“Consumer lending is a competitive space and lenders have to keep pace with the changing customer demands for credit” – By, Mr. Arvind Nahata, Co-founder, Decimal Technologies

What is the role of AI and ML in next-generation lending?

The new generation of banking customers is looking for convenient and time saving modes of loan request submissions. Even lenders (Banks & NBFCs) are now offering omni-channel platforms for loan disbursals to their customers and third-party agents. Right from initial loan application to verification of documents and loan closure, lenders are extending digitally enabled services via their mobile applications or net-banking to the new age customers.

The transition, however, to a completely digitised loan processing mechanism is yet to happen. BFSI as an industry is a data intensive sector and therefore, big data sits at the core of digital lending. Since the value of loan is dependent on the creditworthiness of the individual or business, lenders have to analyse their past loans and financial activities to assess their repayment capability. AI and ML thus, help banks sift through and analyse the large, complex data sets and help the lending team in decision-making.

AI and ML based systems therefore help in completely automating the pre-defined workflow of lenders for end-to-end automation. These emerging technologies also help in capturing the required loan documents and make the entire process paperless and remote, which is the need of the hour during the pandemic.

What is the scope of expansion of customers by tapping into alternative data sources?

Lenders are now using alternative data sources such as social media activity, ecommerce buying behaviour, telecom usage, etc. to assess the credit behaviour and risk of borrowers. This is not possible to do in traditional scoring methods, where the lender has to depend on the documents submitted by the loan applicant for risk assessment.

Both structured and unstructured data is collected by the lender and data analytics can further help derive intelligent insights from this to supplement the primary verification process. Customer segmentation using analytical tools can help lenders identify the financial activities of a prospective customer and serve them better with customised products. Data analysis can also help understand geographical segmentation that can further help lenders bring the unserved customer category into their customer base.

What are the benefits of modelling digital loan origination channels on cloud-computing?

Consumer lending is a competitive space and lenders have to keep pace with the changing customer demands for credit. Cloud-based loan origination channels are especially important in today’s digitally enabled ecosystem. It allows for quicker time to market for first deployment and any changes as tech/vendor team can access easily and fix quickly (without any time loss), making the entire process agile. They can also store documents remotely on an encrypted centralised server system, facilitating real-time sharing and updating of information with authorised users and a faster turnaround time.

Cloud-based LOS provides a ready-to-use subscription model and many times is tied to success (disbursement), hence modelling digital loan origination channels on cloud computing makes decision-making easier for lenders with the platform. Further, newer features made available at fast pace. For instance, when Gmail launches any new features, they are made available to all at once due to the cloud. Customer service and experience along with scalability to offer varied new loan products are important for customer retention.

Therefore, a digitally modelled loan origination system improves efficiency and simplifies the process for both the lender and the borrower. Cloud bases systems also allow remote employees to access the same network as their onsite counterparts, which is an important requirement in today’s uncertain scenario with social distancing protocols in place.

What are some of the lender best practices in cybersecurity?

As I mentioned earlier, the lending industry deals with a lot of sensitive data – of the customer as well as of their internal operations. This calls for a robust cybersecurity architecture that can instil trust and make the digital lender a reliable partner to their borrowers.

The threat landscape is very sophisticated and as a digital lender or a lending solutions provider, one should create and deploy applications that can not only fight off any threat vectors but also anticipate a possible threat to the system. Cybersecurity has to be an ongoing process and not an afterthought. A dedicated team led by a cybersecurity director should be brought on board. A complete disaster recovery plan should also be put in place for unforeseen circumstances to safeguard the digital lending operations. Employees are often the easiest and most vulnerable target of hackers or cyber attackers. Therefore, digital lending providers must organize regular educational sessions on the cybersecurity landscape to help the employees identify and prevent a possible breach.

As we embrace digitisation in the lending industry, lenders must keep security at the heart of digital transformation and initiate basic security procedures for anti-money laundering (AML), know your customer (KYC) and customer identify verification, to begin with.

How is Decimal Technology promoting a safe and inclusive digital lending ecosystem through its lending solutions?

The lending industry, especially in rural India, has been an informal sector. Many rural entrepreneurs and even SMEs are unable to scale up their businesses because of lack of a proper mechanism of loan acquisition. World Bank estimates that the current credit gap for MSMEs in India is around $380 billion. Inadequate credit and financial knowledge, lack of proper documents and limited lender options are some of the hindrances faced by the borrowers. On the other hand, the lender is faced with the challenge of offering customized loan services, high operational efficiency and agility in the loan disbursal process. With our solutions, we are working towards eliminating these existing gaps in the lending industry.

Our newly launched product, Saarathi, will help bridge the credit gap in India by making the traditional credit channel efficient and transparent. We are also creating an API-led marketplace for Business Correspondents/ DSAs and the lender community. We are an all AI-enabled product, solving one of the major problems in the lending industry i.e. risk assessment of borrowers. Saarathi offers a fully digital and transparent process that propels data into the lender system, making loan files trustworthy and reducing frauds. The digital lending ecosystem in India is still evolving and is a step towards making credit more inclusive and accessible in every nook and corner of the country. We want to empower last mile (Channels) with technology (platform) and customers access to formal lending (lenders) digitally.