The banking and lending industry has faced numerous challenges in 2022 and is expected to encounter more in 2023. Most of these challenges are a result of the innovations in the banking technology industry over the last couple of years.

These innovations have driven a higher demand for speed of service, alongside other expectations.

Fintech companies have been at the heart of the new lending attitudes for many years. Some lenders even provide instant, short-term loans for internet transactions. Fintechs have begun to influence how borrowers think about lending by utilizing alternative ways to authorize loans or establish creditworthiness.

In this article, we'll discuss some of the challenges affecting lenders in 2023 and proffer possible solutions to help financial organizations stay ahead. Read on:

Challenges of Lenders in 2023

Here are some challenges lenders are expected to encounter this year:

1. Increasing Demand for Speed and Convenience

There are a lot of complaints by business owners and end consumers on the speed of loan disbursement. Many online lenders deliver approval or denial within a few days, while the best struggle to provide `loans within hours.

Customers now expect faster service and more convenience when it comes to borrowing. Finding a way to match the expected speed poses a major challenge in the lending industry in 2023. Customers would likely patronize lending institutions that offer loans within minutes or hours over institutions that offer loans within a few days.

Financial institutions that required face-to-face discussions with prospective borrowers could not meet with anybody during the last pandemic. As a result, Fintechs discovered innovations such as using alternative data and automation to meet the demand.

The challenge of speed arises from the loan origination process. The loan procedure may be lengthy and cumbersome and include parties other than the borrower and lender. However, lenders can integrate all parties engaged in the loan's origination for improved efficiency and effectiveness.

Loan origination systems and automation accelerate and streamline the origination procedure by digitally bringing all parties to the same table. Less back and forth and more progress ahead. When all parties involved in the origination process can communicate directly, the probability of quicker closing timeframes improves.

Moreover, with alternative data, it's easier to accurately and speedily tell a customer's creditworthiness. This way, there's lesser time spent on credit analysis and decision-making.

2. Integration of Artificial Intelligence

Digital lending is an exciting new way to help people improve their financial well-being. To capture more business, digital lenders are trying to find high-ROI ways to deploy artificial intelligence and machine learning to speed the lending process and identify target borrower personas.

WAI can help improve many different workflows for loan processors, including applicant comparisons and verification. It also helps automate tasks to help moderate demand fluctuations and improve supply-side loan analytics before being applied to the front end of digital lending platforms.

AI can help improve many workflows for loan processors, including applicant comparisons and verifications.

AI can potentially change how lenders to process loan applications in several ways. One way that AI is helping to reduce processing times is by automating tasks, such as applicant comparisons and verification, which typically require manual effort.

With the demand for digital lending growing, loan processors face the challenge of incorporating the AI model into their organization.

3. The Challenge of Regulation

Lending regulations are always evolving, but that doesn't mean we shouldn't be aware of them. By keeping up-to-date on all the current challenges facing lenders, you can ensure your business is ready for any challenges that may come its way.

In 2023, there will be plenty of regulatory curveballs thrown at lenders. However, those willing to step up to the digital plate will find themselves in an advantageous position to knock it out of the park.

The FCCPC is already attempting to regulate digital lenders in Nigeria; they published a Limited Interim Regulatory/Registration Framework for Digital Lending ("Regulation"), and the Central Bank of Nigeria (CBN) regulations keep changing to reflect the technological innovations across Africa.

Even if digital lending doesn't eliminate the hassle of complying with regulations, it can make it easier for lenders to stay organized and informed. In addition, through online tools like discussion boards and surveys, the financial sector may strengthen its connections and improve the quality of its shared knowledge.

4.The Continued Rise of Fintech Companies

Fintech companies are revolutionizing lending. This trend continues in 2023, as fintechs offer borrowers alternative ways to approve loans or determine creditworthiness. The fintech industry allows consumers to get their finances in order and save money by using their data to assess financial decisions and offer them alternative loan approval methods.

People are getting in touch with lenders about new ways to get loans, and fintech companies are happy to provide them. More borrowers are applying for loans through their smartphones and getting more information about their funding options.

Fintechs also offer borrowers competitive interest rates and much easier frequency management than traditional lenders. Traditional lenders will encounter increased competition as fintech companies gain prominence. As a result, they will need to find ways to differentiate themselves to attract and retain customers.

Traditional lenders may likely find issues with customer retention and acquisition, and the rise of digital lending and fintech will continue to skyrocket.

5. Data Management

Lending involves a lot of information processing that requires considerable documentation and many rounds of underwriter review.

The challenge for lenders is to organize and evaluate this data promptly without jeopardizing their open connection with borrowers. The capacity to make complex decisions rapidly depends on effective management and data aggregation.

In navigating this challenge, many lenders use cloud and all-in-one systems that provide a centralized data repository synced with communication channels to rapidly, accurately, and uniformly process loan applications across all channels.

6. Cost Efficiency

Cost efficiency is a challenge that all businesses encounter. Many financial institutions began to see the need to adopt digital lending in 2021; its significance increased in 2023. Lenders would be unable to function without integrating digital transactions into their processes.

Financial institutions that were behind in implementing online lending now require web interface development and employee training. However, a substantial return on investment may be used to justify the high costs of the initial operation.

In addition, when loans are originated, processed, closed, and delivered online, the related costs are minimized. It has the potential to increase productivity as well.

As the economy recovers from the epidemic's acute contractions, lending institutions that adopt digital innovation into their screening and servicing processes will be best positioned to profit.

7. Transparency in Business Development

Without a centralized system, it can be challenging for lenders to measure progress or build predictable forecasts. One of the lenders' largest challenges when working with their customers is bridging the communication gap.

Their teams spend much time communicating differently, leading to confusion and misunderstandings. If an understanding of a customer's business background is not present at the beginning, it can prove to be more challenging than it needs to be.

With a comprehensive relationship management solution, your organization can easily track and engage with its customers. It doesn't take an extensive set of tools; many solutions are designed to serve relationships between financial institutions and individual customers.

It offers real-time visibility into customer relationships, so the institution can provide better service and manage the lender pipeline more effectively.

Final Notes

Most of the challenges financial institutions and lenders will encounter can be curbed by upgrading to digital and automated solutions. However, if lenders are not ready to incorporate the innovations happening across the globe, they may face even more challenges in 2023.

Oystr Finance is a lending solution provider, offering ease in identifying borrowers' creditworthiness, improving speed in loan origination, and easing lenders' processes. Want to know more about our innovations? Visit our website today.