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In the era of information technology, data is the ‘new oil’. It is the essential commodity that drives businesses. The ability to gather, analyse, and use relevant data accurately makes or breaks an organisation in today’s age.

Consequently, data security in cyberspace is a critical concern for firms operating in the digital space.

Digital lending, in particular, is an activity vulnerable to the dangers and consequences of cyber attacks. Given the sensitive nature and importance of the information handled in the lending process, lenders are responsible and accountable for reams of valuable data that are soft targets for all sorts of cyber attacks.

This article will focus on why robust, unassailable, and resilient loan management systems (LMS) are needed to ensure the privacy and security of such data.

Significance of Data Security in Digital Lending

Centre for Financial Inclusion Accion, in a recent report based on its survey on the risks for the fintech lending sector in India, lists data privacy as the third most severe menace to the industry.

Most often, cyberattacks are financially motivated, so banks and non-banking financial institutions become the prime target of the perpetrators.

Devastating Results of Data Security Breaches

Data security breaches in loan management systems have far-reaching implications for lenders. Compromised digital security results in stolen or lost private information or corrupted data, jeopardising business decisions.

Online lenders have to bear monetary and nonmonetary prices for such cyber attacks. According to the IBM estimate, the average global cost of a data breach in 2022 is $4.35 million.

This often includes:

• penalties imposed by regulators.
• compensation to data owners who are the victims.
• legal and administrative costs associated with data recovery and lawsuits associated with the incident.
• costs of business disruption due to data losses.

The non-material damages might include:

• loss of customer trust.
•  reputation damages.
•  misuse of data by the offenders for criminal activities.
•  negative impact on employee morale and productivity.

Common Data Security Issues for Loan Management Systems

Data security threats may originate internally or externally and can be intentional or unintentional. Data compromises within the company are referred to as data leaks, while those that occur due to external threats are called data breaches. Both issues generally happen due to vulnerabilities in the loan management systems.

Within the LMS, various levels are susceptible to potential cyber-attacks. For example:

1. Front-end level, which is usually the digital lending apps/platforms
2. Mid-level administrative functions like document analysis and verification, credit appraisals, risk assessment, AML checks, etc., and
3. Back office functions like regulatory reporting, management information system (MIS), record management, reconciliation, etc.

There are numerous ways in which privileged information becomes exposed.

Internal reasons for compromised data security

• Human errors

Some examples of unintentional human error are weak passwords, password sharing, accidental disclosure of confidential information over emails, and falling for malicious tricks like phishing, spoofing, etc.

• Insider misappropriation

Data abuse by insiders is an even more serious offence in which employees gain access to company data, with or without authorisation, intending to share with or sell it to third parties.

• Risks arising from remote work

Remote working became a crucial business continuity plan for firms. One disadvantage of virtual offices in digital lending is that staff no longer access loan management systems via secure and dedicated networks and devices. Their logins are vulnerable to targeted hacking attempts.

• Antivirus software and loan management systems that are outdated

Malware programs are constantly changing along with digital lending technology. Legacy LMSs protected by obsolete antivirus software are no match for advanced computer viruses.

External challenges to data security

• Phishing

Phishing is the most prevalent data threat that digital banking customers encounter. The offenders make false communications while appearing as reliable organisations to obtain the victims’ private financial and personal information.

• Ransomware attacks

Ransomware is a malicious program that gets access to your systems, networks, and databases and blocks you from using them.

• Social Engineering

Like phishing, social engineering manipulates data owners and custodians to divulge confidential details.

• Distributed Denial of Service (DDoS)

The attackers create artificial traffic to the site, overwhelming the network and causing it to crash. This technique is used as a distraction mechanism, while the miscreants can use malware to access the database during downtime.

• Cloud-based risks

More and more digital businesses are switching to cloud-based platforms for cost and operational efficiency. This makes cloud-based infrastructure an attractive potential target for hackers.

Resolving Data Security Issues and Preventing Cyber Attacks in Loan Management System

Now that the data risks in loan management system and their probable causes are identified, the next step is to implement preventive measures.

There are several steps that lenders can take to ensure the security of their systems and databases in the digital lending environment, such as:

1. Patch up potential weak spots in the software and bolster with firewalls and the latest anti-virus programs regularly updated.
2. Regularly train the staff on security best practices and the firm’s data security policy.
3. Have an elaborate Disaster Recovery(DR) plan in place for data security breaches. Conduct DR drills regularly to guarantee their effectiveness. The drills will also highlight the necessity for data security training.
4. Implement strict access protocols such as multi-factor authentication.
5. Most importantly, educate the customers about the data risks they might encounter, e.g., voice phishing or whaling.

Wrapping Up

When it comes to data security, it is always preferable to be proactive rather than reactive. The volume of data handled by loan management systems is increasing as the pace of digital lending quickens, so lenders must always be ready for the worst.

Upgrading data security must be an ongoing activity for LMS rather than a periodic function. Remember that as loan management improves, so do data breaching techniques.

This is where you will need Finezza 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 comprehensive Loan Management System addresses your data security concerns with our secured data access control.

Book a demo to know more.

As digitisation and adoption of fintech by consumers grow, lenders need to ensure their processes do not lag due to a lack of access to the latest technology.

Generally, the lending process involves multiple steps, from customer onboarding to disbursement. Traditionally, each step is carried out manually, which is time-consuming and often prone to errors.

When digitisation and fintech solutions are helping streamline user experiences, why should you not harness the power of fintech to simplify and hasten the lending process?

A Loan Management System (LMS) is a customised fintech solution which leverages technology to improve productivity and efficiency from the initial application stage to the last step.

This blog will explore how it benefits your organisation in streamlining complex manual processes. Let’s get started!

Boosting Productivity: 7 Ways a Loan Management System Can Help in Fast Processing and Approval

A loan management system is a digital platform that helps lenders automate loan processing from the initial application stage to the final phase.

Banks, Non-Banking Finance Companies (NBFCs) and other organisations dealing with loans can gain from using LMS due to benefits like faster access and verification of customer data, better management of existing loans and availability of detailed, analytical reports.

This is how a modern loan management system can help:

1. Smooth Customer Onboarding

The lending process is complex and requires keen attention to detail. Lenders have sizable teams working on the loan application process in a traditional setup.

As per a report, the number of loans disbursed by banks and non-bank finance firms (NBFCs) using digital technology increased by 12 times between 2017 and 2020.

The quantum of loans disbursed increased 12-fold between 2017 and 2020, from US$ 1.42 billion (Rs 11,671 crore) to US$ 17.26 billion (Rs 1,41,821 crore).

High document turnover and the high number of customers banks handle makes it time-consuming and inefficient for banks to handle everything manually. Automating the process makes it simpler to collect applicant documents employing conditional logic and lending rules.

Digital solutions speed up the loan processing steps by automatically processing the client and lending-related data without any manual intervention. Automation also benefits by doing away with silos inside an organisation that make sharing data difficult, leading to delays and inefficiencies.

2. Intelligent Application Forms

The loan management system helps lenders have intelligent E-forms based on conditional logic. The lender can create dynamic forms that gather relevant and valuable data from the users. Specific fields appear in the questionnaire only when the client selects a particular option or ticks a checkbox.

These forms aid in faster loan approvals by reducing the time required to request additional information or documents at later stages. Also, conditional logic forms help the lender gather additional information in specific cases, streamlining the lending process and reducing delinquencies.

3. Optimised Documentation Process 

Intelligently designed KYC questionnaires help lenders assess the applicant’s risk profile and credit health. The banker can request required documents based on previously gathered information.

Consequently, the customer is saved from the hassle of extra paperwork while the lender can access the most appropriate documents on which to base their lending decision.

The documents required may vary on the risk profile and the type of loan, secured or unsecured. Digitising the process removes unnecessary delay and redundancy and makes it more personalised and efficient. As a result, customers can upload pictures of their documents on the lender’s portal for review by the lender.

4. Benefits of Paperless Operations

Document management gets streamlined with a loan management system, paving the way for smoother loan processing and approval. All documents are stored centrally and digitally; there is no need for bulky physical filing systems for maintaining records.

Any document can be accessed effortlessly within no time with a few clicks. Traditional systems are cumbersome for the lender and the borrower as well. Customers also have to fill out numerous forms, give multiple signed copies of their documents and maintain records and proof of all documents for their consumption.

The paperless documentation process also eliminates the need to involve any third party in storing and maintaining documents. However, keeping records digitally comes with the challenge of digital security, which is crucial for all organisations.

5. Reduction in Errors

Any error in the onboarding stage or, subsequently, can prove to be costly for the lender and the borrower. Errors ranging from calculation mistakes to missing documents or information and inaccurate risk profiling can lead to problems later.

Loan Management Systems use AI and Big Data to analyse and process information, thereby reducing the chances of any errors. If there are slip-ups, the apps quickly spot the error, flag missing or inaccurate data, and suggest the necessary changes.

6. Improved Efficiency

Automating manual tasks, apart from reducing errors, also helps save time. Jobs like tracking late or unpaid instalments, sending reminders and notices to defaulting customers, calculating penalties and recalculating repayment schedules are done faster and more efficiently with an LMS.

The loan management system simplifies the day-to-day operations; borrowers can get quick and accurate information for timely action.

From the lender’s perspective, it helps save time; organisations can divert resources towards high-value jobs and tasks that are more crucial for growth.  Speed and flexibility also benefit customers; loan processing is faster, there is a reduced response time, and borrowers can expect better customer service.

7. Automatic Report Generation

Businesses engaged in lending or other financial services must provide reports to various regulatory authorities, their investors and borrowers.

Creating tax reports, reports on NPAs, or sending updated repayment schedules to customers are crucial for any lender. Accuracy and promptness are essential for reporting; the automated reporting features in the loan management systems help lenders generate reports of various types in different formats as desired.

The Takeaway

As the Indian economy continues to expand, there is a growing emphasis on financial inclusion aided by models like open banking, co-lending and more.

Organisations need to ensure that their technology matches the growth pace and also keeps up with the growing customer expectations and emerging trends.

Finezza has the right solution for you; a loan management system that is agile, flexible and allows efficient loan management.

Features like Dynamic loan document generation, Multi-disbursement, NPA management, Restructuring of loans, and Collections management make it the most suitable solution for all lenders, whether a bank or an NBFC.

Also, Finezza offers comprehensive compliance, generates accurate reports and provides end-to-end solutions that factor in all security concerns apart from streamlining operations.

Contact us now to learn more!