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Importance of API for Lending Ecosystem

3 Mins read

Advancement in technology coupled with changing consumer demands has impacted the supply and demand side of the lending ecosystem. On the demand side, there is a massive shift in consumer borrowing behavior – from borrowing to purchase Large household items to availing instant credit for daily shopping. The very idea of obtaining finance is changing. Now, access to finance or credit is not just limited to the Bank’s branch but is also available at their fingertips with the help of their smartphones.  

To meet the ever-increasing customer’s expectation of instant, highly personalized services, processes need to be constantly sped up and enriched with more data. Compounded by COVID-19 Pandemic, digital transformation of legacy and silo systems has become the utmost priority of lenders.

Customers are now expecting their financial service provider to deliver seamless and contactless borrowing journeys. Delivering a seamless and enriched User experience is a challenge that Banks and Financial institutions encountered owning to the rapid speed of digitization in all aspects of life, Lenders and Financial service providers need to build a strong, robust, and seamless digital capability that provides a superior customer experience during the transaction journey.

Dependence on manual processing and underwriting is an impediment to this digital transformation, the time spent on Paperwork can be well spent by Bank’s Officer on Business strategy and relationship building.

As ecosystems become increasingly interconnected, APIs (Application Programming Interfaces) become highly crucial. Open APIs and open banking are changing the global financial ecosystem completely. By integrating data from multiple sources lenders can obtain a holistic view of customer financial status and enrich their profile to make better and accurate decisions. Moreover, with the help of APIs, Financial institutions can provide innovative banking products and services thus enabling a tomorrow full of innovation.

Various Types of Lending APIs?

Onboarding API

Onboarding API enables lenders and financial service providers to provide seamless, swift, and omnichannel onboarding experience to their customers. Traditionally, the onboarding process has been time-consuming, inaccurate, and lengthy to carry out. Now, lenders can quickly identify information, the amount of loan, expected duration range, time, and more. Therefore, the entire onboarding journey now gets completed within minutes vis-à-vis traditional methods. 

Credit Underwriting API

Credit underwriting APIs provide relevant, accurate, and timely information to the lender to prepare ideal loans for borrowers. They collect customer credit data from CIBIL and other major alternative sources and share it with lenders in an automated manner. Algorithms in the API program collect data from various sources and send it through the lender’s internal system to enable lenders to make sound decisions.

Loan Fulfillment API 

The loan processing API is used to issue loans to customers and maintain credit account information for billing and processing on the platform. After the credit is confirmed, the credit agreement is digitally created, published, and sent to the borrower and lender. The loan would be disbursed by debiting the lender’s account and crediting the borrower’s account.

Loan Collection API 

The loan collection API is used to help collection agencies obtain the latest information about borrowers so that they can track and collect loan EMI. These APIs have greatly helped financial institutions because they can make full use of their resources, thereby facilitating overall debt recovery and bringing complete transparency to the process. It also facilitates integration with mobile and web platforms to enable fast, paperless transaction processing while reducing risk

What benefits do APIs deliver for a lending organization?

APIs allow financial institutions to act according to the evolving needs of their consumers and allows them to be more innovative with their digital banking efforts. The API functionality is what allows digital banking capabilities like mobile check deposit, bill pay, and the transfer of money from one account to the other. Some of the benefits of APIs for Lenders are.

  • APIs allow lenders to make a quick decision regarding a loan application by sourcing data points from any third party – government as well as a non-government agency.

  • APIs do not store any data within them and are therefore 100% secure and safe. 

  • APIs provide lenders and financial institutions the capability to utilize third-party vendors that are a good fitment with their business vis-à-vis options provided by the digital banking vendor.

  • An open API allows for financial institutions to integrate with services that will enhance the digital lending experience. These integrations can provide applications with pre-filled information from the borrower’s driver license or mobile phone and save considerable time

  • The benefit of utilizing APIs is the workflow automation they provide. Increased automation provides benefits, including fewer errors, reduced staff hours and monetary costs, and more seamless operations.

  • APIs can be used to efficiently execute programs and transmit data or collect additional required data, in accordance with your various reporting requirements.