By Devang Mody
The lending industry, significantly the non-banking financial companies (NBFCs), are increasingly relying on technology to reach and service a larger customer base.
The technology-centric business model of the NBFCs, which rests on cutting down on manual tasks and legwork-oriented practices to migrate towards automated processes, have led to greater accessibility, cost-effectiveness, efficiencies in credit quality and turn-around times over the traditional lending models of banks.
Disrupting the norm
The conventional business of loan giving usually follows a tedious and lengthy process with the requirement of manual intervention and human intelligence at various stages. Indian lenders, both banks and NBFCs, are waking up to the need of end-to-end digitisation of the lending process.
The new-generation NBFCs are increasingly using technology at least at the first leg of loan initiation and customer onboarding – India stack has enabled Aadhaar data to be used for e-KYC or digital verification of customer as well as using the digital data of customers for credit appraisal and product design. Artificial Intelligence (AI) has enabled the lenders to get unique customer insights and alternative credit scoring methods like psychometric scoring. AI is also being used for credit underwriting fraud detection and loan disbursements to new customer segments. Mobile and smartphone revolution has enabled the front-end connectivity with customers with even low-incomes and no or little education to use their device for applying for loans, checking loan status, completing e-verification, and signing off digital documents for disbursements.
Some NBFCs have gone a step ahead and even automated the middleware, which has made the loan underwriting process also extremely quick, more efficient and transparent. Rather than having key executives pouring over pages of documentation for assessing creditworthiness and risk involved in lending to a customer, technology have enabled these managers to be able to focus on attending to more pressing business needs.
Yet, the approach to technology has been non-uniform for most of the players when it comes to ensuring the complete digitisation of the entire lending stack.
Tech all the way
The future of NBFCs lies in having originate-to distribute business models with a fully integrated back-end, middleware and front-end services for making the entire lending stack technology-driven. This doesn’t simply end at automating the loan disbursal process, but adopting solutions that would enable the companies to quickly react to business events, market and customer demands and have a robust technology platform that can quickly be adapted and scaled up to offer dynamic credit products.
Some of the NBFC are already on the job by taking a holistic approach to technology adoption to digitise the entire stack. The entire digital stack is powered by global technology giants that ensure not only automation of processes, but also instant credit decisioning, digital workflows, enhanced early warning and digital collections processes, and even product innovations, all at a minimal turnaround time. Both NBFCs and banks will rely on Big Data analytics, algorithms and AI for credit analysis and lending decisions to lend to underserved markets without much enhancing the risks. Social media conversations on Facebook, Twitter and WhatsApp have been used by companies and lenders for garnering customer feedback but now technology has enabled lenders to shift through social media conversations for analysing risks before making their lending decisions.
Adopting technological innovations at all stages of the lending stack has been enabling NBFCs to optimise their workforce and workflows, enhance turnaround time, enable educated and smarter decision-making and ensure availability of credit for new customer segments at the best possible rates. Most important, it’s also the demand from the consumers. Technology has become hygiene, and one has no choice but to adopt to stay relevant in the game.
Devang Mody, Executive Director & CEO of Reliance Money.