AI in Lending Processes: A Game Changer for Modern Credit Distribution

Let’s explore how AI in loan onboarding and management processes improves efficiency and borrower satisfaction, making the journey smoother and more accurate for every case.

Southeast Asia is rich in human resources and talent. However, it also has one of the widest gaps between the need for and the availability of formal credit.?

While large, traditional banks have mature processes in place, the massive need of the market remains largely untapped, given the markets’ geographical spread and unorganised nature.?

In today's competitive lending landscape, top public and private banks can further enhance loan onboarding with AI, even while having existing internal-facing software and borrower-facing websites/apps.

Basic software has already made onboarding faster and more efficient, but AI introduces a new level of automation, saving time, reducing human error, and boosting operational efficiency to serve even the most remote areas.

While there are many types of credit products, for the purposes of this article, we’ll focus on loans and their onboarding and management processes.

A typical loan distribution process involves applying for a loan, providing personal and financial information, submitting required documents, and the particular case’s risk evaluation.

In this article, we’ll examine how AI improves various stages of the loan onboarding process across two main journeys. Then, we'll look at the value provided by AI in allied lending management processes like loan application management, compliance and reporting, and AI-powered service delivery on mass-communication platforms like WhatsApp.

Journey 1: Application for a Loan through the Lender’s Website/Mobile App

In this journey, the borrower applies for a loan through the lender’s online platform without the need for direct interaction with credit officers.

AI-Enhanced Application Form

At the beginning of the loan process, AI helps make application forms smarter and more user-friendly. As borrowers fill in the form, AI auto-suggests corrections, flags missing information, and offers personalised loan options based in real time basis preliminary data.?

This goes beyond basic form validation, with AI being able to detect more complex issues.

Document Upload and Verification

When borrowers upload documents, AI uses Optical Character Recognition (OCR) to automatically extract and verify information. AI scans documents for accuracy, ensuring that all the necessary information matches what the borrower has entered.

Suppose a borrower uploads a payslip. AI extracts the income details, cross-checks it with the provided salary data, and verifies it within seconds.

The portal also confirms successful document uploads and provides instant feedback on incorrectly formatted or blurred files, helping the borrower fix issues in real-time.

Automated Credit Assessment

Once the application and documents are submitted, AI instantly assesses the borrower’s creditworthiness.?

It analyses both traditional credit data and alternative data (like bill payments or online activity, if needed and if data is available and consent for the same has been taken from borrowers) to create a more comprehensive credit profile, offering quick decisions on eligibility.

Personalised Offers

Based on the credit assessment, AI recommends loan products with personalised interest rates, repayment plans, and terms suited to the borrower’s risk profile.

For instance, AI may offer a lower interest rate to a borrower with a strong credit score, ensuring the offer is attractive and competitive.

Instant Feedback

Gen AI-powered chatbots can be made available to guide borrowers through the process. They can answer questions like, “What documents are needed?”, “How long will approval take?”, or “What’s the next step in the process?”, without any human intervention.

These chatbots engage with borrowers in natural-sounding simple language, ensuring a smooth onboarding experience.

Journey 2: Application for a Loan at the Lender’s Branch with Assistance from a Credit Officer

Here, the credit officer assists the borrower with their application and inputs the required data into the lender’s internal system before AI kicks in and takes the process further.

Document Submission and Access

When the credit officer scans or uploads the borrower’s documents into their internal system, AI (integrated with the system) instantly activates and analyses the uploaded files and supporting data.?

For example, if a borrower submits an ID document, AI scans the image, checks the details, and verifies its authenticity through recognized data validators in real time.

The credit officer receives instant feedback from the AI, such as, “Document verified successfully” or “Upload a clearer copy of the bank statement.”

AI-Assisted Decision Making

AI analyses the borrower’s submitted data and documents, comparing them against lending criteria and historical data to provide the credit officer with real-time recommendations. For example, AI can suggest loan terms based on the borrower’s creditworthiness.

The credit officer sees AI’s recommendations and can discuss them directly with the borrower, explaining why certain loan terms are being offered. AI helps streamline the decision-making process by analysing all factors instantly.

AI for Borrower Support

AI chatbots or virtual assistants can still play a supportive role in the branch by answering common borrower questions through in-branch kiosks or helping the credit officer find relevant information quickly.?

AI tools can also trigger automatic emails or SMS messages to the borrower, updating them on the status of their application or alerting them about missing documents.

AI not only enhances the loan onboarding process for borrowers but also plays a significant role in streamlining the internal workflows of the loan team.

AI Elevates Loan Application Management

AI can significantly enhance how loan applications are managed by automating many of the manual processes involved in tracking and processing applications.

Automated Data & Document Handling?

AI can automate the sorting, classification, and processing of both data and documents that accompany each loan application.?

With documents, it uses OCR to extract crucial information and organise it efficiently within the system. This eliminates the need for manual data entry by the loan team, saving time and reducing the risk of human error.?

As a result, credit officers can focus more on decision-making and less on administrative tasks, leading to improved operational efficiency.

Real-Time Tracking

AI can track the progress of each loan application and update its status in real time, giving credit officers, managers, and other stakeholders full visibility into the current stage of each application. When a decision is pending from a credit officer, the system will display the last recorded status accordingly.

This feature saves credit officers from the manual work of checking and updating application statuses themselves, allowing them to focus on more critical tasks like assessing borrower needs and making informed decisions.?

By automating this process, AI helps credit officers work more efficiently and reduces the risk of human error in status updates.

Alerts for Incomplete or Delayed Applications

AI can generate alerts for incomplete or delayed applications, notifying the relevant credit officer when follow-up is needed.?

For instance, if a borrower hasn’t submitted required documents on time, the system prompts the assigned officer. They can choose to contact the borrower directly or let the AI handle communication via email or WhatsApp.?

This flexibility streamlines follow-ups, allowing credit officers to focus on their core tasks while ensuring timely assistance for borrowers.?

Managers also receive alerts for stalled applications, enabling proactive intervention and resource allocation to expedite the process.

Auto-Prioritization of Applications

AI can automatically prioritise applications for individual credit officers based on predefined criteria such as borrower risk profiles, application complexity, or the urgency of loan approval.?

For instance, applications from high-risk borrowers may be flagged for immediate review, while simpler applications from low-risk borrowers can be placed lower on the priority list.?

This system allows credit officers to focus their attention on higher-priority cases, effectively managing their workload by ensuring that urgent and complex applications are addressed first.

Personalised Follow-ups with Borrowers

AI can facilitate personalised follow-ups with borrowers who need to complete steps in their application or submit additional documents, going beyond generic email reminders.?

For example, if a borrower has not submitted their income verification documents within a specified timeframe, the AI can initiate a WhatsApp conversation, asking in natural language if they have any questions or challenges.?

The AI can then facilitate document submission directly in the chat, allowing the borrower to upload the necessary files seamlessly.?

The basic content and frequency of these messages can be configured by the lender, providing customization based on their specific needs.?

Additionally, the AI can do this automatically unless it is configured to require approval from the relevant credit officer, ensuring that the process continues smoothly without manual intervention from the loan team.

"At iorta, we believe AI can simplify the loan onboarding process, making it faster and smoother for both borrowers and loan teams. By integrating AI into internal systems and borrower-facing portals, we help lenders make better decisions and reduce manual work, which ultimately improves the overall borrower experience and increases efficiency across the board. It’s about using technology to create a smoother, more human-centred process." - Himanshu Gupta, Chief Operating Officer (COO), iorta Technology Solutions.

AI in Compliance & Reporting for Loan Onboarding

Ensuring that the loan process meets regulatory standards is crucial. AI helps the loan team stay compliant with minimal effort.

Automated Compliance Checks

AI can automatically flag potential regulatory issues, ensuring that every loan application complies with internal policies and external regulations.?

For example, if an application does not meet the required debt-to-income (DTI) ratio set by the lender, the AI can alert the credit officer to review the applicant's financial situation before proceeding.?

Additionally, if the AI detects missing disclosures or documentation, such as required credit history reports or loan agreements, it can notify the officer to obtain these essential documents to maintain compliance.?

This proactive approach reduces the risk of non-compliance and minimises the need for manual oversight, streamlining the overall loan onboarding process.

Audit Trails and Reporting

The internal system generates comprehensive logs for each loan application and the onboarding process, while AI assists the compliance team in matching these logs with internal policies and external regulations.?

This integration facilitates quick compliance checks, ensuring that all actions taken align with established guidelines.?

For example, if regulators request a review of loan decisions, AI-generated audit trails enable the compliance team to provide a clear, transparent history of every application, reducing the time spent gathering data manually.?

This streamlined approach enhances transparency and efficiency, particularly during regulatory reviews or audits.

Removing Barriers: AI-powered Service Delivery on Platforms like WhatsApp

Generative AI is transforming the lending landscape by removing physical and geographical barriers, making it easier for borrowers to access financial services.?

With platforms like WhatsApp, lenders can deliver support and services anytime, anywhere. This innovation allows borrowers to access financial support without needing to visit bank branches, even if they are available in their villages.

For example, if someone in a rural area has a question about a loan application, they can simply send a message on WhatsApp. The AI can respond immediately with helpful information or even guide them through the application process.

The AI can also guide them through the application process. This takes off some of the load on heavy front-end platforms, allowing lenders to streamline their operations.

Therefore, by simplifying access to loans, generative AI helps lenders reach a wider audience, promoting financial inclusion for individuals who might otherwise find traditional banking processes daunting. It diversifies the lending approach, ensuring that even those in remote areas can receive timely assistance and support.?

As a result, lenders can concentrate their resources on fostering relationships with customers and addressing their unique needs, ultimately driving financial growth and reducing dependence on traditional banking channels. This shift empowers borrowers and transforms how lenders operate, making financial services more accessible and efficient.

In conclusion, for banks already using internal and borrower-facing software, integrating AI is the next step to streamline operations, boost borrower satisfaction, and drive efficiency. And, when the effects are taken in context of the scale of large, national lenders, the results will be game-changing.

How we can help:

As the lending market becomes more competitive, adopting AI-driven solutions like those offered by iorta can give lenders the edge they need to stay ahead.

Interested in seeing how AI can transform your loan onboarding process? Reach out to us at [email protected] , and let’s explore how we can add value to your business.