Brent Reuters

General Manager of North America & iNED

The Digital Transformation of Canada’s Lending Landscape

The Canadian lending landscape has been reshaped by a confluence of factors in recent years, with the COVID-19 pandemic serving as a catalyst for rapid change. Traditional banks and mortgage lenders, who have long held sway in the industry, now find themselves in the midst of a digital transformation to meet the evolving needs and preferences of borrowers. The rise of fintech entities, including Neo Banks, has further disrupted the traditional lending paradigm, highlighting the urgency of embracing digital innovation.

The Pandemic’s Impact on the Lending Landscape

The pandemic accelerated the shift from traditional office setups to remote work arrangements and virtual client interactions. This technological evolution forced lenders to rethink their approach, as borrowers increasingly sought the convenience of securing loans from their homes. As a result, the mortgage lending sector has swiftly adopted digital lending practices to a more customer-centric approach to remain competitive in this changing landscape.

Why Lend Digitally?

Several factors are driving the adoption of digital lending in Canada:

  • Cost Savings: With rising interest rates and the expectation of increasing non performing assets, lenders are looking for ways to reduce costs. Optimizing cost reduction techniques using digital lending via loan origination and management platforms will help organizations save money, streamline processes, and cut down operational expenses.
  • Time Efficiency: Manual loan application processes can take days, primarily due to underwriting bottlenecks. Digital lending leverages automation to process applications in hours, not days.
  • Enhanced Customer Experience: Convenience is paramount for borrowers. A smooth digital lending process encourages positive customer feedback and loyalty, alongside competitive lending rates.
  • Meeting Growth Needs: Legacy tools no longer suffice in the digital age. Lenders require cloud-based, high-performance software for loan origination and management to keep up with growing demands.

The Key Transition Method

The fundamental question that arises when lenders contemplate the digitalization of their lending processes is the extent to which they should proceed. Lenders contemplating digitalization can follow a phased approach:

  • Nascent Stage: Introduce minor enhancements to the digital lending journey, such as partially digitizing onboarding and simplifying credit decisioning.
  • Growth Stage: Augment digital transformation in the front and back office, including more automated onboarding and underwriting.
  • Mature Stage: Achieve comprehensive digital optimization throughout the lending journey, with fully automated onboarding, advanced underwriting, and data-driven credit decisioning.

Then vs. Now: How Digital Lending Benefits Stakeholders

Currently, most lenders are in the growth stage of digitalization. A small portion of lenders are struggling to adapt to the evolving demand, while a very select few have fully embraced digitalization. The latter group faces challenges such as high costs or the absence of optimal software and resources.

Traditional lenders relying on legacy software face performance issues, disjointed systems, and multiple data set inefficiencies. In contrast, fintech companies are disrupting the market by offering cloud-based loan origination and management software solutions that, amongst other benefits, automate processes, reduce manual work, and enhance borrower satisfaction. These innovations benefit lenders, employees, and borrowers alike.

The Role of Technology in Lending

Technology has revolutionized every aspect of the lending process for financial institutions including insolvency, loan origination and arrears, loan and debt management. Through the convergence of AI, big data, open finance, and open banking, a synergy of technology and human expertise can bridge the connectivity divide. This transformative approach is revolutionizing the lending process by redefining how institutions evaluate creditworthiness, streamline loan origination, and deliver personalized solutions to borrowers. 

What the Future Holds

The Canadian lending landscape is poised for single-digit growth, driven by several key factors. For example, Open Finance will bridge gaps among lenders, lending products, and customers, fostering novel lending solutions and expanding the lending ecosystem. Additionally, the rise of P2P and marketplace lending democratizes access to loans, offering borrowers more options and lenders a new asset class, serving as a catalyst for the progressive expansion of the lending sector. Furthermore, banks and fintechs are digitally transforming the lending landscape to stay competitive, as survival hinges on the seamless convergence of traditional expertise with digital prowess. This transformation promises efficiency refinements, personalized engagement, and streamlined processes.

Canada’s lending landscape is undergoing a profound digital transformation. The pandemic accelerated this shift, pushing lenders to adopt digital lending practices to remain relevant and competitive. Embracing digital innovation not only saves costs and time but also improves the customer experience, which is essential for survival in this rapidly evolving financial sector. As we move forward, open finance and continued digital transformation will shape the future of lending in Canada.

About the Author 

Brent Reuters is General Manager of North America & iNED at Aryza


Join the conversation in-person and be apart of the ongoing innovation in lending:

2023 Lenders Summit

Engaging with the organizations leading and innovating within the sector and beyond makes the upcoming 2023 Lenders Summit a must attend event. Taking place on November 1st at the MaRS Discovery District in downtown Toronto, the focus of the event will be on networking, partnerships, and driving innovation in the lending sector.

From Banks and Credit Unions to best-of-breed vendors from the fintech ecosystem, the 2023 Lenders Summit is the hub for networking and business partnerships across all consumer and commercial sectors. Main themes include fraud technology, Identity Verification (IDV), financial data solutioning and supporting new-to-Canada and new-to-Credit.

View the agenda and register your organization here