The lending landscape has not moved to digital. However, we are witnessing some industry-wide frictionless lending processes introduced by new tech-savvy market players. As a result, the total size of the lending market in India stood at ₹156.9 Lakh crores in the FY 2022-2021. Based on the trends in 2018-2021, it is a 100% hike in growth, and increased digital usage is one of the many reasons for the growth.
What is Credit Underwriting?
Banks, NBFCs, or any other financial organisations in the lending business follow the process of credit underwriting to gauge a borrower’s risk profile. A risk assessment process is followed to ascertain the borrower’s creditworthiness in question.
This process necessarily shields the organisation from making risky lendings by assessing the borrower’s credibility. Metrics that help evaluate credit are bank statements, tax returns, current debts, etc. It collectively includes any data that can help assess how likely or unlikely is the borrower to repay the debt.
The credit underwriting process starts with bank statement analysis. However, technology has widened the bandwidth of risk assessment by including data points that genuinely contribute to ascertaining the quality of loan applications. Moreover, these data points go beyond simple bank statement assessment and dwell deep into buying and spending behaviours.
Shift In The Lending Paradigm
Customer behaviour evolved in the last decade, given widespread technology adaption. This has forced financial institutions to shift from the rigorous mainstream lending practices to provide a quicker and seamless borrowing experience.
Factors that are driving this change? There is widespread technology adoption, tech-first users, ramped digital connectivity, and disruptive products. Fintech firms are making accessing funds easy, gaining a market advantage that legacy firms are slowly losing. These fintech firms are now the top preference for borrowers because of their innovative and quick underwriting process.
Challenges arising from manual credit underwriting
What the lending firms care about is – risk; any red flags say that the borrower can default. The real challenge arises when this process of assessing risk is done manually. It not only gets time-consuming but also spikes up the cost of the process. In addition, the entire process of checking through employment history, current income level, savings levels, and more can get tedious.
This is where having reliable technology-based solutions comes in handy.
How Technology Backs Credit Underwriting In the Digital Age
The previous standard practice that banks followed—was super time-consuming, lengthy, complicated, lacked accuracy, and was not 100% reliable.
However, automation has transformed the process to make it clean, easy, accurate, and quick TAT. All of this is backed with technology.
Here are the changes in the facets of the underwriting process:
Cut in TAT
Extensive loan application processes are prone to a high rate of abandonment. Therefore, making the process quick, simple, and easy to apply directly impacts customer retention.
In addition, present turnaround time (TAT) is cut to more than half compared to the previous norms, where the verification process lasted for days. Lately, eKYC, Video KYC, and eSigning have bounced into the frame, making the entire process simple.
Once upon a time, credit score was deemed the reliable metric for lending. This is a belief the fintech firms have shattered with their innovative competency. They have constructed in-house proprietary algorithms that collect parameters like CIBIL Score, loans taken, spending behaviour, budgeting capabilities, etc.
Such data points give a more comprehensive view of the borrowing spectrum that is so detailed and smart. Plus, the algorithms hold better accuracy scores compared to manual inputs.
Highly reliable and profitable
Earlier, physical verification was the norm and, should we mention, is still followed by some banks. The process was somehow partially reliable and, not to forget mentioning, challenging to scale.
Technology competence can now let organisation eVerify their applicants with no location constraints. This gives customers wider access to credit products they couldn’t earlier get hold of. So guess who successfully increased their customer base? You know the answer.
Inclusive to the Core
The means of getting access to credit were only dependent on credit score, which is not reliable for a first-time borrower. In addition, first-time borrowers do not have a score prescribed already that lenders can access.
This led to the rejection of applications with no possible solutions. This was a significant roadblock to financial inclusion. However, since the modern-day fintech firms see beyond credit scores that include income, job stability, and more, they drive financial inclusion.
Sneak Peek Into Credit Bureau Data Analytics
Finezza created a product out of data mined from reliable credit sources. Banks, NBFCs, consortiums, and entrepreneurial ventures can use this solution to make a risk-free decision in the credit market. It is an all-in-one credit evaluation solution that merges data reports from multiple sources with AI-powered predictive analysis.
What’s in this solution?
Here is the combination of features that Finezza pulled together:
Top credit bureaus – The software is integrated with the four main credit bureaus (CIBIL, CRIF, Experian, and Equifax) for reliable assessment.
Provides alerts – The software groups applications based on the credit history or other risk assessment metrics. Furthermore, it alerts the lenders about risk profiles based on critical data points.
Easy history view – The software gives access to a vast set of information like loan history, repayment history, borrowings made, and inquiry to success ratio in one place.
DPD analysis – DPD or days past due refers to the precise delay in payment made by the borrower previously. A DPD analysis is also a part of this product.
KYC – This solution also provides all the KYC information about the borrower.
Connect with us to take a walk through the innovative risk assessment solutions from Finezza. In addition, we have other attractive solutions under our belt that help ramp up the lending process. Care to know about the game-changer solutions?
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