How Technology is Changing the Lending Landscape
Technology in finance is blurring the lines of distinction between the old and new age lenders, making it easier to lend and borrow with ease and to evaluate risk more accurately, anytime anywhere
Not very long ago, to secure a business loan one had to beat the pavement pitching to numerous banks or other types of lending institutions. The application process was often cumbersome, long and usually disconnected from ground realities faced by the business. It helped if someone was willing to put in a good word for the applicant to the powers that be at the lending institution. Even then there were no guarantees that the loan would be approved, much less on time to serve pressing business needs.
Fin-tech is changing all that now. The Indian lending landscape, driven by technology and innovations, is witnessing a paradigm shift.
Technology is changing nearly every aspect of financing including how we go about applying for a loan, to whom and where. Banks and NBFC's are no longer the only enterprises that lend money to businesses. Driven by technology, new age players are entering the market every day and challenging the "status quo" of the entire sector. To stay in business, lending institutions, banking, non-banking and loan marketplaces, are leveraging advancements in Digital Marketing, Artificial Intelligence, Machine Learning, Video, Voice Recognition, and Cloud technologies, to transform, ground up, every aspect of the lending business.
The Shift from Manual to Virtual
The wide availability of high-speed Internet and growing volume of smart mobile and computing devices is encouraging lenders to engage potential applicants or their influencers via the web or mobile apps.
This shift, from manual to virtual, is empowering both lenders and applicants alike and is helping disburse higher quantum of credit quickly, efficiently and with lower risk.
For lenders, adoption of tech-enabled risk modelling techniques, for instance, removes limitations associated with manual credit assessment and directly translates to speedier disbursement of credit to qualifying applicants. Beyond enhancing internal processes, technology is enabling lenders to target potential applicants based on their Internet search and social media behaviour patterns and helps expand sales pipelines and reach beyond target markets. ‘Pay-as-you-use’ tech offered by new age fintech vendors greatly helps level the playing field for newer players against well-heeled larger players.
The arrival of tech-enabled alternative financing platforms like ‘Peer to Peer’ and ‘New to Credit’ lending, is also increasing choice for the borrower.
In the pre-tech era, borrowing was like buying groceries from the only shop in your neighbourhood. You had to buy what was available. Lenders, banks and non-banking finance companies, offered a fixed set of loan options and borrowers had no other choice but to settle for whatever was available.
Technology in financial services has improved choice for the borrower. Not only can he decide where he wants to apply, directly with the lender or via a loan marketplace, but he also now has numerous offers from competing lenders to choose from.
The application process is increasingly simple, intuitive and available 24x7. A single application at a loan marketplace, for instance, throws up numerous options to choose from and within much shorter timeframes than before.
Better Intelligence Equals Better Insights
Prospective loan seekers or borrowers may submit up to 150 to 200 pages of documentation along with their applications. Historically lenders, looking through this large volume of data manually, would often misinterpret or completely miss many data points. Newer tech-driven solutions, that harness advancement in AI, ML, Big Data analytics, Data Lake management and OCR, enable lenders to quickly gather, synthesize and analyze data to derive critical insights essential for accurate creditworthiness of the applicant and risk to lenders. Beyond the usual financial profiling, modern-day credit assessment methodologies assess an applicant’s social media pattern, GPS data, and messaging patterns in real time.
Thanks to Optical Character Recognition, or OCR, machine learning algorithms, the end to end loan fulfilment is incredibly fast. What took months now takes mere weeks or days. Some platforms even process small amounts within hours. Supported by cloud-based software working 24/7 in the back-end large number of such transactions could be simultaneously processed. The experience for both lenders and borrowers is comparable to retail shopping; convenient and hassle-free “loan shopping” carried out with just the press of a button or click of a mouse.
The Indian financing sector is going through sweeping changes as more and more players are starting to use technologies like Artificial Intelligence, Machine Learning, and Block Chain to integrate the physical and virtual world to better sell their services. Technology in finance is blurring the lines of distinction between the old and new age lenders, making it easier to lend and borrow with ease and to evaluate risk more accurately, anytime anywhere.