Nowadays, traditional lenders like banks and non-bank financial companies (NBFCs) are trying to stay relevant in the growing competitive lending space. The competition in the lending landscape focuses more on how well you know the consumers, and how you can utilize this knowledge to make your business successful.
On the other hand, customers expect more from lenders since they want a fast-paced and convenient experience. This reality is one reason traditional lenders are losing the market, but there’s still so much room and time for them to catch up and win the race. One way to do this is to embrace the technological transformation happening in the lending space.
FinTech companies - rivals of traditional lenders - are at an advantage because they have new ways of understanding consumer behavior and reaching out to customers thanks to Artificial Intelligence.
AI is a buzzword in the business world today, especially those operating digitally. Lenders must adopt AI for them to stay if not to keep ahead in the competition. Here’s what you need to know about the importance of Artificial Intelligence in lending.
New Method of Credit Scoring
Credit scoring is a crucial aspect of the lending business. It helps determine the eligibility of a customer in getting a loan, and it’s also crucial in ramping up the loan book of lending companies. However, credit scoring also poses a significant challenge to many lenders.
For instance, the traditional way of figuring out the credit scores of borrowers is very bank branch driven, which means that bank branch managers typically have a major say on the credit. Artificial Intelligence can help create a new mechanism for credit scoring and help lenders drive up the number of customers.
AI can help obtain a customer’s credit score using 300-400 data points related to financial history, customer behavior, history of income taxes, and other transactions. The same technology can also use more data points to refine the former method of deriving credit scores.
For example, they can use the consumer profile as a data point, including friends and connections across social media platforms the customer has. You can also add the type of mobile phone, number of hours of mobile phone usage, mobile applications the customer uses, payments usage data, wallet usage data, and more.
Artificial Intelligence models can use this unstructured and structured information, and utilize its output as a customer’s credit score. The lender can predict such credit scores offline or in real-time, depending on the lender’s preference.
It will now be easier for lenders to reach out to new and existing customers if they have this AI-assisted credit scoring. It also standardizes the issuance of loans across offices/branches of lenders and thus minimizes the risks associated with providing loans.
Customer Acquisition
In recent years, the behavior of consumers looking for loans has changed dramatically. The internet usage of these customers has left a digital footprint on lenders’ digital properties. AI can utilize such data to understand consumer behavior better and predict potential business outcomes like the level of the intention of a customer to get a loan.
Artificial Intelligence utilizes search data, clickstream data, and other data to create a model that predicts customers’ intent to purchase. Customers can then be put into categories, such as ‘not interested’, ‘requires more effort’, and ‘must reach’. You can also add categories depending on the requirements of your business.
With this categorization of prospective and existing customers, it’s now possible to make targeted outreach even in the early phase of sales engagement. You can also target those who want to get a particular type of loan, such as secure online payday loans with few hassles using AI.
AI Removes Human Bias
Human bias is present in the traditional loan origination process. Thanks to AI, customers can now expect fast processing of their loan applications and zero human bias in loan approvals. Before AI, higher rejections of loan applications led to customer dissatisfaction and significant revenue loss to lending companies.
By adopting Artificial Intelligence, lenders can now process loan applications through AI algorithms that look for patterns and produce insights based on certain data points. This new process allows for low error rates and increased profits.
Optimizing Efficiency and Costs
Artificial Intelligence eliminates archaic systems that heavily depend on manual processes. These old systems can hinder productivity and increase the cost of business operations. Using AI-supported systems, you can now improve cycle times and perform operational functions with high efficiency.
AI algorithms can pinpoint glitches, extract data, and deliver decisions faster than humans. Repetitive and labor-intensive tasks can also be performed by AI-powered systems in just a matter of seconds or minutes. You can now channel the money you usually spend on human labor into more profit-oriented aspects of your business.
Takeaway
You can't underestimate the benefits of AI in the lending business. This new technology can help lenders to grow their business and reduce their cost of operations. If you’re into lending, it’s time to adopt AI to keep your business competitive.
