The financial sector is undergoing a complete revolution steered by the rapid growth of Artificial Intelligence, generative AI, machine learning, etc. The financial sector, including lending, is not only adopting this new transformative tool but also reshaping its loan processes, making it more efficient and accessible. Let us explore the impact of AI in finance and lending.
The Role of AI in Lending
AI can positively impact the future of lending in many different ways.
1. Increased Efficiency
AI can enhance efficiency by reducing the loan approval time. it can automate the tasks, optimize loan workflows, and help lending organizations make correct data-based decisions. AI is also free of human errors and bias, hence improves the lending decision quality.
2. Personalization
AI enables lenders to adopt a more personalized and relevant approach. They offer correct products and services to the customers based on their preferences, past behavior, and requirements.
3. Credit scoring
Since artificial intelligence can analyze loads of structured and unstructured data at a very high speed, it can quickly check the borrowers’ credit. AI can help lenders make correct decisions based on the borrower’s past payment records.
AI can collect data from large datasets compared to traditional lending systems. It considers non-financial data, too, like social media, education, employment history, customer spending patterns, etc. This allows the lenders to make more accurate creditworthiness checks. It can also conduct risk assessments of even those people who do not have a credit history or have low credit scores. When credit scoring is powered by machine learning, the lenders can monitor relevant metrics like borrower’s income, potential earnings, employment, etc., to project new customers’ creditworthiness.
4. Fraud Detection
With the rise in digital technologies, there has been a significant surge in the number of frauds, too. However, AI can detect identity theft, loan stacking, and many other unscrupulous activities. Machine learning can assist lenders with detection techniques and alert them when the tool spots suspicious patterns. Artificial intelligence can scan thousands of loan applications in real-time and highlight the flagged loan applications, signaling the possibility of fraudulent documents.
5. Customer Support
AI can tremendously enhance customer experience by enabling them to interact with chatbots and voice assistants to receive quick resolution. Most lenders are wary of the fact that customer support is one of their main focus areas. There are robo-advisors, too, who can solve queries and guide the customers 24/7 in different language choices.
6. Loan Underwriting
AI can automate the loan underwriting process, too. AI sub-category – NLP or natural language processing allows the machine to collect and verify customer information. It can check documents like bank statements, credit health, ITR, etc, and provides lenders with relevant data for loan approval/rejection.
7. Collection Management
Financial institutions can find out about those customers who are at a higher risk of defaulting on their loan repayment. To do this, AI can help them analyze the potential borrower’s bank transactions and take proactive measures to tackle such customers. AI algorithms can create customized collection strategies to manage loan payments from these customers. The top strategies may include payment alerts, customized repayment plans, chatbots for seamless customer interaction, etc.
8. Loan Portfolio Management
AI systems can improve loan portfolio management by assisting lenders in identifying risky loans. They can also use technology to optimize loan pricing and interest rates, improve customer loyalty, etc. Through AI predictive modeling, lenders can project defaults and other outcomes. Accordingly, they can make informed choices to lower the risk, improve profitability, and improve loan portfolio management.
9. Cross Selling
AI can also assist lenders to cross-sell. For example, AI-powered systems can recommend new loan services or products to the existing customer base. The technology can segment the customer based on their credit profile and financial requirements. The lenders can pitch them with the right products and increase their wallet share.
Wrapping Up
AI is reshaping the future of the finance and lending industry. It helps lenders achieve efficiency, offload manual work, speed up the loan processes, segment customers, and create personalized offers. AI also helps borrowers get enhanced accessibility, quick loan approval, and personalized products and services. AI helps borrowers make better financial decisions, and lenders mitigate the risk of loan default.
FAQs
1. What is AI in finance and lending?
Ans. The adoption of artificial intelligence in lending has reshaped the loan approval process. It allows automation, lowering costs, increasing operational efficiency, streamlining workflows, etc. It enables lenders to use data in their decisions to make them more effective and fruitful.
2. How does AI affect lending?
Ans. Ai allows lenders to achieve higher efficiency by enabling automation, lowering cost, augmenting customer experience, mitigating the risk of loan default, etc. The lenders can match the unique customer demands by offering them personalized products and services.
3. What are the risks of AI in lending and finance?
Ans. AI might pose some challenges and risks like exposing sensitive and personal data, data breaches, legal compliance issues, accountability, etc. Using AI may also need technical skills and data knowledge.
4. How does AI ensure better credit accessibility?
Ans. AI-powered lending does not judge the creditworthiness of the individual only on past credit history. It uses a wider data range like social media, spending patterns, potential earnings, etc. This makes credit more accessible to borrowers with low credit scores or histories.
5. How does AI help in loan underwriting?
Ans. AI can automate the loan underwriting through NLP. It can collect and verify customer information by checking documents like bank statements, credit health, ITR, etc, and help lenders approve loan.