Importance of Artificial Intelligence in making lending easier and profitable

Over the year, evolution in global technologies has made people move forward from fixed phones to mobile phones. Today, every sector is readily and rapidly adapting the Artificial Intelligence (AI). With the fast-paced modern industries, AI is becoming an integral part of business operations.

AI is not limited trend-based forecasting in marketing but its presence is getting indispensable in every vertical of the company. AI is much more efficient in analysing data patterns, based on these patterns companies acquire in-depth knowledge about their potential customers, their requirements and their behaviour.

Today, one of the prime beneficiaries of AI is the banking and finance sector. With the onset of AI, the banking sector has completely over-hauled the lending process; simple, cost-effective, and profitable for both lender and borrower.

With the rising number of smartphone users across India, the digital mode of payment has been increased dynamically. In “India Fintech 2019” report, Unified Payments Interface (UPI) transactions have increased to 25% from 2017 onwards, crossing one-lakh-crore mark. With UPI 2.0 well-poised to achieve the Digital India vision for payments put forth by RBI and GOI. Many banks and startups are gearing towards the acceptance and usage of digital payments.

Corporates around the world are actively exploring Artificial intelligence as the next big thing, especially in the finance sector to reinforce the lending process. Primarily, the introduction of AI in the industry was due to its ability to handle a vast amount of data in a short period, along with analytical computing which helps in managing both structured and unstructured data, else it would require a substantial duration to accomplish the subjected task. Here, the algorithms analyze the history of cases to gauge the risk and identify early signs of potential threats.

Recently, India Fintech reported that many of the banks in India so far focused on highly credit-worthy segments primarily due to lack of credit history of others. Through the traditional ways of checking an individual’s creditworthiness, a bank approves 25 to 40% of loan applications. Now, after adaptation to more advanced methods, based on AI and Machine Learning (ML), they are approving 10-15% more loan applications, which is a huge market opportunity.

In the lending industry, Artificial intelligence has given a whole new way to meet the demands of customers who seek smarter, convenient, safer ways to access, spend, save and invest their money. Some of the peripherals of AI such as Cognitive Computing, Chatbots, Personal Assistant, and ML are highly beneficial for the growth and development of the industry. Moreover, digital banks and loan-issuing applications use ML algorithms to use alternative data to evaluate loan eligibility and provide options.

While keeping the record is the secondary activity of the industry, data-backed AI is boosting the growth in Financial Service domain. The data-driven and data-dependent technologies help in scanning through the records, giving AI the ability to suggest the perfect solution for every situation.

Only a system has the capability to search through thousands of personal financial records to come up with a solution. The inclination of the finance sector on AI is mainly due to high accuracy and the ability to analyse vast volumes of data in a short time, making it a powerful tool for customer satisfaction.

AI is also on top when it comes to security and fraud detection. It can help in identifying past spending behaviours on different transaction instruments to point out odd behaviour. Financial crimes such as money laundering can also be prevented with the help of AI.

Another feature of AI is being unbiased in the task. If there is an irregular transaction, which is corrected by a human being, then the system can learn from experience and inform about it to system engineers and based on this information, the authorities can inquire the concerned person and may even reject the application.

The use of AI truly shines when it comes to exploring new ways of providing additional benefits and comfort to the consumer. This intelligent system helps in tracking the income, essential recurring expenses, and spending habits and coming up with an optimized plan and financial tips.

With the recent developments in the AI-based wallet, managing personal finance has become rather smooth. Employing robotics has helped in reshaping business practices; the task of eliminating errors allows the financial sector to refocus on the process that requires human involvement. With the vast adoption of Blockchain and Cryptocurrency, there are high hopes for increased transactional and account security.

Artificial intelligence also helps in compiling the information regarding a consumer’s digital behaviour, which involve the study of one’s profile and how frequently s/he visits on various social media platforms. Many other aspects such as inconsistencies in one’s employment information, spending habits, and discrepancies in various profiles of the same person also save lending institutions from the probable defaulters.

Today many technological developments in the lending industry happened due to the increasing role of AI, resulting in more efficient transactions, more accuracy in risk management and fewer errors on the lender side. These desired changes resulted in better profit margins for the financial institutions.

 Sandeep Singh, Co-founder, PayMe India