How is automated credit decisioning transforming digital lending?

The emerging technology is penetrating to the extent that they are determining the way the financial institutions interact with the consumers

Rohit AroraUpdated: Saturday, June 11, 2022, 04:34 PM IST
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Profitable outcomes have previously been outcome of the right products to the right customer provided at the right time. /Representative image |

New technology trends are emerging at a reckless pace in the financial services industry, thus the landscape for lending is fast changing.

For financial institutions to maintain competitiveness and profitability, they mustprovide needed financing in a timely and efficient manner, while always keeping an eye on offering an outstanding customer experience. Therefore, automation is the key to the future of lending, and those financial institutions that embrace it early, and effectively, will harvest the greatest rewards.

The emerging technology is penetrating to the extent that they are determining the way the financial institutions interact with the consumers to taking a call to action and doing away with the manual processes.

Profitable outcomes have previously been outcome of the right products to the right customer provided at the right time. But in this day and age those entrants who are first to adopt and embrace new technology empowered with AI and automation to meet the customer expectation are the ones who will get a competitive edge. That’s how the top performing credit providers are leading today. They have timely recognised the need to employ the advanced AI and automation powered technology to improve the efficiency of the current processes.

AI and automation have opened the frontiers of profitability, efficiency, costs, and end-user experience in the lending space. It has the potential to positively serve every stage of the loan lifecycle, from identification and pre-screening applicants, to credit underwriting and customer onboarding and portfolio monitoring and contract management.

Credit companies have realised the drawbacks of the traditional way of credit decisioning. As it is human-intensive and such models cost companies a fortune in the process of scaling up and often fail to capture applicants without a verifiable credit history. Adding to this, long waiting periods result in both opportunity and material costs for the customer and the credit companies. Other challenges include low transparency, high costs, low growth and low realisation of lending capability.

Therefore, reimagining the allocation of human expertise and process sequencing with digital transformation, powered by AI And Automation can deliver better decisions, faster—a key to improving the customer experience.

However, breaking away from the earlier systems for credit companies is not easy as these institutions are burdened with incomplete and inaccessible data, complex statistical business model, deep and highly manual workflow processes.

Perhaps for institutions who want to weave in the automated technology can take the first step by recognizing the key gaps in their credit process that would benefit from automation to tap on efficiency gains and cost optimisation.

Effective digital transformation starts with evaluating the existing customer and employee experiences to prioritise the investment for all-out impact. Automating or digitising only the present practices is inadequate to remain competitive. Credit companies need to consider it holistically about the customer lifecycle and the potential for profitable growth that technology and well-crafted process enhancement empowers. Consequently, credit companies can create an ecosystem with multi-faceted support from sales, credit administration, IT, finance, capital planning and the executive leadership team.

The employment of digital tools for automation throughout the lending process offers several real, concrete benefits to a credit company. It Includes enhanced speed in every step from application to underwriting to close, while aiding greater efficiency, precision, and with lesser manpower. It is helping in reduced cost of loan originations, faster loan closures, improved risk management, seamless borrowing, inclusivity by supporting zero credit history borrowers. The consequence is a better customer and employee experience, with the potential to generate higher volumes of loans at the same or lower risk.

This same concept of leveraging technology to achieve scale and improved performance can be extended to the front office. Identification of high value and high potential customers or segments can be rapidly enhanced with the use of the right algorithms.When combined with an effective pricing of the all-inclusive customer relationship it becomes a decisive differentiator against the stiff and growing competition.

While the challenges in digital-lending transformations are demanding and the journey to eventual success can be a rough ride, but this effortis compensated in form of competitiveness and profitability. Credit companies greatly benefit with faster credit decisions, customers getting cash up to 80 percent sooner; lower costs, 30 to 50 percent less time spent on decision making; and better-quality risk decisions. Subsequently it translates into greater profitability down the road—making it worth every effort.

(Rohit Arora, CEO, and Co-Founder of Biz2Credit / Biz2X. Views are personal)

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