Challenges of online lending business

Just like any other business, lending industry has its own set of challenges to address. Some of these challenges are inherent to the nature of business and some are...

Snehal Fulzele 18th December 2013

Just like any other business, lending industry has its own set of challenges to address. Some of these challenges are inherent to the nature of business and some are imposed by external factors. Let us evaluate some of the top most challenges of online lending businesses in today’s business landscape:

 Regulatory ChangesRegulatory changes: Installment lending in the United States exists atop an active and shifting legal / regulatory landscape. Many states such as Arkansas, Arizona, Ohio, Oregon and District of Columbia have actively enforced meaningful reforms already through stricter regulation and compliance norms, primarily to protect the borrower.
 riskHigh Risk: Borrowers of installment lending industry are mostly underprivileged and unbanked section of society with insufficient credit history or sometimes even bad credit history. Such a demographic profile of the borrower implies lending at high risk. But the high risk factor is also seen as an opportunity for higher reward in terms of interest rates.
 simple solutionNeed for quick, simple and secure systems: With many borrowers preferring to find loans on the internet, this challenge is further amplified. The loan amounts are typically smaller in value and the borrower may not be up for complex system / processes to get funding.
 360 degree view360 degree view of the borrower: Installment lending businesses because of their inherent nature of the industry may see the same customer borrowing multiple times in the life time. A good CRM system will help the overcome some of the challenges such as avoiding duplication of data, segmenting the customers to know your best borrowers etc.
 email communicationCommunication: Many installment lenders tend to local businesses and often don’t pay much interest in communicating with current or potential borrowers. Improving the communication will help businesses to retarget the previous borrowers or applicants, drive higher conversion rates, attract more returning customers etc.
 loan scheduleLack of transparency: Installment lending businesses often fail to offer payment flexibility to the borrower. This can be overcome by presenting the borrowers with a detailed payment schedule, which fully discloses the cost of the loan to them over the tenure of the loan.  The borrower can then choose the payment option that best fits his repayment capacity.
As mentioned earlier, many of these challenges are inherent to the nature of the business or the traditional business operations followed whereas others are imposed by external factors. But what is more important is that the installment lenders today must proactively address these challenges.If you are a installment lending business or an industry observer who is cognizant of some more challenges, please feel free to contribute by posting your comments.



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