also extremely important. Especially in the beginning, until you gain traction and achieve brand recognition. So consider hiring an experienced specialist/team to get it done right. No one wants to have an awesome product that nobody can find online and use.
Final thoughts
In our experience, these are the most important and costly things every newcomer to the digital lending industry faces. And even though it may seem overwhelming at first, in reality, it’s incomparably easier and cheaper than running an old-school brick-and-mortar lending operation.
After all, the biggest and the most important thing for today’s lending business is the lending automation software it runs on. And with TurnKey Lender’s AI-driven decisioning and smooth adjustable workflows, your operational efficiency grows on average by 283% and portfolio profitability improves by an average of 65%. So if you’re not decided yet on the lending automation platform you’re going to use, reach out for a free trial and a demo. We’ll be happy to show you what we can do for you.
Digital lending ain’t easy. But with TurnKey Lender, you lower the risks and increase the returns.