Alternative Data, Emerging Tech Will Drive Credit Decisioning In Consumer Credit Market: Report
A study observed nearly 65 per cent of India’s lending companies surveyed said that the wrong credit decision can lead to financial losses, while 44 per cent said that such decisions can put customers in difficult situations.
The study was conducted by Forrester Consulting on behalf of Experian. It highlighted there was a need to focus on leveraging alternative data and emerging technologies for lending organisations. The study surveyed 164 senior risk decision-makers from banking, fintech, and non-banking lending organisations across India, Indonesia, and Australia.
“As India’s economy recovers from the pandemic, businesses continue to be impacted and consumers continue to grapple with the aftermath of salary cuts and job losses. As consumers apply for 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 across the India market for lenders:
Innovation and data utilisation – the key to better lending
According to the study, around 82 per cent of respondents believed that their organisation needs to improve the use of data and insights in business decision-making. Also, around 71 per cent wanted their organisation to improve its ability to innovate. These numbers highlight the fact that most respondents believed that there is room for improvement in using data and analytics for credit decision-making.
According to a World Bank report, India has the world’s second-largest unbanked population after China. Neeraj Dhawan, Country Manager, Experian India, says: “As banks, NBFCs and fintech companies attempt to drive financial inclusion, the use of alternative data can help lenders assess the creditworthiness of new-to-credit customers more efficiently. This can result in better access to quick credit and help transform lives.”
Embrace new technologies and improve data analytics capabilities
The study found that around 82 per cent of respondents felt that their organisation should leverage more data from traditional sources and 80 per cent believed that it should look for alternative data sources for more efficient credit risk assessment. These numbers indicate that employees feel that their organisation is not utilising available data optimally.
Further, around 82 per cent of respondents felt that they could improve data and analytics capabilities, and nearly 84 per cent felt that there was an urgent need to embrace emerging technologies like artificial intelligence for credit risk assessment and management.
Unfortunately, only 36 per cent of respondents felt that limited data standardisation was a major barrier to increasing automation in credit decisioning for lending organisations. Also, 66 per cent felt that legacy systems and dependence on manual processes were preventing organisations from turning to automation.
Mr Dhawan adds: "Lenders need to have more streamlined usage of data between traditional credit data and alternate data sources whilst embracing emerging technologies throughout the entire credit lifecycle. This approach can help businesses in driving higher customer acquisition and provide a better overall digital experience.”
For effective credit decisions, choosing the right data is crucial
42 per cent of respondents believe that their organisation is using alternative lending data to make effective credit decisions. While the use of alternate data in credit decisioning is still gradually being adopted, there are positive signs that this is picking up, with around 67 per cent of respondents feeling that investing in real-time data and analytics will be the top priority of their organisation over the next 1-3 years.
Automation – a long way to go
The study highlighted how automation is being used in credit decisioning across various lending products:
Credit Cards:
Neeraj Dhawan, Country Manager, Experian India, says, “Automation can shorten the sales cycle and improve the quality of service offered to customers, and should be a priority for businesses to stay competitive in the current credit landscape.”
