In terms of numbers, digital lending companies in India witnessed a compound annual growth rate of 39.5 % over the last 10 years. While this is an encouraging statistic, the digital lending industry is also witnessing more cases of fraud.
According to a report by the Reserve Bank of India, in the first half of the Financial Year 2023, loan-related frauds clocked the biggest share among all frauds, to the tune of ₹18,746 crore.
Hence, lenders urgently need to upgrade and optimise their fraud detection mechanisms to keep pace with fraud growth trends.
This is where the adoption of bank statement analysis software by lenders can transform operations, bring accuracy to outcomes, and expedite the underwriting process.
In this blog, let’s understand more about bank statement analysis software, the types of frauds it can prevent, and its impact on lending businesses.
Types of Lending Fraud A Bank Statement Analysis Software Should Detect
For optimised fraud detection, it is crucial to understand what exactly constitutes fraud.
For instance, fraud does not refer to cases where the borrower may have every intention to repay the loan but defaults due to unfortunate circumstances.
Lending fraud typically takes the following routes:
This is a type of fraud where a borrower impersonates another individual to secure the loan. During the loan application process, an imposter will use another person’s identity documentation, bank account, and other details.
For instance, they may use the details of a person who may be deceased, whom they are related to, or sometimes a complete stranger.
In many cases, professionals may perpetrate such impersonations, and challenging to catch the human eye due to the sheer volume of loan applications.
Bank statement analysis software has the capability to weed out inconsistencies and minute errors, which exposes impersonation.
This fraud is where the borrower attempts to furnish forged or altered documentation. The spectrum of forgery can range from minor changes to completely fake documents.
For instance, borrowers may download templates and manipulate them to look like legitimate bank statements.
Bank statement analysis software can be programmed to flag mistakes in font usage and other inconsistencies in formatting. Access to legitimate bank data makes it easier for AI algorithms to weed out other fraudulent documents.
Financial data analysis can also reveal anomalies in accounting. For instance, a business’s financial statements may look good on paper, but bank statement analysis software can detect anomalies and expose deficits.
It resembles an electronic audit, revealing when a business has cooked the books. Access to such data gives underwriters an accurate picture of a business’s financials and capabilities to repay loans.
Home Loan Fraud
One particular area, which is impacted by a unique type of fraud is home loans. Fraudsters may attempt to falsify home information to secure a loan or an even bigger one on an existing home loan.
For instance, they may provide incorrect information about the property’s appraised value.
Bank statement analysis software has ML capabilities to help train the software to recognise such inconsistencies.
Business entities sometimes attempt to cover their tracks concerning various internal fraudulent activities.
Examples of commercial fraud include falsified statements of the business’s financial performance, kickbacks received from a third party, insider trading, and misappropriation of business funds.
Bank statement analysis software can detect such information by flagging inconsistencies and unique financial patterns that remain unexplained. Access to such information paints a realistic picture of a commercial borrower’s financial culture and performance.
Underwriters can review the applicant’s data from a compliance point of view and make a more informed decision. It puts lenders in a position to consider the impact of such borrowers from a long-term impact on their business’ credibility and sustainability.
So What Exactly Is Bank Statement Analysis Software?
Bank statement analysis software can process massive amounts of data connected to a borrower’s transactions, income information, financial activity, and loan payments.
A superior bank statement analysis software can scour through data in over 700 formats in a reduced time frame.
The software also leverages modern technology like Machine Learning (ML) and Artificial Intelligence (AI), which train, capture, and analyse critical data fields required to detect fraud, followed by the classification of documents effectively.
Underwriters can leverage this processed data to assess the authenticity of a potential borrower’s credentials and their ability to repay loans.
Benefits of Adopting Bank Statement Analysis Software
Here is a snapshot of critical advantages:
- Catches financial data patterns invisible to the human eye.
- Underwriters can customise dashboards to create specific data they are interested in.
- The entire financial statement analysis process is expedited compared to manual interventions by humans, no matter how qualified.
- In the long run, lenders can cut labour costs, and team members can focus on higher-value tasks.
- The number of errors and oversights will come down, reducing losses related to fraudulent loans and the number of non-performing assets.
- Expedited and accurate processing of loans of a higher number and ticket size, thus increasing the potential of lenders to capture higher market share.
Loan fraud can have far-reaching consequences on lenders, investors, and customers if not detected promptly. Often it takes many years for fraud to be unearthed, and it may come to light due to ongoing compliance-related investigations.
Lenders making early investments in robust bank statement analysis software can consider it a strategic investment towards building a sustainable and profitable business.
Finezza offers comprehensive fintech 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 analyse bank statements quickly and accurately and detect potential fraud.
Book a demo to know more.