​How digital lenders leveraging technology and automation to navigate through economic uncertainties


Image Source : FREEPIK Representational image

In the past few years, economic uncertainty has continued to impact global markets. Pandemic-linked headwinds and the Ukraine-Russia war, among other issues, have only worsened matters. Given the ongoing turmoil, banks, fintech firms and other new-age lenders have sought to ease some of the current concerns, lending a measure of stability to the markets.

In context, digital lenders have played an increasingly active role in supporting enterprises, especially MSMEs, and individuals to either keep businesses running or ensure they could manage household expenses despite the loss of income. It is obvious that automations, data and tech can ensure higher productivity, reliability, availability, increased performance, and reduced operating costs. Automation will contribute to economic growth via contributions to productivity.

How uncertainty spurs digital offerings

Empirical evidence indicates that as small enterprises encounter economic uncertainties, their need for funds escalates. The mounting demand for funds, specifically in big tranches, means that small businesses should be prudent while managing capital outflows.

Digital lenders realised that to help small businesses steer through economic uncertainties and yet save money and improve productivity in the process, technology, data analytics and automation cannot be ignored.

Nonetheless, the situation is not as simplistic as it sounds. This is primarily because there are security issues involved in online transactions such as of phishing and other cyber frauds.

Moreover, continued volatility and the impending threat of a global recession have triggered tailwinds for digital lenders. This is because both institutions and individuals have felt a greater need to increase their borrowings to meet monthly expenses and repayment obligations.

India’s fintech firms have been big beneficiaries of these conditions. Not surprisingly, the nation ranks third among the world’s fastest-growing fintech markets with the highest fintech adoption rate of 87%. Here, the major focus of domestic fintech firms has been on the lending and payment segments.

As these events play out, India’s fintech industry has been leveraging technology tools to streamline operations and enhance customer satisfaction.

Primary drivers of fintech growth include e-commerce, rising pan-India internet and smartphone penetration plus soaring consumer expectations, among others.

Data-driven deals and due diligence

Today, the digital lending landscape is driven mainly by data. The pandemic played a pivotal role in accelerating India’s digital transformation, be it transitioning to remote-first workspace, using design thinking to analyse and optimize the customer journey or implementing automated customer service.

The fintech market also recorded a 40 per cent spike in digital transactions. Be it customer acquisition and initiation to underwriting and disbursal, digital loan protocols remain data-driven.

Customers too have appreciated the advantages of speedy digital deals. A survey shows that led by millennials, around 40 per cent of borrowers are willing to procure loans online rather than through offline channels. But as mentioned earlier, as digital transactions rise so does the possibility of cybercrime.

Considering the related threats, digital lenders are deploying data analytics, artificial intelligence (AI) and machine learning (ML) tools to thwart cybercriminals and facilitate secure digital lending. As the attention of digital lenders shifts towards risk-reduced lending, traditional tools fail to meet the required benchmarks for managing the complete loan cycle safely.

To overcome such hurdles, digital lenders use data analytics to comprehend the needs and repayment capacity of borrowers. Through analytics, AI and ML tools, it is possible to pinpoint patterns in the data that highlight the risk level of prospective borrowers. Thereby, tech tools can create a Credit Risk Model (CRM) that assists in differentiating between good and risky borrowers.

The CRM harvests data from varied sources to provide more accurate assessments by leveraging the power of AI algorithms. The sources include credit bureaus (enquiries, sanctioned loans, defaults and delinquencies, etc.), bank statements (bank balance, monthly income, recurring debits, etc.) and personal/demographic details (educational qualifications, occupation, marital status, etc.). Taken together, these details help in creating high-quality CRMs.

Such scientific, data-based digital lending models are then used to build a vibrant early warning system (EWS), which predicts borrowers’ capability (and willingness) to make regular monthly repayments of the loan without any likelihood of default. Backed by proactive predictive models such as EWS, it becomes easy to focus the work of collection resources on borrowers who are more likely to have intentions of withholding repayments due to diverse reasons.

Benefits for all stakeholders

Thanks to the robust combo of credit risk models and early warning systems, digital lenders have been able to broad-base the segment of eligible borrowers while controlling lending risks.

What’s more, creditworthy customers also benefit from healthy due diligence through lower interest rates and better offerings of loans, credit cards and other financial products. A proper understanding of customer eligibility via data analytics then helps lenders provide personalised products and services.

Encouraged by the benefits of technology in promoting easier acquisition, safer transactions and greater customer satisfaction, banks and other lenders are joining hands with advanced fintech platforms to address the needs of tech-savvy millennials and Gen Z consumers.

As digital increasingly becomes a prime part of consumer lives, lenders should stay in step with the latest technological advancements. Safe and secure digital transactions apart, it will also facilitate faster turnaround times leading to greater customer satisfaction. For a service-oriented segment such as digital lending, there can be no greater reward.

(Authored by – Vineet Tyagi, Global CTO – Biz2X and Biz2Credit)

(Disclaimer: The opinions expressed in this article are those of the author. They do not reflect the views of India TV)

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