The financial service industry is witnessing a radical shift propelled by changing business models, disruptive technologies and mounting compliance pressure. An Accenture Global Financial Services Consumer survey suggests that delivering unified customer experiences, staying competitive, keeping up with technology, data security and staying regulatory compliant are the top challenges for this sector.
Fast-changing technology, which is often seen as a disruptor, also offered a fitting solution to the many challenges faced by the industry. For example, lending software solutions. These leverage Artificial Intelligence (AI), Machine Learning (ML) and data analytics to help lenders manage their loan portfolios better.
As per an OpenPR report, the value of the loan management software market will reach$29.9 billion by 2031, growing at a CAGR of 17.8%, indicating their growing acceptance among lenders. In this blog post, the discussion focuses on these solutions and their importance in portfolio management.
What Is Loan Portfolio Management?
The loan portfolio is a collection of loans made to different borrowers; its composition and size vary depending on the type of the bank and its size. Loan portfolio management stands for the process that helps manage and control the inherent risk in lending to optimise performance and mitigate risks.
Loan portfolio management involves a series of activities, including:
- Loan origination: This is the process of evaluating loan applications and deciding whether or not to approve. A robust loan origination system helps provide a better customer experience.
- Loan monitoring: The process of tracking the performance of loans after approval.
- Loan workout: Involves resolving problems when loans do not perform as expected.
- Loan portfolio analysis: This comprises analysing the performance of the entire loan portfolio.
- Risk management: Includes identifying, evaluating, and handling risks associated with the loan portfolio.
- Compliance: This function ensures the lender complies with all applicable laws and regulations.
- Reporting: This is the process of giving relevant and timely information to regulators, management and other stakeholders.
While the specific activities included in loan portfolio management will vary from lender to lender, its significance cannot be overlooked. Lending software solutions help lenders leverage emerging technology like Artificial Intelligence(AI) and Machine Learning (ML) for more efficient portfolio management.
How Lending Software Solutions Help Optimise Risk Management and Enhance Portfolio Yield?
Optimising risk management could spell the difference between a lender facing challenges or witnessing growth and profits. Automation and technology have ensured that managing risk is not cumbersome anymore.
New age robust lending software solutions offer many benefits and help lenders minimise risks and increase portfolio yield exponentially in the following ways:
1. Reduced Manual Errors
Manual loan processing is often prone to unintentional errors. Automating various tasks involved in portfolio management, beginning from customer onboarding, can reduce errors made during background checks, credit decision making or calculations.
2. Enhanced Efficiency
Automation results in loan processing becoming faster as there is no extensive paperwork involved. This coupled with lesser errors, leads to an overall improvement in operational efficiency. Lending software solutions reduce paperwork and turnaround time without compromising procedural integrity and help improve productivity.
3. Superior Debt Collection
Conventional debt collection approaches are not remarkably effective due to aspects like the use of inefficient legal options, unethical business practices, manual processing and use of outdated modes of communication and software.
Automated collection delinquency management solutions provide updated information, break communication barriers, send targeted notifications and make repayment easier for customers, along with helping understand customer repayment trends, avert delays and minimise risk.
4. Monitoring Loan Performance
Lending software solutions can also assist in tracking the performance of each loan. Identifying early warning signs helps deal with them in a more efficient and proactive manner.
5. Better Compliance
Loan software solutions enable lenders to comply with various laws and regulations in an efficient manner. Digital solutions assist lenders in complying with regulations related to anti-money laundering and the Know Your Customer (KYC) guidelines. Timely compliance saves the lender from penalties or fines and helps proactively identify any systemic flaws or lapses.
6. Smarter Credit Decision-making
Lending software solutions help lenders assess applicant risk more accurately. Various factors like credit history, debt-to-income ratio, income and more can assist in making smarter choices. Manual assessments can overlook some aspects or may be flawed due to biases. Leveraging the power of data analytics helps choose applicants less likely to default, ensuring better risk control from the very first step.
7. Risk Mitigation With Data Analytics
Lending software can help lenders implement risk management policies and procedures. Analysing data can identify patterns and indicate potential risks by spotting anomalies.
Tools like bank statement analysers process large volumes of transactions within minutes to help recognise fraudulent transactions and minimise risks. The tool uses ML-driven insights to assign a creditworthiness score and helps make informed credit decisions to reduce NPA.
8. Improved Reporting
Lending software solutions help in automating report generation, too. The use of excellent analytics helps generate accurate and quick reports helping lenders strategise better. The reports can be customised based on the specific needs of the lender. As a result, timely, accurate, and customised reports help in better compliance and planning. The software also ensures the safety of these reports with the help of encryption and restricted access.
A suitable lending software solution can be a valuable tool for lenders that can help them reduce errors, improve efficiency, assist in better decision-making, aid in compliance and reporting and help them operate better in the current challenging terrain.
All these aspects, along with a robust loan onboarding process and loan monitoring, can help reduce risks for lenders considerably.
A Loan Management System should be preemptive and offer optimum solutions. Lending solutions from Finezza offer that and more; their products are platform agnostic and can be easily integrated into existing systems.
Contact us to know more.