Some of the most pressing factors to an urgent need to digitise credit risk management are competition from digitally strong, emerging fintech firms, highly volatile market conditions and cyber security threats that can lead to data privacy issues.
The pace of technological disruption has never been stronger than now, and organisations need to ramp up their credit risk processes to match up with the ever-growing market demands. Here is a detailed insight into why digital credit risk management is the only way forward and some compelling evidence supporting the same.
Why do you need to Automate and Digitise Your Credit Risk Management?
While credit loans are known to be the most vulnerable and potential risk for lenders, they are also one of the significant drivers of revenue for them.
By going digital, innovative lenders are not only ensuring the overall financial health of their loan portfolio but also meeting the different threats coming in from regulators and new competitors.
A study conducted by S & P Global Market Intelligence named ‘Digitization in Credit Risk Management’ includes opinions and data from over 200 professionals worldwide, which provides a good lens on the trending credit risk practices. Here are some of the findings from the survey:
Digitisation Boom Began Pre-Covid
The credit and risk management teams were already necks deep to digitise and improve operating procedures to arrive at better and quality decisions before the pandemic.
A majority, 75% of the professionals, had their complete focus on digitisation efforts even before the pandemic hit to benefit from the same, the report said.
A resounding 70% of the respondents said the pandemic accelerated these efforts even further. This happened due to the rapidly changing environment around us and the increasing bankruptcies that challenged the traditionally managed credit risk systems.
Not surprisingly, a good 71% of people also reflected on the positive outcomes of digitisation being better control over risks and much better management overall, which only adds to the organisational profitability.
Embracing Technology
A long list of delinquent loans and bankruptcies during the Covid-19 pandemic hit quite a few lenders hard to have essential credit information at their fingertips. This was mainly for the MSMEs for which there is a need to have systematic and crucial financial information to make better lending decisions.
Almost half of the respondents, i.e. 51%, are on the lookout for considering a range of new approaches that can be combined with traditional data mining approaches to estimate and predict credit risks.
For example, Artificial Intelligence (AI) and Machine Learning (ML) are the two valuable techniques being eyed by professionals to extract better data points.
More Focus on Automated and Dynamic Reports
Sixty-four per cent of the professionals surveyed are ready to focus on developing more automated and dynamic reports for executive-level decision making.
Since an applicant’s creditworthiness is based on a series of factors, detailed monitoring is required, which is impossible to comply with by relying solely on manual efforts.
In light of this, dynamic and automated reporting is emerging as a ‘must-have’ for any savvy lender of today.
How Companies are Taking Digitisation Efforts
Digitisation has excellent growth potential in the credit risk management arena. Lenders realise the various challenges and opportunities that come with it and rely on the following ways to achieve digitally sound credit workflows.
Going Agile
Lending organisations are making digitisation efforts a priority. They’re deploying sets of cross-functional, full-time teams that are solely dedicated to producing quality credit decisions to deliver agile projects on time.
By focusing their attention on the seven-step digitisation process, they are on the path to achieving it shortly. The seven steps are:
- Data management
- Advanced analytics and automated decision making
- Smart interfaces
- Culture
- Workflow automation
- Flexible Infrastructure
- External ecosystem
By completely overhauling their front and back-end capabilities, along with offering unique digital services to their customers, these organisations are on the road to revamping their credit risk management systems.
Partnering with Fintechs
One of the familiar frustrations faced by lenders across the sector is the lack of legacy IT systems. As a result, many fintechs have come to their aid in strengthening their digitisation efforts and, as such, helping resolve issues and create innovative solutions.
As many as 80% of the top global banks have partnered with fintech at some point, out of which 16% pertain only to lending.
Some of the essential and valuable services these fintech to the lending institutions include API integrations, business and SME loans, digital banking, credit scoring, creditworthiness assessment, fraud detection and prevention, short term cash advances etc.
The Road Ahead
The new norm for credit and lending processes is digital, and therefore going digital for managing your credit risk systems is key to thriving. How the organisations manage to achieve that by opting for which route is an individual call that remains solely their discretion.
However, those who will harness the right tools to digitise their credit risk management systems will benefit exponentially and emerge as a true winners.
By introducing proper risk management capabilities, they are ensuring fraud prevention and retaining quality customers.
Finezza’s fraud prevention tools and other services such as loan management services, API integration, credit scoring, bank statement analyser, etc., can help lending organisations manage their lending portfolios seamlessly and efficiently.
Contact us today if you’re an MSME, fintech, or any business looking to streamline loan origination harnessing agile technology.
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