The introduction of Lending APIs to the market was an equally disruptive step as the introduction of the Core Banking APIs. This has modified the lending chain from end to end.
Funding has always been necessary for business growth. However, these businesses always lack access to formal credit, making it difficult for banks to assess their credit risk. This is due to the lack of financial information, historical cash flow data, etc.
A broker or lender does an identity verification before giving away credit. To give away mortgages, they must ensure the potential client has not participated in money laundering activities. For this, they need to carry out. For this, they would verify the client’s authenticity by manually going through documents like driving licenses, passports & utility bills and then approve or reject the loan request.
With the advent of Lending APIs, all these verification processes can now be done digitally. Verifying all the client details or checking their past financial activities is as easy as doing a Google search. The lender can search for data on any potential client and save whatever information appears in their system.
A lending cycle typically has four steps and starts when the borrower expresses their need for credit as a loan request. The lender will then verify the borrower’s credibility by looking at the data and looking for ideal loans. They will then validate the data obtained from different sources. Finally, after the approval or rejection, they will maintain the records for accounting purposes.
Let us examine how different types of Lending APIs are helping lenders at varying stages of the lending process.
Types Of Lending APIs
Based on the high-level flow of the lending process, the Lending APIs are divided into –
- Onboarding APIs
- Credit underwriting APIs
- Loan fulfilment APIs
- Loan collection APIs
Let’s have a more concentrated look at each one of them.
Onboarding APIs
Onboarding APIs are used to lend to onboard borrowers. Traditional onboarding practices require a lot of paperwork, are tedious and time-consuming, and are prone to errors. The unyielding nature of the traditional onboarding process has paved the way for digital onboarding, which is completed in a few minutes compared to the traditional onboarding process.
These APIs would include the loan amount, expected duration range, and type.
Credit underwriting APIs
Credit underwriting APIs supply the lender with relevant and accurate information to set up ideal loans for the borrowers. They aggregate customer credit data from CIBIL and other key alternative sources and share it with the lenders.
The API program’s data algorithms gather data from different sources and send it to the lender’s internal system. The quantity and quality of the data a lender has indicates the institution’s competitiveness.
Loan Fulfillment APIs
Loan fulfilment APIs are used to disburse loans to customers and maintain loan account information in the platform for accounting and processing purposes.
After the loan confirmation, a loan agreement will be digitally generated, e-signed, and delivered to both the borrower and lender. The loan would be disbursed by debiting the lender’s account and crediting the borrower’s account.
Loan Collection APIs
Loan collection APIs help debt collection agencies get current data on borrowers to track and collect loan EMIs. These APIs significantly aid financial institutions as they can optimally utilize their resources, increasing overall debt recovery and complete transparency. They also help integrate with mobile and web platforms to deliver swift, paperless transaction processing with reduced risk.
Benefits of lending APIs
With the rise of lending APIs, the lending as a service (LAAS) model, a subcategory of banking as a service (BAAS), has become an emerging trend in the banking industry. LAAS provides banks with the much-needed technology instead of lending directly to businesses and clients.
In a report published by Accenture, they call out five important things a company should provide customers with, all of which can be achieved by having a platform with Lending APIs:
Making it smooth & fast:
Lending APIs make it easy to create and deliver new loan products online with Straight-Through Processing (STP) capability.
Match them with the right loan:
With the APIs, lenders perform bespoke analysis using traditional and alternative resources. This helps them suggest ideal loan products for the customers.
Making credit available anywhere, anytime:
These APIs can be integrated into accounting packages, online marketplaces, or even into your website, thus making the credit available to customers wherever they are, anytime.
Making it appealing:
Lending APIs help lenders create unique products at different prices.
Increasing the retention rate:
These APIs also give the customer more than just the required credit. They can also provide real-time alerts about their cash flow via digital channels, so they return to the platform for future lending needs.
Customers have formed a new attitude towards lending, which has driven the transformation in how credit is delivered to the market. Now is an excellent time for you and your team to brainstorm creative, customer-centric ways to integrate APIs into your lending operation.
We’ve covered everything under the Lending API umbrella. In the next chapter, let’s discuss the APIs associated with cards.
