Authored by Zafar Imam
Digital transformation has now become a successful business strategy instead of mere technology adoption. It has made a positive impact on business operations within the financial lending industry as well. India has now more than 950 million mobile population which provides a great opportunity for the lenders.
The millennial population seems inclined towards digital platforms with most seeking instant gratification. As a result, several innovative financial products have come into existence.
In consumer lending, it has led to faster, cost-effective operations, improved employee and customer experience, incorporation of regulatory frameworks, and much competitive business.
Once you consider how far modern banking has come, you'll understand how digital transformation has grown to profit everyone with greater convenience and information. From its humble origins of branch offices to ATMs and now mobile apps, the progress of banking has enabled digital technology to generate more data and, with it, supply greater choice, convenience, and experience in consumer lending.
Ease of access to financial services
As millennials rise in the workforce dynamics, it is anticipated that half of the worldwide workforce might already comprise of the generation. This has also brought about a dramatic change in how this consumer base expects the lending services to function.
Being raised in an era of touch-of-a-button experiences, this group has come to expect a slick digital experience with instant access to consumer lending services. While nobody (regardless of age) enjoyed filling out lengthy forms, tedious queuing (or trudging to a bank in the rain) to get a loan, and red-tapism, digital natives simply won’t abide by it.
With Generation Z now also entering adulthood, it is clear that this new generation won’t stand in queues like their predecessors. Mobile applications are the only way to go forward, making it easier and more convenient for customers of all ages to avail of lending services.
Fintech’s role in consumer lending
With the world going digital, it’s no revelation that there is more data online than one can imagine. According to a recent study, 2.5 quintillion bytes of data have been added online over the past few years. This is about 90% of all data in the world at the moment.
Thankfully, this rapidly emerging data has enabled the fintech industry to serve its customers better. They can leverage wide-ranging data to personalize services, understand micro and macro trends, and offer better interest rates to their customers, alongside others. Using the analytics of customer transactions and preferences (powered by fintech), financial institutions (including banks and NBFCs) today ensure that they deliver the simplest services based on their customers’ needs.
This approach leads to higher levels of retention and customer acquisition. It further gives rise to an in-depth credit assessment. Data analytics makes it possible to scan thousands of data points simultaneously and get a detailed score for a credit applicant. This approach extends credit services to even those people who do not have a credit history.
Moreover, the data-driven approach is more likely to pre-empt imminent threats including frauds and take preventive measures against them. It enables FIs to make informed decisions around when to lend to a particular group, sector, or individual and when not to, thereby limiting the chances of Non-Performing Assets (NPAs). In doing so, it is possible for fintech lenders, banks, and NBFCs to maintain a low cost of credit, something that ultimately benefits the end-customer in the form of lower interest rates.
How fintech benefits customers?
Fintech platforms can further deliver personalized services using data on customer satisfaction, preferences, buying history, demographics, and behavior. These insights can assist financial institutions in creating consumer lending services with highly-personalized offers that improve customer satisfaction and prevent defaults.
Since smartphones are a part of everyday life, institutions can today use their apps and ads to recommend the next-best loan offer. Thanks to the in-depth nature of these insights, they can accurately cluster customers and prospects into segments consistent with their profiles and prospective needs.
Financial institutions also provide chatbot services to assist customers with borrowing. Chatbots can go on to address customer needs and inquiries, walk customers through the process, generate predictive messages and behavior insights, and automate tasks like money transfers and loan payments.
How banks benefit from unified data when it comes to consumer lending
In an ever-changing digital world, the fintech segment can succor banks and help them keep up with the current times. Since the pandemic hit, more people are going digital in order to keep up with the new norm. According to one survey, over 4.57 billion people are online, which is more than half of all humanity.
Those numbers should be enough for any institution to stand up and pay attention. It goes without saying that so many people online means that there is a wealth of information for lenders to make use of.
Today, there is increased competitiveness within the fintech segment. Perhaps, the consumer lending players can also enter the ripe market and eliminate the prevailing gaps in information via their data repositories. Doing so now can change the dynamics altogether.
Zafar Imam is CEO of Finshell. Views are personal
First Published: IST