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Demystifying Digital Lending

How Digital Transformation Can Help Financial Service Providers Reach New Customers, Drive Engagement, and Promote Financial Inclusion

Digital lending can be a powerful force for financial inclusion. Innovations in digital lending are enabling financial service providers (FSPs) to offer better products to more underserved clients in faster, more cost-efficient, and engaging ways. Governments are increasingly incentivizing the growth of digital lending models as a way to promote greater financial inclusion and extend high-quality financial services to underserved communities and businesses.

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Digital lending offers too many competitive advantages for FSPs to ignore, and we believe that it will have a permanent impact on the financial industry. Although integrating digital lending practices into an FSP’s operations can be a challenging process, any FSP can find ways to do so successfully. Moreover, FSPs should find ways to do so: digital lending, if done correctly, will help FSPs evolve, scale, and compete in a rapidly changing landscape. Conversely, FSPs ignore digital lending at their own peril. Customers’ expectations are rapidly changing and are being shaped by their experience with smartphone apps, fintechs, and social media. Importantly, digital lending presents one way for FSPs to meet those changing expectations.

However, there is typically a gap between the vision of fully-integrated digital lending and the realities that traditional lenders must effectively navigate to complete that institutional transformation. While challenging, FSPs should not be overwhelmed by the prospect of developing a digital product. This guide addresses common concerns, shares insights into new trends shaping digital lending, and distills emerging best practices into a framework that FSPs can use to implement digital lending today. Collectively, these steps are intended to help FSPs plan strategically to navigate the new and rapidly changing landscape of digital lending.

We are aware that not all the actions described in this guide will be relevant for every FSP. While our recommendations are presented here in the most broadly applicable manner, each organization in the financial inclusion space faces a unique set of challenges. The Digital Maturity Matrix, found on page 21 of this paper, can help FSPs select which processes to prioritize based on their current and desired level of maturity.