In recent years, there has been a notable shift in the digital lending industry, primarily due to the advancements in artificial intelligence (AI) and data analytics. Financial organisations are continuously adjusting to meet the evolving needs of customers in a world that is becoming more and more digitised.
According to a report by IIFL Fintech, the digital lending market in India had a value of US$38.2 billion in 2021 and is expected to reach US$515 billion by 2030. This represents a compounded annual growth rate (CAGR) of 33.5 per cent, underscoring the increasing significance of digital lending solutions in the global financial landscape. The integration of AI technology will be instrumental in driving this growth and offering exciting prospects for improving efficiency, mitigating risk, and delivering customised lending experiences.
Let us explore the future of AI in digital lending and its ability to bring about transformative changes.
Enhanced risk management
Lenders must have a clear understanding of the borrower’s creditworthiness in order to assess risk effectively. AI can analyse vast amounts of data, even from alternate sources like social media and cash flow patterns, to assess the creditworthiness of the borrower in a more accurate manner. This, in turn, can minimise the risk of default.
Further, AI models can identify subtle patterns in existing data through machine learning to identify patterns in loan repayment behaviour.
Streamlined operations
The process of Robotic process automation (RPA) involves utilising AI-powered software robots to handle routine tasks such as document validation, data input, and eligibility assessments for loans. By doing so, it allows human employees to dedicate their attention to more intricate matters and providing exceptional customer service.
Fraud detection
Fraud poses a significant risk to lenders. AI algorithms have the ability to identify red flags and inconsistencies in loan applications such as information mismatch and suspicious activities by the borrower. AI can also step in to keep a tab on ongoing behaviour such as irregular payments. This helps lenders to protect your financial interests and promote trust at the same time.
Offering personalised loan products
With the ability to analyse vast amounts of data, AI and automation can help to offer customised loan products to customers based on suitable loan terms, repayment methods and, more importantly, loan amounts tailored to the borrower’s financial situation. Further, AI can fine-tune rates on a real time basis based on the borrower’s risk profile.
Also Read: Embracing automation and phygital models: The future of mortgage companies
Reduced operational costs
Businesses constantly seek opportunities to enhance efficiency while simultaneously reducing operational expenses. In a highly competitive lending industry, lower costs can provide a significant edge. By minimising the reliance on manual labour, artificial intelligence (AI) allows for the allocation of resources to other aspects of the business. Ultimately, this results in cost optimisation.
Increased loan volumes
A lender aims to expand their loan portfolio and capture a larger market share. Utilising AI technology allows lenders to tap into a broader range of potential borrowers and accelerate the loan application process, ultimately enhancing the lender’s profitability.
In addition, AI not only enhances operational efficiency for lenders but also contributes to an enhanced customer experience. These two aspects are intertwined and complement each other perfectly.
Faster loan approval
We have previously examined the capacity of AI to analyse extensive quantities of data, thereby removing the necessity for intricate documentation and manual verifications. This means that borrowers can expect their loan applications to be approved in hours or even minutes.
Further, customised loan offerings make the loan process hassle-free for the borrower, thus augmenting borrower satisfaction. Thus, AI is a game changer for borrowers who need a loan immediately for an emergency or time-sensitive purchases.
More transparency
AI also helps lenders provide real-time updates on the loan application. Thus, the borrower is kept informed throughout the process. This helps build trust, and since the borrower gets real-time updates, it helps reduce the anxiety that one may relate to waiting for a decision.
When it comes to artificial intelligence and the process of lending and managing loans, it has provided lenders with the ability to originate loans more quickly and gain a deeper understanding of their customers’ creditworthiness. From cost savings to improved processes, AI and automation have immense benefits for both lenders and borrowers.
Going forward, lenders will continue to make substantial investments in AI, leading to positive outcomes for all parties involved.
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