Could AI Disrupt the Lending Industry as We Know It?

AI is not a futuristic technology, it is already here and transforming our lives in profound ways - Andrew Ng, Founder & CEO of DeepLearning.AI

A world where machines and humans work together to create a better future - is not far! Did you know that today Artificial intelligence is affecting our decisions and our lifestyles every day? While we might think that AI is at least a few years away from causing any considerable effects on our lives, it’s actually already here.

From chatbots to self-driving cars, AI is already shaping the way we make decisions and live our lives.

Artificial Intelligence, Real WOW:

One of the most prominent examples of AI that has already taken the world by storm, is ChatGPT - an artificial intelligence-powered chatbot. ChatGPT can mimic human-like responses, write blog posts, generate and debug complex code, weave vivid stories, give recipes, and answer almost any question you would ask it. In case you’re reading this blog over your smartphone, you’re able to access your device with the help of an AI itself - Face ID Unlock. In the near future, you can expect AI apps to pick up facial expressions and identify your mood and intention. Taking the example of your smartphone ahead, today you don’t even need to tap your screen to know what your city’s temperature is. All you got to do is ask - just ask a question to your Digital Voice Assistants. It is that simple - to have answers, to listen to your favorite songs, to set up alarms. Few decades back, who could imagine that in the near future, cars won’t need to be driven around. Ford, Cruise, Mercedes, Waymo and Tesla have been racing to build autonomous self-drive vehicles for a radically changing consumer world. It is safe to say that Artificial intelligence is literally driving the future of our fast-paced & evolving world.

Banking and AI: A Powerful Collaboration Transforming the Finance World

With everything around us having AI footprints, our finance world doesn’t remain unfazed. Banking today is witnessing a collaboration between humans and machines. AI-led systems that include voice assistance to customers improve customer service and provide a more personalized and efficient experience for customers. Another hugely beneficial usage of AI is in Credit Scoring, which offers a wide range of advantages, including the ability for customers to apply for loans in a few clicks from the comfort of their homes. Other AI tools offer automatic financial advice and support. The implementation of AI in banking is early in its adoption phase, and the AI opportunities for the banking sector are vast. Whether it is an Android or iOS app, artificial intelligence will be a game-changer in the banking sector.

But how would Artificial Intelligence revolutionize the Digital Lending space of the Indian Banking industry??

Let’s dive ahead to get some answers.?

Experts estimate that the total market growth potential for India’s digital lending sector between 2021-2023 is approximately USD 820 billion. Before AI & digitalization happened, a traditional lending lifecycle tended to be fraught with bottlenecks, delays, and manual encumbrances that cost customers their time and cost mortgage providers lost opportunities. Digitization is essential to remove these bottlenecks and streamline the lending process. Let’s dive right in and explore how AI would impact the lending industry:

1. Credit Scoring to become smarter, faster and more accurate - Right now, lenders need to rely on their information source and their own experience/insights when it comes to credit scoring the potential clients. But AI is here to up the ante. AI-powered credit scoring systems can analyze social media profiles, digital footprints, and spending patterns which can help lenders make more informed decisions about which borrowers to approve, and at what interest rate. AI will surely automate many aspects of the credit scoring process, reducing the time and cost required to evaluate loan applications.
2. Loan Approval, in a fraction of second! Paper-work has always been cumbersome & time-taking. But all this will change in the near future, for the good. AI-powered underwriting algorithms will quickly process large volumes of data including financial history, credit score and other data points to assess the creditworthiness of a borrower in real-time. This can help lenders streamline the loan approval process and reduce the time it takes for borrowers to receive the funds.
3. AI to detect Fraudulent Loan Applications - In the landscape of lending, there are always dangers of fraudulence lurking. AI can come to a huge aid in this regard. AI can also be used to detect fraudulent loan applications by analyzing patterns in data and identifying anomalies. This can help lenders prevent losses due to fraudulent activities.
4. AI-powered Personalized Lending - Information is always the key to any business’ growth. With digital lending, AI can help lenders create personalized loan products based on a borrower's credit history, spending patterns, and other factors. This can help increase the number of borrowers who are able to access credit and improve their overall financial wellbeing.
5. Protecting borrowers and lenders alike - Not just lenders, but AI can be hugely helpful for borrowers as well. AI can be utilized to manage risk-exposure to all stakeholders associated with lending. By analyzing data from multiple sources, AI-powered risk management systems can identify potential risks and provide early warning signals to lenders & borrowers.

Talking about India, back in 2020, Indian companies were ranked second in AI adoption in the Asia Pacific. AI has the potential to transform digital lending in India by making the process faster, more accurate, and more personalized. However, AI-powered lending systems will need to be carefully regulated to ensure that they are fair and transparent. When AI augments good lending practices, it can improve financial well-being. ?

In the words of tech leaders:

Ultimately, humans and machines will work together—not against one another. Now is the time for greater coordination and collaboration on AI - Satya Nadella, CEO of Microsoft

The future of lending is here, and it looks bright with AI.