By Mr. Prashant A Bhonsle, founder and CEO of Kuhoo
Access to loans is an essential aspect of securing a comfortable life. There are many reasons for this, including the fact that the cost of living has gone up, albeit without a subsequent increase in income. Individuals rely on home, business, education, or personal loans to fulfil their requirements. Technology has entrenched itself into all aspects of modern living including financial services and lending. The traditional banking system has multiple deficits making the process of availing loans slow and inconvenient. Fintech companies have stepped in to compensate for these lags. These organizations use modern technology to make procuring loans easier and faster. Here are some of the way in which Fintechs are optimizing AI to overcome the challenges of the existing banking systems.
Traditional lending pain points
Securing loans through traditional banking systems relies almost entirely on the individual’s ability to prove her/his creditworthiness. This is easy for those with a good credit score. However, it is essential to remember that many of these applicants are novices or young individuals with little experience in the processes involved. It is especially true in the case of those applying for education loans. Usually, they do not have a demonstrable credit score and are denied loans.
Banks usually refrain from giving loans to specific population segments based on their income or geographical location. This leads to unnecessary delays due to arduous bureaucratic procedures and paperwork.
Fintechs utilizing AI to overcome obstacles
- AI facilitates the underwriting of new-age courses and programs
Under the old system, loan applications were analysed on the basis of conventional data points. Fintech companies use AI to use a wide variety of data and apply predictive analytics to generate risk profiles. Data such as tax returns, bank account analysers, payments history, etc. are mined and AI is used to accelerate credit decision.
Furthermore, AI is leveraged bring credit access closer to customers using surrogate data to develop customer risk profiles and on-the-go credit decisioning for individuals deemed unworthy by the old underwriting processes. This group includes new–to-formal-credit (NTFCs) customers.
- Automation enhances the ease of processes
New fintech companies are adopting technology and ecosystem partnerships to evolve from time-consuming and tedious traditional lending methods to faster loan approvals including the application processing time and disbursal. Fintech companies rely on automation to make procuring and paying back loans easier and faster for the customer. This includes sending reminders about the due date of EMIS or informing them about errors in documentation. The use of chatbots and text or voice systems deliver a human-like experience, and are prompt in solving customer problems.
- Technology enhancing the outreach of credit to remote parts
Fintech companies, utilizing the latest technologies like AI and ML, have helped fulfill the credit requirements of those residing in Tier 2 or 3 cities. A recent survey outlined that more than 62% households are willing to take student loans to study abroad including loans through digital platforms. AI is immensely helpful for these people, as it is significantly enhancing their access to credit which is imperative for growth.
Bottomline
India is amidst what is regarded by many as a Fintech revolution. The increase in the number of Fintech companies in the market is a testament to this. These companies have a distinct advantage over traditional banking systems because of their willingness to integrate tech advancements with financial services. The use of AI is an integral part of this, given that it offers several benefits to users and helps in regularizing and standardizing financial systems in the country. It’s a win-win situation for all parties involved.
