Lalit Mehta, the Co-founder & CEO at Decimal Technologies is the driving force behind the company that has pioneered digital banking over the last decade. Lalit founded Decimal Technologies in 2009, when the concept of digital transformation in the BFSI sector was in its infancy. Under his leadership, the company enabled early adopters in Indian banking ecosystem to implement digital technologies and thereby helping them to become leaders in new-age banking today.
Technology has become a game-changer in almost all aspects of our lives. According to a recent McKinsey study, companies that use AI will increase cash flow by over 120% by 2030. When it comes to businesses, digitisation has become a necessity one can no longer ignore, especially when operating in a highly competitive environment.
One such competitive industry is the financial services industry where, on the back of the growing digital demands of the customers, institutions have actively been partnering with fintech firms and launching customised digital products, services and features to gain a competitive edge. According to a study by Boston Consulting Group (BCG) and FICCI, India’s financial technology companies are expected to reach a valuation of USD 150-160 billion by 2025 to become three times as valuable.
While this is a major boost for the economy, a large chunk of India’s SMEs and MSME businesses reside in rural areas. According to the Organisation for Economic Co-operation and Development (OECD), in emerging economies, small and medium enterprises (SMEs) account for up to 45% of total employment and 33% of GDP. One major challenge that stands in the way is the lack of credit access for SMEs and MSMEs. The MSME credit gap in India amounts to around $240 billion due to traditional lenders’ lack of flexibility and inability to effectively leverage the available user data and viably reach the rural and semi-urban areas.
This clearly indicates the immense potential for business growth present for banks and financial institutions as they continue digitising. There is especially a lot of room to grow the business as lenders in India, with the credit demand expected to almost double to 9-10% in FY22. To tap into this growth, lenders need to leverage Artificial Intelligence (AI) that parse the data into actionable insights and allow institutions to onboard more customers.
Improving risk assessment for better business decisions
There are various benefits of using AI in the lending business. The prime benefit is that the AI/ML components employed by FinTech firms can match the customer with the lender without any manual intervention, solving one of the key problems of the lending industry, that of risk assessment. This is done with the assistance of detailed, user-friendly credit assessment memos which allow lenders to practice controlled yet faster risk assessment.
The value of most loans is mainly based on how an individual or business is likely to pay it back, so determining how likely an individual is to default is critical for the whole sector. The technology combines the documents from multiple sources. This helps the businesses to address the challenges of getting complete information and a clear picture of what they want to know about the person or the firm lending to.
It can be a complicated task even with perfect information, and often the information is incomplete or incorrect. Hence, several institutional lenders have already started incorporating AI for better underwriting processes that reduce the possibility of suffering the consequences of poor risk assessment.
Driving inclusion expands customer base
As banks deploy AI tools for lending, the problem of biases will come to the picture again, this is often because it is based on the credit decision data that has been drawn from decades of inequities in lending and housing markets. An intuitive way to eliminate these biases from credit decision is to remove discrimination from the data prior to the creation of the model. For instance, samples of loan data for women are usually less, this results in frequent errors and false inferences for the under-represented female loan applicants. To avoid this, banks and digital lenders can now use AI to identify and correct the patterns of historic discrimination against women in raw data, thereby compensating for the changes over time by deliberately altering this data to offer an artificial, more equitable probability of approval.
Finding new and better ways to determine the creditworthiness of individuals is a way to drive financial inclusion, increase business and gain more customers.
Leveraging AI to maximise profits
For years, banks and other lenders have been using computer systems to automate more and more of the loan process. With the massive growth witnessed by businesses on the back of new-age technology, many companies are now trying to fully automate the process.
Artificial Intelligence enhances borrower experience and assists them in making informed decisions with utmost certainty. It eliminates administrative expenses and delays to maximize the amount of profits for every loan created. Decisions made are based on verified customer data like their monetary status and accuracy, giving little room for error and helping businesses focus on other aspects of the lending process that still require human attention.
Digital lending will diminish the problems which are generally associated with the lending process, minimizing paper use, and transferring all the aspects of the customer journey to an online place that is safe and secure.