The success of a lending service depends primarily on its ability to assess the creditworthiness of borrowers. It is a key component in the lending process. When assessing counterparty risk, two key factors come into play – accuracy and time.
When done manually, the process of collating and analyzing borrower information can be error-prone and time-consuming. This affects the operational efficiency of the lender, as it may take days or even weeks to accurately perform the financial spreading and risk grading of the applicants.
In view of the progressively growing momentum of digital transformation, the finance industry is quickly realizing the power of technology and the immense potential of its applications in this segment.
The need for automated solutions has been felt for long in the financial industry, as it can not only help streamline the credit assessment process but can also help scale loan application processing volumes. Technology can also significantly enhance the level of accuracy of lending decisions.
In the credit sector, which is characterized by complex manual processes or cumbersome legacy systems, the targeted introduction and integration of state-of-the-art technologies allows Fintech enterprises to secure enormous benefits. Organizations can use the latest technologies to boost efficiency, deliver improved customer experience, and stay relevant in a fiercely competitive market.
Technology can be used in the credit process to make it more agile and efficient. From legitimizing a new customer to evaluating the creditworthiness and optimizing the complete credit check process, technology can play a critical role. Many lending companies are using the power of technology to deep-analyze the creditworthiness of applicants using a multi-level approach and not by merely focusing on the credit score as was the norm in the past.
Know Your Customer of KYC is the first step for verifying the identity of the customers before the actual credit process unrolls. This is a regulatory requirement at all lending institutions.
There are smart software systems available to help assimilate data from multiple sources and come up with a highly accurate picture of the customer’s financial details. The technology runs information checks automatically through personal data and business data from various data points to make the KYC process as comprehensive as possible.
Ascertaining the creditworthiness of the borrower helps reduce the risks of NPAs and bad credit history significantly. While a large number of lending institutions rely on the credit score derived from various credit bureaus, that alone might not be good enough to arrive at an accurate financial status of the applicant.
There are sophisticated credit bureau data analysis systems designed to fully customize credit analysis based on data sourced from multiple institutions. This helps lenders arrive at a more practical and credible conclusion about the borrower’s creditworthiness.
There are many instances where borrowers have a negligible credit history. In such cases, credit scores cannot be a reliable tool for assessing credit behavior. Lenders must have a 360-degree view of the applicant to accurately determine their borrowing power and authenticity. Digital footprint analysis can come in handy to predict credit behavior with a good degree of accuracy.
The applicant’s social media activity, browsing behavior and smartphone data is accessed, analyzed, and combined with the traditional credit scoring model to understand customer’s credit risk level more accurately. With the use of advanced digital footprint tracking methodology, the diverse data sets can work as an alternate medium to derive relevant insights for making credit evaluation as precise as possible.
It is critical to capture the location information of customers and connect it to the credit rating process in an online loan system. Geo-location tagging helps capture the location of the borrower automatically. It serves as an alternate data point to uncover more details about their reliability.
Other tech-driven processes such as remote bank statement analytics and other customer evaluation metrics also help lenders arrive at a practical and accurate creditworthiness rating. Technology-powered credit evaluation platforms are becoming commonplace within the lending industry as it allows them to evaluate critical aspects of the borrower’s demographics swiftly and make the final decision without any guesswork.
Finbraine’s IDBraine is a secured and smart E-KYC Solution that makes identity verification quick, easy, and convenient. It offers biometric KYC and in-app KYC options.
CredBraine from Finbraine is a next-gen digital lending platform powered by AI/ML capabilities that makes lending and credit intelligent.