Automated bank statement analysis is transforming the financial landscape, as paper-based statements have given way to online digital statements, which are more customer-friendly and prevent fraudulent transactions.
In general, bank statement analysis involves scanning and reviewing financial statements to gain insights into a person or organisation’s financial health to ascertain their income and repayment capacity. Therefore, they serve as the cornerstone of loan application processing.
However, bank statement analysis is a time-consuming and laborious process, but automation can help overcome these challenges.
As per studies, automation helps save costs by about 60-70% on major processes in finance.
Automated bank statement analysis helps extract and interpret transaction data from the statement more quickly and accurately. In this blog, let us read about the best practices for its implementation.
Significance of Automated Bank Statement Analysis
Automation helps overcome the challenges associated with manual processing and offers the following benefits:
1. Helps Detect Discrepancies
Automated bank statement analysis helps detect fake or altered entries in the statement. It also helps identify transactions that are out of place and do not align with the rest of the transaction history. Lenders can weed out unscrupulous applicants, improve their portfolio quality and prevent fraud.
2. Evaluate Creditworthiness
Analysing bank statements reveals the account holder’s payment behaviour, cashflows and liquidity position and provides a glimpse of their overall financial health, thereby mitigating potential risks. Lenders want to assess the applicant’s creditworthiness before they sanction a loan to minimise the risk of default.
3. Improve Financial Health
Regular review of bank statements offers benefits not only to lenders but also provides businesses with valuable information about their financial health. It helps them to make informed decisions, whether related to reducing expenses, optimising operations, or seeking funding.
4. Identify Patterns
AI-based automated bank statement analysis can identify patterns from banking transactions which may be difficult to pick manually. AI algorithms can rapidly identify cash flow trends, seasonal fluctuations and irregularities in cash flows over time to determine a company’s or individual’s financial stability and repayment capacity.
5. Better Decision Making
Bank statement analysis can aid in predictive analysis based on well-defined rules. This helps FIs make informed decisions and reduce non-performing assets (NPAs).
AI-powered tools can also help categorise borrowers into multiple risk groups and allow lenders to offer customised loan terms and interest rates, which will lower the risk of defaults and increase profit.
Best Practices for Implementing Automated Bank Statement Analysis
Factor the following aspects when choosing the best solution for your organisation.
Before choosing an automated bank statement analysis software, it is essential to understand your requirements. Assess the volume of bank statements that need to be processed and their complexity level. Define the critical requirements from the analysis, like data extraction, trend analysis, or fraud detection, to choose the right solution.
2. Adaptability and Flexibility
Banks issue statements in diverse formats; the right software should be able to read unstructured data from different layouts and organise it in a cohesive and usable form.
Therefore, the ability to adapt to different document layouts and styles is a vital characteristic of acceptable bank statement analysis software.
Each financial institution has unique requirements, and the statement analyser should be flexible to accommodate them. Look for a solution that offers a customised analysis per defined rules, filters and reporting formats. Precisa offers a statement analysis tool that can support 1000+ formats.
3. Accuracy and Efficiency
Accuracy is paramount when performing any financial analysis, and so is efficiency. Bank statement analysis requires converting PDF to Excel; tabular data is read from statements and entered into spreadsheets for cash flow analysis.
The chosen software should yield a high level of data accuracy and should also weed out fraudulent entries. Bank Statement analyses that leverage advanced AI algorithms and machine learning techniques provide authentic data. They can also process a large volume of statements due to high processing speed without compromising accuracy.
4. Data Validation
Information extracted from statements should be compared to data from other sources like income tax figures, GST returns, and other documents to assess the financial health of borrowers.
The bank statement analyser you intend to implement should be able to integrate with the current systems and workflows. Seamlessly integrating with your existing technology and other enterprise-grade platforms helps ensure smooth function and minimises the possibility of data transfer errors.
The Statement Analyser should integrate with the financial institution’s core banking software, accounting systems and other relevant platforms to draw out required data and enable collaboration among different departments and stakeholders.
6. Security and Compliance
Financial institutions must be extremely vigilant about the safety of their data and ensure they comply with the procedures and policies. Another best practice is adherence to stringent security protocols, like encryption and other data protection measures. It should also meet industry standards, maintain data integrity, and secure customer information.
Finally, the bank statement analyser software should be scalable to ensure that it can handle increased volumes as the business grows without making changes. The protocols and policies keep evolving with market dynamics and government regulations. The tool should adapt to the changing environment and keep pace with the advancements.
To Sum It Up
Bank statements are a snapshot of an individual’s financial habits and offer an accurate assessment of their creditworthiness. Lenders and businesses can benefit from analysing bank statements and improving their decision-making process.
Finezza offers a comprehensive suite of solutions to help lenders manage their portfolios, starting from loan origination. Their automated bank statement analysis software does away with challenges associated with manual analysis and offers additional benefits, too. It helps improve productivity by eight times and processing time by eight times.
Choosing and implementing the right solution requires focusing on aspects like scalability, suitability, and whether the tool is flexible and secure and can be integrated with the existing systems.
Book a demo now to learn more and choose the right solution.