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Building Asset Monitoring Systems for Lending Apps | Secured Lending Solutions

Shubham Joshi
Shubham Joshi
Software Engineer, Betalectic

Lending technology has been making headlines for some time now. We have seen an influx of new players in the market offering innovative credit solutions, enabling users to spend cash on credit or purchase goods using Buy Now, Pay Later (BNPL) services. Adopting such financial products is widespread across various platforms—whether booking a flight through MakeMyTrip or purchasing goods on Amazon using Amazon Pay. With increasing demand and continuous innovation, the credit ecosystem is expanding rapidly, opening new opportunities in digital lending.

Secured Lending Apps: Lending Against Collateral​

A new and promising avenue in the lending landscape is the rise of secured lending platforms that offer loans against pledged assets. Unlike traditional unsecured lending, where credit is extended based on income and creditworthiness, these platforms allow users to leverage financial assets such as stocks, mutual funds, or gold to secure loans. This approach ensures lower risk for lenders while offering borrowers lower interest rates compared to unsecured loans.

How Secured Lending Works​

  1. Asset Pledging: The borrower pledges a portion of their financial assets (e.g., stocks, mutual funds, gold) as collateral.
  2. Loan to Value (LTV) Calculation: The lender determines the loan amount based on the value of the pledged asset. Typically, the LTV ratio ranges from 50% to 70%.
  3. Loan Disbursal: Once the LTV is calculated, the loan amount is credited to the borrower's account.
  4. Asset Monitoring: Since pledged assets are market-dependent, their value fluctuates, necessitating continuous monitoring.
  5. Loan Repayment & Asset Release: The borrower repays the loan, and upon successful repayment, the pledged asset is released back to the borrower.

Challenges in Building Secured Lending Apps​

Building an application facilitating loans against securities (LAS) presents unique technical and financial challenges. The primary concerns revolve around market fluctuations, risk mitigation, and seamless integration with financial data providers.

1. Dynamic Nature of Pledged Assets​

Unlike fixed assets, financial securities such as stocks and mutual funds are subject to market volatility. This fluctuating nature poses a risk to lenders. The lender could suffer financial losses if the asset’s value drops significantly below the LTV threshold.

2. Continuous Asset Monitoring System​

To mitigate risks, we implemented a real-time monitoring system that tracks the value of pledged assets throughout the loan tenure. This system works as follows:

  • Data Collection: Asset prices are continuously fetched via market APIs.
  • Threshold Alerts: The system compares current asset values with the pledged value at loan initiation.
  • Risk Identification: The loan is flagged as at-risk if the LTV ratio crosses a predefined risk threshold.

3. Automated Risk Alert System​

Our alert mechanism ensures timely intervention in case of adverse market movements:

  • Danger Zone Detection: An alert is generated if the asset value declines beyond an acceptable limit.
  • Customer Notification: The customer is informed about the shortfall, prompting them to repay a portion of the loan or pledge additional assets.
  • Loan Management Actions: In case of prolonged devaluation, the lender can take appropriate action, such as liquidating part of the pledged asset to recover the outstanding loan.

4. Third-Party Data Integrations​

Integrating third-party services is a crucial yet complex aspect of building secured lending applications. Financial data providers such as CAMS/Karvy for market and user holdings data, Razorpay for payment gateway processing, and Digio for autopay setup ensure smooth operations.

However, these integrations come with challenges, including maintaining data integrity, ensuring immutability, and managing historical records for auditing. To uphold reliability and compliance, it is necessary to implement robust mechanisms that store multiple data versions, allowing for accurate tracking, error resolution, and regulatory adherence. A well-architected integration strategy is vital for seamless loan processing and risk management in secured lending platforms.

Conclusion​

Secured lending platforms represent a significant advancement in the digital lending space, offering a more stable and risk-mitigated approach compared to unsecured loans. However, building a reliable and efficient secured lending system requires:

  • Robust asset monitoring to track market fluctuations.
  • Real-time alerts for timely risk mitigation.
  • Automated risk management to handle market volatility effectively.

With more financial institutions adopting secured lending models, this sector is poised for significant growth in the coming years.

Ready to Build a Secured Lending Platform?​

If you want to implement a robust asset monitoring system for your lending app, Betalectic can help. Our team specializes in building scalable, secure, and user-friendly lending solutions tailored to your needs.

Contact Us Today to get started!