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Mobile loans: is digital lending the future?

Even though the earliest example of lending is often quoted as originating in ancient Greece, the oldest recorded evidence of lending actually dates back to ancient Mesopotamia. The very first large-scale systems of loans and credit took part in Sumerian temples, of all places, while the famous Babylonian Code of Hammurabi – one of the earliest and most complete written legal codes – defines, among other things, the price of silver and how the interest charged on silver loans was to be regulated.

Skipping 4000 years in the future, and here we are – in the “mysterious” land of everything digital, including loans. Throughout history, the basic premise behind lending hasn’t changed, however, the way lending happens has changed radically.

What Is A Mobile Loan?

Simply put, digital lending relies on technology to offer loans, perform credit evaluations, authenticate loans, and manage payments, all through online platforms and digital apps. The whole lending process is digitized and performed remotely, frequently through the mobile phone.

 

Digital transformation represents the next stage of business maturity which will improve how the enterprise works and interacts with its ecosystem, with the people at the center of its focus.

Pearl Zhu, Digital Fit: Manifest Future of Business with Multidimensional Fit

How Does The Process Of Mobile Loans Work?

Integral components of digital lending are:

  1. Use of digital channels for customer acquisition. To engage new and existing customers wherever they are, digital lenders use various channels and tools, such as  search engine optimization, online banners or social media campaigns.
  2. Use of digitized data to evaluate clients. Variety of data such as bank statements, bill payment histories, surveys, social media websites, e-commerce transactions or mobile money payments, is fed into algorithms and analyzed to predict willingness and capacity to repay a loan.
  3. Use of digital channels for disbursement and repayment. Loans are disbursed and collected remotely through digital channels, such as bank accounts, e-commerce accounts, or mobile wallets.
  4. Use of digital channels for customer engagement. To understand a customer’s behavior and preferences, and quickly address their problems or concerns, digital lenders use channels such as SMS, chatbots or in-app messaging.

Difference Between Mobile And Payday Loans

Mobile loans are often small, short-term loans provided for individuals and businesses in need of fast access to capital. On the other hand, a payday loan is a high-interest short-term loan, known also as cash advance, used as an option to help a person with small, often unexpected expenses. A payday loan is usually meant to be repaid with the next paycheck.

Are Mobile Loans The Future Of Digital Lending?

Digital lending represents a powerful solution for helping to create a financial system that works for everyone. Its main benefits are:

  • They are quick and easy as the applications can be completed within mere minutes.
  • They produce minimal amount of paperwork as the applications are done online.
  • They are better for first-timers and those with below excellent credit.

On the other hand, the negative sides are:

  • They have reduced human-to-human interaction which can obstruct the customer experience.
  • They rely heavily on technology and internet access.
  • They facilitate lending so much that they can cause over-indebtedness.

Predicting how digital lending will evolve is not an easy task. Despite the challenges, digital lending is here to stay in one form or another, offering better products and creating a financially inclusive world.

Read also about inovations in regulatory technology.

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