Disruptive technologies transforming NBFCs

Pravash Dash, MD & CEO, Arthan Finance

In India, the financial landscape witnessed rapid growth in the NBFC (non-banking financial companies) sector. With rapid growth, they face a set of business challenges as well as risks. NBFCs have to encounter major threats revolving around their business models and across the life-cycle of the customer. Digital lending has given a quantum jump in terms of customer acquisition while it poses a great threat to fraud and impersonation as manufacturing and distribution of digital documents have become super easy. On a large scale, it really becomes very difficult and sometimes impossible to do all these checks manually and create efficient & customised offerings for the customer.

Disruptive technology to the rescue: AI & ML
In the digital age, Artificial Intelligence (AI) and Machine Learning (ML) empower NBFCs from decision-making to credit risk management, fraud detection to task automation and empowering self-service for the customers to delight customers with personalised recommendations. AI is gaining a lot of traction these days and some of the NBFCs have become AI-first organisation to keep themselves ahead of the curve.

The Benefits of AI

Enhanced customer service
Gone are the days when the premium customers were being offered personalised and quick services. Now everyone expects hyper-personalised offerings and a super quick TAT. Most of the NBFCs have implemented virtual chatbots, live chats, DIY for most of the service requests, and alternate suggestions based on the customer activities to enhance the first point of contact with the customer and create customer delight. With technology integration, it improves itself in real time owing to the increasing database engagement. Cutting down on mundane tasks also translates into more time for human interaction on important issues.

Collection analytics
With a focus to streamline collection processes, relevant business data points are used to train the models. The cumulative data built over time results in perspective models alarming and sends out early warning signals to the NBFCs along with future default timeframes, to create a strong collection and risk management framework for the organisation.

Simplified compliance
Regular compliance is an ongoing challenge for any financial institution. With a wide range of products in the offering, ensuring regular updates across separate sections is a daunting task. The deployed technologies are trained with timely updates to ensure the smooth functioning of the NBFC products. Saving manual hours, the system ramps up operational efficiency.

Risk evaluation
Non-traditional data points like demographic data, financial data, credit behavior, social data, and geo-analytics combined with Deep Learning algorithms ultimately evaluate the creditworthiness of applicants. Predictive risk monitoring is the primary goal of risk evaluation. Financial risks and payment defaults can be avoided by leveraging AI.

Background verification
Know-your-customer is the first essential step in the loan disbursement process.
However traditional methods cost the customer heftily until the entire process is in place. The focus stands on fulfilling e-KYC requirements with assistance from AI tools. This proves to be the futuristic, cost-saving, and hour-saving method for the customer
as well.

Minimal human error
Performing critical yet mundane tasks efficiently saves human resources. Automated tasks by using Robotic Process Automation (RPA) with minimal or zero manual involvement, leave no space for errors and biases.

Standardising processes
Systematic frameworks are a result of technology involved in the initial traditional sector. A constant working framework can result in more productivity than a human resource setting it up.

Cost reduction
Spending on technology is a better investment than human resources since it results in improved efficiency, and lesser defaults, and ultimately helps the NBFC. Indirectly, the customer wins owing to the technology adaptation by NBFC.

Fraud detection
The technologies can be trained for the revaluation of current and past financial records. AI can identify abnormal patterns occurring randomly showing traces of illegal or fraudulent activities which is impossible to do manually by going through millions
of transactions. The data representing patterns combined with human analysis is the key to identifying dangerous areas for the organisation.

Debt recovery
Access to customers’ borrowing data helps AI tools recover the loan amount from lenders timely and effective. Also, it assists in reminding the borrowers not to miss due deadlines and ultimately saves the cost of the loan too.

Offering fit-to-purpose products
AI-driven solutions pave the way for the custom tailoring of loans. Alternative data on customers allows NBFCs to segregate them and prioritise the funnel to help the customers to submit minimal documents for onboarding as most of the data can be fetched from many other sources. Basis the available data, NBFCs can proactively reach out to customers for relevant loan products specifically customised for them. It allows them to target customers for cross-selling and upselling.

Risk management
Avoiding the traditional way of risk analysis, NBFCs trust error-free objective decisions chosen by AI. Since data is the key to decisions, it nullifies any upcoming risk. Decision intelligence guides the organisation towards a minimal-risk environment. Algorithms showing credit scorecards safeguard the organisation from taking any irrational decisions.

Artificial Intelligence serves as a cutting-edge technology for NBFCs, elevating their decision-making and widening to the 360° perspective. Initially, the AI & ML tools helped NBFCs primarily with credit & risk management but now, it is the need of the hour that can be leveraged across the departments.

Views expressed by Pravash Dash, MD & CEO, Arthan Finance.

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