Fintech Innovations for Credit and Loans

  • 20 September 2019 | 1495 Views | By Mint2Save
Fintech in loans

The heavy reliance of banks and other lending institutions over credit reports is uncanny. Even before calculating someone’s eligibility for a loan, his credit reports are generated and only after satisfying over these reports, the credit appraisal goes ahead.

The process used to be paper intensive and the undue / unreasonable delays often frustrated the lender as well as the customer.

A decade earlier, it was not possible to judge someone’s capability to avail a loan. Income certificates could be easily forged, inspection could be framed up and the credit officer can be manipulated. Now, rating agencies such as CIBIL, ICRA, Fitch, CRISIL have provided a silent, but strong weapon to all banks, making them capable enough to decide the fate of a loan proposal in a few minutes.

Advent of fintech in banking and efforts to improve the same has improved the banking system by huge margins within a decade. As they say, God lies in the details. Here the God lies in the minute aspects of customer verification, processing, credit of funds and monitoring. All these phases are divided into several categories and are further broken down to almost a separate code.

Disruptive technology in financial world has made us see wonderful innovations in payments, financial advising, investment and even applying for loans. Quite a number of seen these new age solutions as a threat to large multinational banking entities. The reasons usually quoted are  low capital input, profit margin, ease of access and accuracy. However, a lot of these new age disruptive technologies have already entered the day to day working of large banking units.

Let’s have a look at the ways in which digital disruptive technology has merged itself with the large banks, thus helping them in decision making.

Previous Loan Repayment

With the massive advent of credit cards and non-discretionary distribution, a number of cases surfaced where the credit card debts have gone bad and the bank had to write-off the amount as the card holder went absconding. A similar case was seen when even housing or auto loans had their repayment problems. Lacking a consolidated loan history system, we couldn’t do much to stop these people from approaching another bank for a loan.

Now, with the dawn of online credit report generation, banks can not only see the total number, types and amount of loans, but can also track their repayment behaviour that whether it was regular or not. Moreover, these credit report have a typical rating system for all borrowers and rates them on the basis of loan amount, repayment and type of loan. A lot of banks, have already adapted themselves to this process so much that their interest rates are now based on scores of these reports only.

Details of Property Mortgaged

Indian banks and NBFCs use a portal named CERSAI to register the details of the property they have mortgaged along with the details of the owner of the property, the loan that has been taken and any other borrowers who have been involved in the same loan. Hence, banks can safeguard themselves from mortgaging the same property over and again, by doing a simple CERSAI search of that property. A simple data entry process now protects all the banks from the vicious and old mortgage based frauds.

CERSAI has now rolled out options where even intangible assets can be registered over it.

Online Background Check

Thanks to the social media and data mining agencies, doing an online background check is not rocket science anymore. Running queries via a few search engines or social media websites gives huge amount of information to access and assess his credibility.

While online background check was limited to high end tech jobs only, it has now reached the door of the banks too. Aided via several startups, reliable information can be easily retrieved over a few clicks.

There have been a few dedicated attempts by several banks and tech companies to consolidate one’s identity, rate the risk associated with it and then let the banks decide on whether they want to explore credit options or not. This objective of common repository creation shall also enable banks to reduce paperwork, frauds and identity theft.

KYC and Due Diligence Norms

Thorough assessment of KYC guidelines is a cent percent proven model to avoid incidents of fraud, misinformation and money laundering. Earlier, banks did not have much resources to assess the customer and hence, were relatively weaker in following knowing your customer guidelines.

On the other hand, now services pertaining to verification of income, driver’s licences, vehicle’s registration number, voter’s ID etc., are freely available to anyone seeking to verify an identity and categorize the risk associated.

The three basic criteria to enable a credit officer decide whether he wants to go ahead with a loan proposal or not are indeed the ones briefed above. These measures, have made people visit their previous banks for repayments they missed and making them more responsible towards taking a financial liability. 

Do the Banks Ask for More?

It is an interesting fact to know that the requirements from the customers is still the same; submission of income proof, government issued identity cards, proof of communication and permanent address, conventional paper work etc. The use of these documents has over the decade evolved so much that from one identity card, a report as large as a book can be generated, detailing about his education, job, personal life, previous loans, repayments, assets etc.

Targeting clients with tailor made highly customized products, applying insurtech and regtech based solutions shall enable them to provide best of the services to them.

Along with the expansion in horizon of going machine and AI based, complying with the norms of the regulator is also equally important for the banks.

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