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The Rise of Virtual Credit Card Fraud: What Lenders Need to Know

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With 67% of the 2000+ Fintech startups incorporated in the last five years alone, the world of digital payments in India is changing fast. Amidst this boom, virtual credit cards have revolutionised digital transactions with their ease of use.

However, this innovation has also paved the way for a concerning rise in virtual credit card fraud, posing significant challenges for lenders.

According to Stripe, the global cost of online payment fraud is expected to reach US$206 billion by 2025. Another 2022 Juniper report predicted that businesses stand to lose more than US$343 billion to online payment fraud globally between 2023 and 2027.

As cybercriminals develop novel phishing methods and hack their way to assets, lending institutions must stay alert and improve their fraud detection strategies.

Let’s delve into the heart of virtual credit card fraud and offer you actionable insights to safeguard your operations and protect your customers.

Rising Instances of Virtual Credit Card Fraud

The latest statistics reveal thousands of reported cases of credit card fraud in 2022. This alarming surge can be attributed to the rapid growth in online transactions during the COVID-19 pandemic. Here are some other factors:

  • Introduction of UPI payments via RuPay Credit Cards by NPCI in 2022
  • More Indians are making digital payments with virtual credit cards
  • Scamsters use this to exploit vulnerabilities in digital payment systems, marking a sharp uptick in fraudulent activities.

The Impact on Lenders

Lenders face immense losses when fraudsters steal customers’ credit card details through several means. Here are some of them:

  • There is a loss of customer trust when customers see unauthorised charges on their statements and may feel their financial information is unsafe.
  • Lenders lose money as they reimburse the customers for the fraudulent transactions.
  • Such incidents can cause long-term reputational damage and erode the brand identity, leading to customers questioning their competence.
  • As trust and reputation suffer, customers may turn to competing firms that seem more secure.

Understanding the Modus Operandi of Fraudsters

To fight virtual credit card fraud, lenders first must understand how cybercriminals defraud customers. Some of the prevalent techniques are as follows:

Phishing Attacks

Criminals deploy advanced phishing schemes that involve sending emails and creating websites, as well as messages to trick innocent users into providing their credit card information or login credentials.

Malware and Skimmers

Threats like malicious code in PoS terminals (point-of-sale)compromised with skimmers can quietly extract credit card data during online transactions, barely leaving behind any footprints.

Data Breaches

Cybercriminals can also infiltrate lending systems to capture the contents of any file in the system. These include customer names, identities (digital identity numbers), credit card info, and all kinds of PII (Personally Identifiable Information).

Synthetic Identity Fraud

Escalating their scams to new levels of daring, thieves create whole fictional personas, cobbled together from real and fake biographical details, in order to accumulate and max out credit cards or make big-ticket fraudulent purchases with impunity.

Account Takeover Fraud

Using stolen credentials or other personal consumer information, cybercriminals can seize access to customer accounts, make fraudulent purchases, or transfer funds to their own accounts.

Card Testing Fraud

Scammers use stolen credit card information to purchase small, unsuspecting items or services, confirm the card details, and then make bigger transactions.

Triangulation Fraud

In this type of fraud, the scammers use a stolen credit card to buy goods or services. Then, they sell those items to an unsuspecting third party for cash or cryptocurrency, effectively triangulating the fraud.

Bust-out Fraud

This is a long-term scam, where scammers establish a legitimate line of credit or account with a lender and increase their credit limits over time. Once they have enough credit, they exhaust the credit limit of the accounts and vanish without paying, and the lender incurs significant losses.

Virtual Credit Card: 9 Proactive Measures for Lenders from Fraud

To mitigate the risks posed by virtual credit card fraud, lenders need a multi-layered approach that combines cutting-edge technology, robust processes and reduced human risk by training employees on anti-phishing and scamming situations.

Here are some more proactive measures to consider:

1. Implement Robust Fraud Detection Systems

Invest in advanced fraud detection solutions that use machine learning, artificial intelligence, and behavioural analytics to identify suspicious patterns in real time.

2. Strengthen Authentication Protocols

Implement MFA (multi-factor authentication) and biometric verification methods, such as fingerprint or facial recognition, to enhance the security of online transactions and account access.

3. Continuous Monitoring and Analysis

Have dedicated teams to regularly monitor and analyse transaction data, customer behaviour patterns, and security logs to detect potential fraud and respond swiftly.

4. Employee Training and Awareness

Develop a culture of security vigilance and invest in training programs to educate employees on the latest fraud tactics, best practices for handling sensitive customer information, and security protocols for reporting suspicious activity.

5. Implement Robust Data Security Measures

Ensure that customer data is encrypted both in transit and at rest, and implement strict access controls and auditing procedures to protect against unauthorised access or data breaches. Have regular security audits and penetration testing to identify and address potential vulnerabilities.

6. Educate Customers on Fraud Prevention

Inform customers about potential scams and phishing attempts, secure online practices, and the importance of protecting personal information. Encourage customers to report suspicious activities promptly.

7. Leverage Device Intelligence

Implement device intelligence solutions that can identify and track devices used in online transactions and flag suspicious activities, such as multiple accounts being accessed from the same device or devices associated with known fraudulent activities.

8. Implement Velocity Rules

Set up velocity rules that track and flag unusual patterns or spikes in transaction volumes, amounts, or geographical locations, which could indicate potential fraud attempts.

9. Leverage Third-Party Data Sources

Integrate with third-party data sources and credit bureaus to cross-reference and validate customer information, identifying potential red flags that could indicate synthetic identity fraud or account takeover attempts.

Final Note

The rise of virtual credit card fraud is a formidable challenge that lenders cannot ignore. By staying informed, implementing robust security measures, and fostering a culture of vigilance, lending institutions can safeguard their operations and maintain the trust of their valued customers.

Use the power of Finezza‘s suite of lending solutions, designed to streamline processes, enhance risk assessment, and fortify your defences against emerging fraud threats. Trusted by the world’s leading Financial players, Finezza offers a comprehensive Loan Management System that is flexible and agile and boasts world-class security.

Protect your lending business and customers by taking action today.

How Is Alternative Data Revolutionising Credit Underwriting Software

Lending Lifecycle Management

As the lending industry grows and lenders attempt to scale quickly, lending businesses are at greater risk of making poor decisions inadvertently.

Poor decision-making often results in the growth of non-performing assets (NPAs) and potentially funding fraudulent borrowers. 

Therefore, lenders need access to various data points to make data-driven decisions. Merely evaluating income statements or proof of income statements is not enough to make a sound decision. Lenders need access to more comprehensive data when processing the full spectrum of loans, from personal and education to business loans.

This is where access to alternative data and its efficient analysis can be a game-changer for lenders. Adopting credit underwriting software can help streamline the analysis process, painting a realistic picture of a borrower’s financial status.

Let’s understand more about such software and its data-driven analysis capabilities.

What Is Credit Underwriting Software?

Credit underwriting software is an automated financial analysis solution powered by a mix of technologies, such as Artificial Intelligence, Machine Learning, robotic automation, Python, and optical character recognition (OCR).

  • Lenders can feed all financial data into the software and automate the underwriting process, making it quicker and more accurate.
  • The solution provides a creditworthiness score based on the data, which allows lenders to make quick lending decisions.
  • These systems often integrate with external data sources (credit bureaus, financial institutions, public records) to provide a more comprehensive borrower profile.
  • Underwriting software reduces human error by automating data entry and analysis and ensures consistent lending policy application across all applications.

Beyond Income Statements: The Need for Alternative Data

However, a key challenge is that income/ revenue statements alone may not be sufficient to offer an accurate score, especially if a business has no credit history and is a first-time borrower.

On the other hand, a business with a good credit history may inflate its financials through practices such as circular transactions.

Lenders must consider alternative data sources that can paint a realistic picture of a borrower’s financials to safeguard lender interests and capitalise on opportunities.

Use of Alternative Data In Credit Underwriting Software 

Credit underwriting software can analyse the following alternative data sources to enable accurate underwriting decisions. Here’s how:

1. Bank Statements

Bank statements of savings accounts and current accounts provide detailed information on the cash flows of individual and business borrowers. However, manual analysis of such volumes of data can be labour-intensive and time-consuming.

There’s also a potential for errors and omissions. Credit underwriting software, on the other hand, leverages OCR technology to extract all the data and categories into inflows and outflows and sub-categories such as salaries received or paid out, EMI payments, penalties for late EMI payments, office expenses, revenues, and interest generated, to name a few.

Such micro-isolation of data into over 60 categories helps lenders understand consumer habits, behaviours, and real-time cash flows.

2. Credit Score & History 

Today, credit bureaus record a borrower’s record in detail. Lenders can access a potential borrower’s in-depth credit history, including credit utilisation ratio, EMI repayment history, and credit usage patterns.

This data can be fed into credit underwriting software to consolidate a borrower’s financial status further.

3. Goods & Services Tax Return (GSTR)

Borrowers with a yearly income of over INR 20 lakhs must register on the GST portal, have a GST number and file GSTR regularly. Hence, a borrower’s GSTR is another popular data point due to its significance.

For instance,  cross-referencing GSTR data against revenue-related bank transactions can help lenders confirm revenues a borrower declares.

Advantages of Superior Credit Underwriting Software 

Here is a list of the key benefits delivered by credit underwriting software, which can be leveraged by banks, non-banking financial companies (NBFCs), and digital lending platforms:

1. Automatic Migration of Alternative Data 

With the growth of the bank aggregator system, credit underwriting software can swiftly and securely access a borrower’s data with the borrower’s consent. The software can also directly pull data from the GST portal with the borrower’s consent.

Hence, the lender can process loan applications with comprehensive data, reducing the back and forth between applicants and lenders to fill in gaps.

2. Superior Risk Assessment Capabilities 

Credit underwriting software can analyse a voluminous amount of data, categorise it into relevant inflow and outflow categories, and detect unusual transaction patterns that raise red flags.

The data is organised and analysed, and the solution delivers a creditworthiness score that measures the likelihood of a borrower repaying a loan timely and in full. Accurate risk assessment is a key benefit of the software.

3. Cross-Referencing GSRT data 

Credit underwriting software comes with GSTR cross-referencing capabilities, which automate cross-checking every tax return with the corresponding revenue-related transaction in a bank statement.

4. Inclusive Credit Solutions

Analysing alternative data enables lenders to move away from traditional lending models that limit them from giving loans to individuals and businesses without a credit history or assets.

Lenders can now offer loans based on borrowers’ real-time cash flows and current and potential revenues.

For example, they can facilitate invoice financing for smaller businesses that must fund inventory to fulfil orders. Credit underwriting software can also recommend customised solutions based on a business’s real-time funding needs, thus reducing the cost of loans.

5. High Priority For Data Security 

Financial data is susceptible, so there is always a risk of data leakages. As lenders collect more borrower data, they must ensure it is processed, stored, and managed securely.

Superior credit underwriting software prioritises the privacy of all data, ensuring that it is stored and managed securely.

6. Data-Driven Decision Making 

Adopting credit underwriting software empowers lenders to shift to a data-driven underwriting culture. Data can be leveraged to power individual lending decisions.

However, the software’s AI capabilities can forecast trends based on historical and current borrower data.

For instance, access to data enables lenders to build a more customer-centric debt recovery and collections strategy that retains borrowers while quickly recovering debt.

Key Takeaway 

A credit underwriting software can work with a wide range of data points. This approach makes the lending process inclusive while simultaneously making the underwriting process comprehensive.

Lenders can expedite the loan approval process, make data-driven decisions, and lay the foundation to build a thriving, sustainable, profitable lending business.

Finezza, the cutting-edge micro loan management software, streamlines lending processes. It automates applications, credit assessments, and approvals, ensuring security and compliance. It also harnesses cutting-edge AI technology to provide tailored analytical solutions, enhancing loan decision-making, reducing lead-to-loan time, and effectively evaluating creditworthiness for faster loan approvals.

Sign up to learn more about Finezza and revolutionise your financial operations today!

How Do Virtual Credit Card Numbers Work: Implications for Lenders

Loan Origination System

The rapid transformation of the financial sector demands innovative digital solutions. To keep up with the pace, lenders are seeking cutting-edge solutions to help deal with modern challenges, such as identity thefts, while ensuring seamless user experiences.

Virtual credit cards (VCCs) have emerged as a transformative tool. They offer a solution to the safety problem plaguing users, simplify processes, and adapt to the demands of the digital age.

As per Zion Market Research, the global virtual credit card market size was worth around USD 9.31 billion in 2022; it is expected to grow to around USD 42.4 billion by 2030 with a compound annual growth rate (CAGR) of roughly 19.3% between 2023 and 2030.

Let us discuss what virtual credit cards mean and how they impact lenders.

What are Virtual Credit Cards?

A virtual card is a digital payment card that users can use to make payments for transactions carried out online or through mobile apps. As the name specifies, it is virtual, eliminating the need to carry a physical card or cash.

A virtual credit card(VCC) is a unique card numbеr, sеcurity codе, and еxpiration datе the cardholder uses these to make purchases like a physical card. Banks, financial institutions, or paymеnt sеrvicе providеrs issue these cards, and they are linked to an actual account or paymеnt sourcе.

A significant fеaturе that distinguishes virtual cards from physical crеdit cards is thе еasе of crеation and dеlеtion available for the former, which offers usеrs morе control and vеrsatility in thеir spending patterns.

How to Do Virtual Credit Cards Work?

Virtual credit cards offer consumers a quick and uncomplicated option to access funds when needed; cardholders can do away with the need to carry a physical credit card with them at all times.

Credit card holders can obtain a virtual card without any charge. Below are a few key aspects related to their functioning:

  • Virtual credit card numbers are temporary, randomly generated numbers. They are created by the card issuer and linked to the primary credit card account.
  • Cardholders may need to create virtual numbers using a tool, such as a browser extension or app. Once the user gets the virtual number, they can use it just like a physical card.
  • The customer gets a virtual card almost instantly upon making the request.
  • A virtual card works just like an actual credit card, with an added layer of security for online transactions. The customer uses it like any other card when they shop online during checkout to complete the transaction.
  • The charges are reflected in the monthly account statement, as is the case with a physical credit card.
  • Users can choose between single-use and multi-use virtual card numbers based on their transaction needs. Single-use cards are ideal for one-time online purchases or cash withdrawals. On the other hand, multi-use cards are designed for recurring transactions with a specific payment method or vendor, offering a convenient solution for customers who regularly conduct business with the same entities.

Implications of Virtual Credit Cards for Lenders

Virtual cards offer multiple benefits to all stakeholders. Lenders can gain from issuing these cards to their customers in the following ways:

1. Enhanced Security

One significant advantage of virtual credit cards is additional security for users. While this may seem beneficial only for the user, lenders also gain as it builds a secure business environment. It helps build customer trust for the lender, improves the lender’s brand image, and encourages customers to transact fearlessly.

2. Increase in Transactions Volume 

Enhanced security, an option to customise spending limits and multiple VCCs boost customer faith and loyalty. These aspects, coupled with the fact that cardholders can do away with the need to have a physical card with them at all times, help boost the number of transactions, which benefits lenders.

3. Satisfied Customers

VCCs are a value-added service that offers customers benefits like better security and more flexibility. These cards also provide unique benefits for businesses by helping them streamline and better manage their payments.

Consumers can customise their spending limits and manage their finances better. This improves customer satisfaction and results in loyal customers.

4. Offers Data Insights

Virtual credit cards are a valuable data source; analysing this data can help lenders offer customised products to their customers. Observing spending patterns allows lenders to provide customers with the right solution and timely advice.

5. Fraud Control

The most prominent challenge for the digital financial landscape is increased fraud. Fraudsters are devising creative ways to dupe consumers, and they cause distress not only to the customer but also to the lender.

Virtual cards offer a hassle-free option for dealing with the ever-increasing number of identity thefts. As they are temporary and users can revoke them immediately, their chance of misuse, unlike physical cards, is minimal. Also, lenders do not have to spend resources to identify or compensate for fraud. 

6. Cost Saving

Virtual credit cards eliminate the need to print and distribute cards physically, which can help lenders reduce their costs. They also help lenders reduce the administrative expenses associated with traditional payment methods.

Virtual card transactions are often fully automated with minimal manual intervention for customer service; being linked to specific merchants or uses helps resolve chargeback-related issues much faster.

Key Takeaway

Virtual credit cards are one of the fintech innovations that benefit lenders and users alike and contribute to improving the security of the entire financial ecosystem. They help lenders improve customer satisfaction and transaction volume, reduce costs, provide data for analysis, and minimise fraud.

Integrating virtual cards with their existing loam management systems helps lenders offer their customers intelligent solutions and improve their operation efficiency.

Lending lifecycle management and credit evaluation services platform Finezza offers a web-based lending management software that incorporates the loan origination process, mobile ecosystem, APIs, and delinquency management. It also has a range of products to help lenders improve their financial analysis and decision-making.

Get in touch with us to know more.

Is a Line of Credit a Good Addition to Your Lending Products?

Lending Lifecycle Management

Credit plays an integral part in the economic progress of a country and an individual; credit helps fulfil goals and aspirations and aids in development. Individuals and businesses require different categories of credit facilities depending on the requirements, and lenders offer diverse credit products to meet the needs of their customers.

Three primary types of credit products lenders offer consumers are revolving credit, instalment products and open credit. The line of credit (LOC) is a type of revolving credit, which means that the borrower can access credit repeatedly up to a specific limit.

The LOC offers many benefits for borrowers, especially MSMEs, the chief being flexibility; however, is it a good addition for the lenders for their product mix? The discussion below focuses on this aspect.

An Insight Into Line Of Credit

The LOC is a predetermined borrowing limit available to a customer when the credit line is active. It is a flexible revolving credit account that lets a customer access funds up to a predetermined credit limit.

LOC can be compared to a credit card, where the borrower withdraws funds when needed instead of purchasing an item. The customer pays interest only on the amount used, not the entire credit line.

The lender determines the overall credit extension based on the borrower’s creditworthiness. The advantages of a LOC for the borrower are:

  • Flexibility: The most significant advantage a LOC offers is flexibility. The borrower can access cash at frequent intervals, repay and borrow repeatedly. Thus, funds are available as and when the user needs them, and the repayment schedule is also adjustable.
  • Lower interest: The borrower pays interest only for the amount they utilise, not the entire sanctioned credit line.
  • Tackles costs: Lines of credit help cover unexpected expenses, manage cashflows, finance short-term projects, and serve as a safety net for unforeseen financial emergencies.
  • Control fluctuations: They help manage fluctuations in income and help borrowers avoid high-interest options like payday loans during lean periods.

Benefits of Adding Line of Credit to the Product Mix

Lenders consider the risk and profitability associated with each product before deciding what to include in their product portfolio. Each loan type carries a different type of risk; lenders should ascertain whether it fits their overall business strategy and risk tolerance.

Adding a LOC to lending products has the potential to provide the following benefits:

1. Loan Portfolio Diversification

Lending involves an inherent risk of default on payments by the borrower. Lenders can manage this risk by diversification at the borrower and portfolio level. 

Different types of credit products react in different ways in diverse market conditions. Some products may get affected adversely by certain situations; their performance will be balanced by other loan products that may perform better during the same period.

Adding the LOC to the product mix will enhance portfolio diversification, reducing the probability of poor performance and will increase its resilience.

2. Helps Improve And Strengthen Customer Relations

The line of credit offers many benefits for borrowers. Customers may not want to opt for traditional loan products, where they have to pay interest on the entire loan from the day the loan is sanctioned and may prefer the LOC option, where interest only builds up when money is accessed. If the lender does not offer the line of products, the customer may approach a different lender.

Customers, especially businesses, want to have a relationship with a bank that can meet all their different requirements. When they look for a banker, they prefer a lender that offers them term loans as well as lines of credit to help them meet their different credit needs.

Thus, adding lines of credit can help lenders attract new customers and build stronger relationships with existing customers.

Lenders can offer customised solutions using digital platforms like embedded loan lines from Finezza. This allows lenders to adapt credit conditions to their consumers and add value to the credit line operation, making it an efficient and profitable core strategic enabler.

3. Enhances Income Potential

Lenders can charge higher interest for lines of credit, compared with other products like term loans, which can help them enhance their income potential.

Lines of credit can cater to a broader range of customers owing to their flexibility, which can help lenders attract more customers and, in turn, improve their income prospects through the interest they charge on the LOC.

Line of Credit: Some Concerns

There are a few aspects to consider before adding a LOC to the product line:

1. More Risk of Default

Unsecured lines of credit are inherently riskier than secured loans as the borrower does not offer collateral for them. Lenders can manage this risk by having a more stringent screening process at the time of sanctioning and better monitoring.

Choosing the right credit underwriting Software can help lenders make better credit decisions through reliable credit scores, document verification, and assessing alternate data points.

2. Higher Operational Costs

Managing lines of credit is more expensive for lenders due to the continuous monitoring and credit checks required. Lenders can manage these costs by improving their processes and efficiency.

Automation helps lenders at each stage of the lending lifecycle; it can help them reduce their onboarding and loan management costs. Automated systems help reduce the time required to process credit without compromising accuracy, which can help lenders process more applications in less time and improve overall productivity.

To Sum It Up

The LOC offers many benefits to borrowers and lenders alike. A few additional factors can help them make this decision: lenders should consider:

  • Who their target market is, and if adding the LOC will help them attract customers and retain existing ones.
  • What is the lender’s risk tolerance, and if the LOC is a good fit for their tolerance level?
  • If competitors offer a LOC to their customers, then the lender should also consider adding it to their product line to stay competitive.

In the current environment where customer needs, market conditions, and regulatory frameworks evolve fast, managing multiple loan types can become simple for lenders by using the right lending software.

Finezza offers a loan management system that supports different types of loans like tenure loans, OD loans, revolving credit, equipment loans, and more.

Contact us to know more.

Streamlining Loan Approvals with Automated Credit Underwriting Software

Loan Origination System

Recently, the RBI’s June Financial Stability Report revealed that retail loans in the Indian banking sector experienced an impressive compounded annual growth rate (CAGR) of 24.8% between March 2021 and 2023. A pivotal reason for this growth is the ongoing transformation of the traditional and time-consuming manual loan approval process, driven by the adoption of automated credit underwriting software.

This technology speeds up loan processing, saving time and resources. It quickly assesses borrower profiles and evaluates creditworthiness through advanced algorithms and data analysis.

This article delves into the evolution, benefits and implementation of the process of credit underwriting software, highlighting its impact on streamlining loan approvals and improving the overall lending experience.

The Evolution of Automated Credit Underwriting Software:

Credit underwriting is the procedure through which lenders evaluate a borrower’s creditworthiness prior to providing credit.

Traditionally, this method entailed extensive paperwork and human judgement and was prone to errors. Nevertheless, the advent of cutting-edge technology and machine learning algorithms has led to significant advancements in credit underwriting software.

The rise of automated credit underwriting software represents a substantial transformation in the lending sector. Lenders started harnessing technology to simplify the underwriting process, enabling them to gather and analyse a more extensive array of data, thus empowering them to make more informed lending determinations.

Benefits of Automated Credit Underwriting Software

Automated credit underwriting software offers a multitude of benefits, not only to lenders but also to borrowers.

1. Speed and Efficiency

One of the most significant advantages of credit underwriting software is the speed at which it operates. Traditional underwriting processes could take weeks, delaying the loan approval process. With automated software, decisions can be made in a matter of minutes, drastically reducing the time it takes to approve a loan.

2. Consistency and Accuracy

Human underwriters can be influenced by personal biases, leading to inconsistent decisions. Automated software, on the other hand, operates based on predetermined algorithms and data, ensuring consistent and objective assessments. This results in fairer lending decisions for all applicants.

3. Enhanced Customer Experience

For borrowers, the streamlined loan approval process offers an improved experience. The convenience of quick decisions and reduced paperwork makes applying for loans more user-friendly. This, in turn, can lead to higher customer satisfaction and loyalty.

4. Cost Savings

By automating the underwriting process, lenders can significantly reduce their operational costs. There is less need for extensive manpower, which translates into savings on salaries and benefits.

Implementing Automated Credit Underwriting Software

Lenders interested in implementing credit underwriting software must take several steps to ensure a smooth transition.

1. Selecting the Right Software

Choosing the appropriate credit underwriting software is paramount. Lenders should consider factors such as the software’s compatibility with their existing systems, scalability, and ability to meet their specific underwriting needs.

2. Data Integration

Lenders must integrate the software with their data sources to effectively use it. This involves securing data connections to access credit reports, financial statements, and other relevant information.

3. Training and Compliance

Lender employees need to be trained in using the software effectively. Additionally, lenders must ensure compliance with all relevant regulations and data privacy laws.

4. Continuous Monitoring and Updates

Credit underwriting software is not a one-time implementation; it requires continuous monitoring and updates to stay effective. Lenders should regularly review their algorithms and data sources to maintain the accuracy and relevance of their underwriting process.

Optimising Loan Approval Process with Automated Credit Underwriting Software

Streamlining loan approvals with automated credit underwriting software involves the use of technology and data analytics to assess the creditworthiness of loan applicants efficiently and make lending decisions.

Here’s how the process typically works:

1. Data Collection

Loan applicants provide their personal and financial information when applying for a loan. This information may include income, employment history, credit score, assets, liabilities, and more.

2. Data Verification

Automated credit underwriting software verifies the information provided by the applicant. To ensure accuracy and authenticity, it can cross-check the data against various sources, including credit bureaus, bank statements, tax records, and more.

3. Credit Scoring

The software generates a credit score or credit risk assessment for the applicant based on the information collected and verified. Traditional credit scores from credit bureaus (e.g., FICO or VantageScore) are often used, but alternative data sources may also be incorporated into the analysis.

4. Risk Assessment

The software assesses the risk associated with the loan applicant. It considers factors such as the applicant’s credit history, income, debt-to-income ratio, employment stability, and any other relevant information. It may also use predictive modelling to estimate the likelihood of default.

  • Decisioning: The software generates a loan approval decision based on the risk assessment. This decision may include the following outcomes.
  • Approved: If the applicant meets the lender’s credit criteria and is deemed a low-risk borrower, they receive approval for the loan. The system may specify the loan amount, interest rate, and terms.
  • Conditionally Approved: In some cases, an applicant may be conditionally approved, pending the submission of additional documentation or information.
  • Denied: The loan application is denied if the software determines that the applicant does not meet the credit criteria or poses a high risk

5. Document Generation

If the applicant is approved, the software can automatically generate loan documents, including the loan agreement, promissory note, and any other required paperwork.

6. Digital Signatures

Many lenders now offer the option for borrowers to electronically sign loan documents, streamlining the application process and reducing the need for physical paperwork.

7. Funding

Once the loan documents are signed, and all conditions are met, the funds are disbursed to the borrower’s account electronically.

8. Monitoring and Reporting

Automated underwriting software continues to monitor the performance of loans in the portfolio. It may also generate reports for risk management, compliance, and performance analysis.

Final Thoughts

In the contemporary digital era, automated credit underwriting software is indispensable, offering rapid, accurate, and efficient solutions that benefit lenders and borrowers alike. Lenders should embrace such technology for a competitive edge, leading to cost savings and enhanced risk management.

The transition to automated credit underwriting is an investment in technology and an assurance of delivering efficient, fair, and customer-centric financial services facilitated through Lending Lifecycle Management Platforms and Credit Evaluation Services.

Finezza, the cutting-edge micro loan management software, streamlines lending processes. It automates applications, credit assessments, and approvals, ensuring security and compliance. It harnesses AI technology to provide tailored analytical solutions, enhancing loan decision-making, reducing lead-to-loan time, and effectively evaluating creditworthiness for faster loan approvals.

Sign up to learn more about Finezza and revolutionise your financial operations with advanced technology.

Choosing the Right Credit Underwriting Software for Lending Needs

Lending Lifecycle Management

Underwriting is an important process in lending operations. A lender’s ability to predict creditworthiness seals the fate of the loan. Whether it will be repaid promptly, or become a non-performing asset, or worse still result in loan fraud, is an outcome of underwriting efficiency.

Manual underwriting interventions are no longer sustainable, no matter how many resources companies invest in this process. Underwriting teams need access to the right technology to help companies keep pace with their goals of capturing greater market share while doing so swiftly and accurately.

The global loan origination software market, valued at $ 3.9 billion in 2021, is expected to grow to $ 9.5 billion by 2030.

Adoption of such cutting-edge credit underwriting software by forward-looking lenders can help them transform operations and keep pace with market demands.

In this blog, we outline key features in underwriting software, which value-add to a lender’s tech stack and help them gain a competitive edge in a crowded market.

What is Credit Underwriting Software?

A credit underwriting software is an end-to-end financial analysis solution, which aims to accurately gauge a borrower’s risk profile. A combination of technologies such as artificial intelligence (AI), Machine Learning (ML), cloud computing, automation and optical character recognition, has helped technology specialists develop a powerful solution to current lending challenges.

Use of this software is helping bring more efficiency and accuracy to the underwriting process. In turn, this approach reduces the risk of loan fraud and the rise of a lender’s Non-Performing Assets (NPAs). Low-risk, creditworthy borrowers can also be identified among a pool of loan applicants, who may or may not possess assets.

Today, a mix of banks, non-banking financial companies (NBFCs), and neo banks are leveraging underwriting software to solve their needs.

7 features of cutting-edge credit underwriting software 

Here is a snapshot of the direction in which credit underwriting software is evolving. Lenders are advised to seek these attributes when choosing the right platform for their operations.

1. A User-friendly Interface 

Underwriting teams tend to be made up of financial professionals and accountants, not techies. Hence, the interface needs to be user-friendly. Members of the underwriting team must be able to leverage the software, with ease, and arrive at underwriting decisions, quickly.

They must be able to reach out to the platform’s customer service quickly, in case of issues, and get solutions to ongoing challenges.

2. Cloud capabilities

A lender’s platform of choice must come with cloud capabilities. The best approach is to choose a platform that comes with a subscription-based pricing model. In this case, lenders are not stuck with the need to buy and upkeep on-premises software and hardware.

This is a cost-effective solution that stores data securely and makes it accessible on demand. With the adoption of hybrid and remote work, lenders can offer authorised access to team members in geographical locations, thus simplifying workflows.

Teams can work collaboratively, in real-time on the same projects, and close loan applications, quickly.

3. End-to-end Bank Statement Analysis 

A key deliverable of lending software is that it must be able to paint a comprehensive and realistic picture of a borrower’s financial status. The bank statement analysis is completely automated from end-to-end, right from automated data entry to offering a creditworthiness score for every borrower.

This process eliminates several manual processes traditionally performed by underwriting teams, thus completely freeing up their bandwidth for higher-value decision-making.

4. Stellar Fraud Detection Capabilities 

Another benefit of superior lending software is that it must be able to help lenders predict potential fraud early on. The software does this in multiple ways.

For instance, it must be able to detect unusual patterns in transactions which could be reg flags for irregular activities. It must be able to detect inconsistencies in documentation, which can be a red flag for fraudulent documents.

Identity fraud is another type of loan fraud where a borrower is impersonating another individual or business. A good lending software can weed out inconsistencies in nomenclatures, and other telltale signs.

5. Customisation of dashboards

A key benefit of credit underwriting software is that all transactions can be segregated into inflow and outflow categories, and further on under categories such as salaries, EMI repayments, and revenues.

Hence underwriters can leverage an extensive amount of well-categorised data to understand borrower trends and needs in detail.

This is a valuable resource to help businesses formulate strategies to grow their businesses and establish realistic goals.

6. Implementation of Compliance Requirements  

With financial regulatory authorities constantly introducing new guidelines, lenders must be able to implement these requirements with little effort.

A no-code lending software enables underwriters to make adjustments without needing to write fresh code, every time there is a change.

This is an important feature, as adherence to compliance translates to money saved in terms of penalties, as well as avoidance of a permanent shutdown due to non-compliance.

7. Evaluate Potential to Scale  

As businesses continue to scale, the lending software must be able to keep pace with its scalability needs. However, some lending solutions lack the flexibility to shift seamlessly between a small operation to a massive one.

Lenders are forced to choose one or the other to meet their real-time needs.

However, shifting from one ending software to another is not a sustainable shift. The best approach is to partner with a technology specialist, which offers flexibility of scale within the same platform.

Borrowers can seamlessly go from 50 borrowers to 50,000 and beyond, based on the pivot. The subscription costs will vary based on real-time needs, but this is the most cost-effective option.

The Takeaway

Smart use of tech-enabled solutions such as credit underwriting software, can help businesses streamline their operations. They can predict potential loan fraud and NPAs, and increase their audience pool with effective underwriting processes.

Lenders can partner with a technology specialist, and access the best technological solutions for their express needs.

Finezza offers a comprehensive set of tools and solutions to manage your lending portfolio. Our end-to-end lending management solutions are trusted by brands like ftcash, Hiranandani Financial Services, gromor Finance, and UC Inclusive Credit, to name a few.

Finezza’s intuitive bank statement analysis software is geared to analyze bank statements with speed, and accuracy and detect potential fraud.

Book a demo to know more.