Artificial Intelligence has been key driver of growth and reformation across almost all the sectors and has a high impact influence of detailing and precision on all the industries that it touches. It has led to the automation of a lot of processes which were previously dependent on humans and hence was pretty time consuming and had room for errors. But with the AI technology, automation has been a major phenomenon across relevant industries leading to unleashing the trapped potential of the core businesses. And with the transformation brought in the fintech industry, it is apparent that AI and automation are the future of mobile money lending.
Let’s have a look at the scenario of banking and lending in India until recently. India has always had relationship driven banking & lending. To open a savings account in the State Bank of India, one still needs “an introduction from a respectable person / a customer of the branch”. The local auto garage only gets loans from the neighborhood bank, if the branch manager knows the proprietor personally.
Technology is yet to disrupt the lending space as it has done in entertainment, e-commerce, payments and to some extent in Banking. Banks no longer want customers walking into their branches. However, lending is lagging behind. While the loan or the credit card application process has been digitized, there is a lack of awareness among users. Many are still are apprehensive of using lending apps. Submitting sensitive information like ID proofs, IT returns, Bank Statements through a mobile app is still a challenge for most. The underwriting policies are still archaic in most lending institutions. They are yet to embrace data science and the AI and automation technology when it comes to the lending decisions. Post approval formalities are still largely paper-based. The customer still has to sign agreements and provide post-dated security cheques.
Disruptions happen on the back of platforms. Disruptions in other industries happened on a strong backbone of internet, GPS & mobile penetration. For lending, in addition to mobile & internet, the disruption enabling platform is India Stack. The stack consists of different layers including Aadhaar eKYC, eSigns, UPI & consent driven data sharing. The process from identifying a user’s intent to borrow all the way through to repayments will happen paperless & presence less. In the next 5 years, with AI and automation, we will see all users authenticate themselves with Aadhaar and sign agreements with eSigns. UPI 2.0 will automate payments and remove the need for physically signed cheques. A consent driven data sharing layer will make the process of submitting bank statements, IT returns and utility bills seamless & secure for the users.
An important piece that needs to mature more is underwriting process. While there are many smart NBFCs that have automated the underwriting process, the larger ones still rely on human intervention & subjectivity. This is due to the myriad forms in which an applicant’s data could come. Address proof, for example, can be one of 20+ document types each of which has no standard format. Data science, ML & AI are ripe to start experimentation in this space. Once the data formats are standardized, algorithms can munch through personal documents & financial statements in no time and without human errors or fatigue. These algorithms can learn over time to discern between good & bad borrowers. There is ample research to prove how psychometric traits like impulsiveness and delayed gratifications are strongly related to a person’s financial discipline. We will see more this in the coming years. One word of caution though – AI & ML can go horribly wrong. While we avoid human errors, computer bugs and faulty mathematical models will crop up.
Credit has not reached people who need it the most. AI technology and automation is yet to disrupt lending like some of the other industries. Mobile & internet penetration along with India Stack is a transformative platform that will launch the lending industry. What we require is careful, innovative experimentation and data privacy regulations.
(The author is the Co-founder & CTO at Shubh Loans – a digital lending platform that helps borrowers who find it difficult to secure formal approvals to get loans.)