Change is something which is a constant so we must expect change and we must embrace digitisation to prepare for the disruption and it is very important that we collaborate with other institutions or with the FinTech players and deploy flexible technology, says Megha Dalela, Vice President-Products, Nucleus Software during Elets 7th NBFC100 Tech Summit, Chennai.
Customers for their traditional needs like mortgages might go to banks and Non-banking Financial Companies (NBFCs). But for their day to day payment transactions, they seem to go for options like pay now and buy later. The credit disbursals being done by NBFCs in the Micro, Small, and Medium Enterprises (MSMEs) sector and in the underserved population, are possibly better than what banks are doing today. Digital transformation is driving the change in credit disbursal.
We have been hearing about some liquidity challenges in the recent past but that is typical of any industry. There are primarily three factors which are driving this change across various industries vis-à-vis customers, competition and technology.
When it comes to customers, today’s consumer behavior is changing as we find them to be less patient. According to a 2015 study done by a bank in the US, they figured that 96 percent of people were so impatient that they would knowingly consume a hot or a cold beverage which would harm their mouth. People these days can be so impatient that if a call is put on hold for a minute or less, they would just hang up. Back in the days, brand preferences were very strong, be it a clothing line, a hotel chain or an airline, people would stick to their brands. But that seems to be changing as people aren’t sticking to just one brand these days.
According to a recent report, 72 percent of the respondents said they consume news on a weekly basis or more and post online content more than once a month. But 73 percent of respondents said they were still worried about fake news, landing onto a question of authenticity. They were not sure that the news being posted is to be believed or not.
When it comes to competition, I feel there are many competitors competing with each other, for that very same customer, resulting in customer risk. It is the consumer who has a variety of options to deal with, which brings everybody in the business vying for their own competitive edge. For all those who had orange juice in the morning, if you think it through, did it have calcium or not, was it having minimal or maximal pulp, was it organic or regular, etc. These are some typical examples that have become a part of our daily experience. I think technology is the reason behind the creation of this competitive edge.
Talking about the role of technologies, I feel it is impacting a lot many industries and some of the impacts we have already seen. Whether it is the hotel industry or it is the transportation industry or the entertainment industry, you see some of those logos and you actually can relate to them, how exactly they have changed our lives. It is not something that is going to stop anytime soon. In fact, we can already see that there are upcoming disruptive events in the automobile segments, in the likes of Tesla. We have also seen disruptors in the energy segment, the pick and drop services, etc. From Amazon testing out drone technology for their delivery services to Google coming out with driverless cars, technology is evolving the user base time and again.
The financial sector isn’t behind too. I joined this industry 20 years back and the change has been drastic if we compare it to previous times. With an increasing number of individuals from the younger generations opting for loans, I feel that they are looking for instant gratification and approvals. The entire industry if you see has become a mixture of traditional players like banks and NBFCs and they are inter-working with FinTech companies and technology companies like Amazons and Googles of the world who want to have their fingers in every pie.
Customers for their traditional needs like mortgages might go to banks and NBFCs. But for their day to day payment transactions, they seem to go for options like pay now and buy later. These are some things driving the change in finance.
‘Copetition,’ which is essentially cooperating while competing, and we have an example of co-origination of loans which has already been initiated between banks and NBFCs where they are coming together and co-originating the loans which are like a win-win strategy. Today, so much of data is available that at every touchpoint there is a set of data getting created. We now see an uptrend in AI capabilities being leveraged to get better insights on performance and solutions using that data.
The entire business model if you ask me, has become digital and when we say digital, it’s not about the digital channels which are customer-facing, but it is also the inside out perspective which is like saying it has become digital even for the backend operations stuff. It is all coordinated between the outside and the inside bit.
When we talk about NBFCs, while finance is changing, I would like to mention four key areas where I think NBFCs should lay thrust upon, and they are:
- Better and faster credit decisions – which will help in enabling instant credit approvals, better conversion ratios, and lesser dropout rates.
- Faster and more cost-effective time to market – because it is very important to beat your competition. This way you go ahead and reach your target segments faster than your competitors
- Easier loan servicing – because we talk so much stuff about digital and mostly it gets associated with digital on-boarding. But today the customers are also increasingly talking about the easier servicing bit, and you would normally choose your technology partners or the customers would choose their financing partners depending upon who would serve them best.
- The need to concentrate on pre-delinquency and delinquency management- so that you can build a robust credit portfolio, take better credit decisions and increase your risk appetite to lend in the market.
So let me now take each of these focus areas and see why we feel in the Nucleus that these are areas to concentrate on and what is that NBFCs they stand to gain if they work on these areas. If they look at faster and better credit decisions, it will entail to better credit books being built which is essentially lesser delinquencies, reduce their dropout rates and improve their conversion rates and eventually give a better experience to the customers so that in the lifetime it sticks to them and you have reduced churn. Reach out to the unbanked, that is, create credit models which are better, using analytics or with the help of business strategies and hence increase your risk appetite to lend to those unbanked segments.
On a faster and a more cost-effective way to get to the market, you will be able to tailor-make your products to get to your target segment faster and you will also be able to look at cross-selling or up-sell opportunities, all this being done at an optimal cost. This will result in higher revenues because you will be able to get to those segments and build and reach out to a wider set of customer segments, resulting in higher revenues.
On easier loan servicing, I think it results in Information symmetry, so across all touch-points you could get a 360 degree view of your customers, you may understand the transaction behaviors better, you may understand the segments which are more profitable to you and that is what will get enabled and it will also help you provide automated service requests because you’ll be able to predict their needs in advance and provide an instant query resolution. All of this will be available 24×7 through the digital medium and thereby enhancing the customer experience in the servicing side.
As far as pre-delinquency and delinquency handling is concerned, we pretty much understand that on cost of reiterating, if you concentrate on the pre- delinquency bit (delinquency we understand much already), you need to stop your flows before they become bad because there is a certain percentage which will anyway roll forward and become delinquent. If you concentrate on this, you’ll be able to reduce your delinquencies, lower your Non-performing Assets (NPAs), increase profitability, because you may be able to understand which are your profitable customers based on Customer Lifetime Value (CLV) and then you can concentrate on them.
It is said that a journey of a thousand miles must begin with a single step. So we at Nucleus Software believe in enabling our customers, our partners to take that first step and stay in that journey throughout. Our flagship product, FinnOne Neo, is designed for the future, as it has got a smart interface, it is something which can be easily integrated to multiple channels, it is built on an advanced technology platform and caters to both retail and corporate banking. It has a suite of mobile applications which help in better operational efficiencies, better reach and also giving better customer experience throughout the loan life-cycle.
Where FinnOne Neo is concerned, we cover the length and breadth of the lending lifecycle. We have multiple modules which run right from customer origination wherein you can do digital onboarding, you could do servicing through the loan management system digitally and collections, which helps you strategise your collection and do it in an automated fashion in a cost-effective manner. Nucleus Lending Analytics, I think this is one of the recent modules that we’ve added on, this kind of makes our origination servicing or collection platforms more intelligent, its got AI and ML capabilities. The digital front end, this is something which kind of helps our clients do lending on the go, so we have a complete suite of mobility modules right from origination to servicing to collections, for the Micro Finance Institutions (MFIs) and we have the portal which is there for the origination and servicing a bit. We also have Enterprise Content Management (ECM) which helps in the automation of the entire document management process.
FinnOne Neo, we truly believe, delivers agility to the business needs, right from generating new revenues to enhancing operational efficiency to delivering a better risk management and improving customer experience.
When I talk about it helps in generating new revenues, it is completely configurable and it has an innovative offering which helps you go to the market faster, if you have to launch schemes for Diwali or Christmas or any such thing, it can be done in a matter of few minutes or seconds by the business users themselves. In terms of enhancing operational efficiency, it is supporting paperless processing, it has that Straight-Through Processing (STP) capabilities, the workflows could be configured in such a manner that it ultimately results in operational efficiencies being seen by the financial institutions.
We do have the collection system which is powered by the intelligence of lending analytics which helps design data by decision strategies and allocations could be done depending upon which is the best channel to go to, what is the best time to contact the customer and things like that. Improve customer experience through our self serving capabilities through various modules, mobility modules and portals and these are all well supported on any multi-device and omnichannel.
Nucleus lending analytics is like an Artificial Intelligence (AI) and Machine Learning (ML) based platform. It has capabilities, traditionally, which all scoring applications could do, so all the statistical algorithms are there but I think what is important today is the kind of stuff that we see on the data of structured and unstructured.
So there are capabilities around the natural language processing which helps, for example in a collection use case, if there is a conversation happening between the call centers and that gets recorded and you want to know who is keeping promises and not keeping promises, those things can be figured out. You have the neural networks, which are essential today to have a connotation of being a black box, so we have tried to make it explainable by creating a parallel of it in the product suite. The multiple use cases across life cycles, the ones you see are just an illustrative list. Our mission is to deliver maximum Return on Investment (ROI) and that too fast. So these are a few examples.
One of the customers which are India’s fastest growing Housing Finance Companies (HFCs), they took our application on Cloud, they already realised the value in terms of 50 percent reduction in the credit processing time or 100 percent automation of their credit decisions. Likewise, another fast growing consumer vehicle finance NBFC, when they on-boarded themselves on the FinnOne Neo platform, they saw results to the tune of almost 40 percent increase in the collections and at the same time, 50 percent reduction in collection time so they were able to do it faster and better and likewise they could see a growth in loan portfolio to the tune of about 65 percent and so on.