The Business Intelligence Revolution in Lending: Hype or Reality?

Sophisticated  technology and a lot of buzzwords in a product brochure of Business Intelligence companies do not make technology successful, but what makes technology successful is how much business value it translates for the customer.Business intelligence technologies ideally say “We trust only in God, but everyone else must bring data for trust.” But the real question is. “how much will the return increase with Business intelligence?” “ Will the loan approval accuracy improve?”

Let’s look at one of the business intelligence products by Zatayu “Money multiplier”. This tool helps the financial institutions to better its lending decision.The NPA’s arerising every year, be it in the corporate sector, retail sector, or the micro-lending sector. The rising NPA is an indicator that there is definitely some issue with the lending process.

The Problem

We think only high profile wilful defaulters are the problem. Butin reality, they are only a small part of the delinquency of the corporate loan book. What affects the NPA’s are the soaring commodity prices, industry factors, some cyclical trends etc

Hence, there is a big problem with the old underwriting system. It is not full proof. The data available to borrowers and potential borrowers has exponentially increased. However, the accuracy to find the ability to repay has failed. The credit bureaus have been doing the analysis since 2008, and they provide the credit score of the borrower. But, the question is, “Is the credit score alone enough to say the borrower will repay?”

Let’s take an example. The credit score of a 30 year old person who has a stable job and a salary of 15 lakh a year, may be fantastic. As he had takena loan for motor bike and he re-paid, but we need to analyze will he also be able to repay a one crore home loan.

The traditional creditrating system has a flaw that it only considers the number of missed EMI payments but it doesnot take other factors into consideration. This flawhas led to a lending boom but the repayment is a bust. There needs to be a system of lending where underwriting is in pace with the changing times. Only salary slips, address proof, bank statements donot do the job.

The solution

The credit score is only the first step towards lending. Business intelligence technologies should be such that it captures various patterns and habitsof the borrower.Itmust exploit the data and identify potential defaulters among the potential borrowers. Business Intelligence will go many steps further and reduce the chances of NPA’s. This will, inturn, lead to higher grossincome and  improved capital efficiency.

Further, traditional underwriters fail to address multiple issues at a time. Like there are many bank statements, loan repayment data etc. Business intelligence uses data andlooks for patterns like online shopping, phone bill payments, travel patters, social media footprint etc. Thus there is a lot of gap between the traditional operation of an underwriter and the business Intelligence companies who dig the data points. Not only this, business intelligence can also dig patterns for lenders like the collection process, underwriting models which thetraditional systems fail to account.