Emerging Alternative Data Technology Will Drive Credit Decision in Consumer Credit Market Report
A study observed that almost 65% of Indian loan companies surveyed said that a bad credit decision can lead to financial losses, while 44% said such decisions can put customers in difficult situations.
The study was conducted by Forrester Consulting on behalf of Experian. He stressed the need to focus on leveraging alternative data and emerging technologies for lenders. The study surveyed 164 senior risk decision makers from bank, fintech and non-bank credit organizations in India, Indonesia and Australia.
“As India’s economy recovers from the pandemic, businesses continue to be impacted and consumers continue to face the consequences of pay cuts and job losses. As consumers demand credit cards and loans to manage costs, lending institutions have the added responsibility of making accurate credit decisions,” the study said.
The Forrester study also highlighted several key trends in the Indian market for lenders:
Innovation and the use of data – the key to better loans
According to the study, approximately 82% of respondents believed their organization needed to improve the use of data and information in business decision-making. Additionally, about 71% wanted their organization to improve its ability to innovate. These figures highlight the fact that most respondents believed there was room for improvement in the use of data and analytics for credit decision-making.
According to a World Bank report, India has the second largest unbanked population in the world after China. Neeraj Dhawan, Country Manager, Experian India, said, “As banks, NBFCs and fintech companies attempt to drive financial inclusion, the use of alternative data can help lenders more effectively assess the creditworthiness of new customers. This can translate into better access to fast credit and help transform lives. »
Adopt new technologies and improve data analysis capabilities
The study found that approximately 82% of respondents believed their organization should leverage more data from traditional sources and 80% believed they should seek out other sources of data for more effective credit risk assessment. . These figures indicate that employees feel that their organization is not making optimal use of available data.
Additionally, around 82% of respondents felt they could improve data and analytics capabilities, and nearly 84% felt there was an urgent need to adopt emerging technologies such as artificial intelligence for business. credit risk assessment and management.
Unfortunately, only 36% of respondents felt that limited data standardization was a major barrier to increasing automation of credit decisions for lenders. Additionally, 66% felt that legacy systems and reliance on manual processes were preventing organizations from moving towards automation.
Mr. Dhawan adds, “Lenders need to have a more streamlined use of data between traditional credit data and alternative data sources while embracing emerging technologies throughout the credit lifecycle. This approach can help businesses to increase customer acquisition and provide a better overall digital experience.”
For effective credit decisions, choosing the right data is crucial
42% of respondents believe their organization uses alternative loan data to make effective credit decisions. While the use of alternative data in credit decision-making is still being gradually adopted, there are positive signs that this is accelerating, with around 67% of respondents believing that investing in real-time data and analytics will the top priority of their organization. over the next 1 to 3 years.
Automation – a long way to go
The study highlighted how automation is used in credit decision making for various lending products:
- Full automation: 42%
- Partial automation: 58%
- Personal loans:
- Full automation: 40%
- Partial automation: 58%
- Full automation in Other Loans:
- Car loans: 31%
- MSME loans: 22%
- Home loans: 16%
Neeraj Dhawan, Country Manager, Experian India, said, “Automation can shorten the sales cycle and improve the quality of service provided to customers, and should be a priority for businesses to remain competitive in today’s credit landscape.