Artificial Intelligence is becoming a part of almost every major industry. From driving to food and everything in the middle. Non-Banking Financial Companies (NBFCs) too, are turning to Artificial Intelligence (AI) for enhancing their operations, risk management techniques, and customer experience. This is an exciting time for everyone who is a technology enthusiast. So without further ado, let’s take a look at how AI is helping NBFCs in numerous ways, from improving decision-making to streamlining customer interactions.
1. Credit Scoring and Risk Assessment
This is one of the primary applications of AI in NBFC. Traditional credit scoring and risk assessment methods rely heavily on historical credit data, which can be limiting. This is especially applicable for first-time borrowers or those with unconventional credit histories. AI, on the other hand, leverages advanced algorithms and data analytics to provide a more holistic evaluation.
These algorithms can inspect a vast array of data sources, including social media profiles, utility bill payments, and even smartphone usage patterns. This enables NBFCs to make more accurate lending decisions, resulting in reduced default rates, and better portfolio management.
2. Automation of Underwriting
AI is significantly streamlining the underwriting process for NBFCs. By automating the evaluation of loan applications, AI systems can assess risk factors, verify identity, and determine creditworthiness in a matter of seconds. This not only reduces the time it takes to process loan applications but also minimizes the risk of human errors.
Abhay Bhutada, Poonawalla Fincorp’s Managing Director, stated that automating the entire loan sanctioning and disbursement process, from the review of documents to credit bureau checks, etc. aids in achieving significant cost optimization. It also helps remove biases in the application evaluation process.
All of this happens due to the complex algorithms and machine learning models that make this automation possible.
3. Customer Service and Chatbots
In 2021, Muthoot Finance launched ‘Mattu’, an AI-powered virtual assistant. Alexander George Muthoot, Deputy Managing Director, The Muthoot Group said that their AI-powered virtual assistant has the ability to offer several customer-friendly features like voice search capability, can handle more than 250 frequently asked questions, and support for many languages.
The use of chatbots and virtual assistants is transforming the way NBFCs interact with their customers. AI-powered chatbots can answer customer queries, guide them through loan application processes, and provide real-time support, 24/7. This not only enhances customer satisfaction but also reduces operational costs. Behind the scenes, these chatbots are trained using natural language processing (NLP) algorithms, allowing them to understand and respond to customer inquiries with a high degree of accuracy.
4. Fraud Detection
AI is revolutionizing fraud detection and prevention in NBFCs. Using machine learning, it identifies anomalies and predicts potential fraud by analyzing vast datasets, transaction patterns, and user behavior. It also offers real-time monitoring, blocking suspicious transactions, and adapting to evolving fraud tactics.
Additionally, AI ensures regulatory compliance by monitoring for money laundering and generating necessary reports. In essence, it is an invaluable tool that enhances security, minimizes losses, and ensures compliance in the ever-evolving landscape of financial fraud.
5. Personalized Financial Services
By analyzing customer data and behavior, AI systems can make tailored product recommendations, offer insights into savings and investments, and suggest personalized loan terms. This level of personalization enhances customer engagement and loyalty. Abhay Bhutada says that AI and machine learning algorithms can utilize crucial data points from borrowers’ financial history and behavior to offer personalized loan products that suit their specific needs.
6. Portfolio Management
AI leverages data-driven insights to assess loan risk, allocate assets efficiently, predict defaults, and dynamically price loans. By segmenting customers, AI tailors products and services to diverse borrower groups, enhancing satisfaction and retention. Additionally, predictive analytics equips NBFCs to adapt to market changes, while automation streamlines routine tasks, freeing up human resources for more strategic activities.
It also ensures compliance and reporting accuracy, reducing regulatory risks. This highlights the transformation of portfolio management into a data-driven, proactive, and efficient process.
Conclusion
The integration of AI in NBFCs is having a profound impact on the industry. It’s transforming the way loans are processed, making customer interactions more efficient, and providing valuable insights for better decision-making. The future of NBFCs is undoubtedly intertwined with artificial intelligence, and this partnership promises to shape a more efficient and customer-centric financial landscape.