Agility with Stability for Lenders

Banks are compelled to make faster and smarter decisions with customers demanding new digital banking experiences. With Generation Z being digital natives and the increasing proliferation of mobile devices, there is increasing demand for hyper-personalized and on-demand financial services.

Hyper personalization means delivering a product based on individual preferences and personal requirements. In the credit world, it means offering the perfect loan product by using credit score and determining the appropriate risk-based price.

Agility for evolving customer needs  

Banks have traditionally relied on standard and static credit scoring and credit risk evaluation models to assess customer risk. While these models have proven to be reliable and robust, they fail the agility test in changing economic and political conditions.  

Navigating current market volatility, rising inflation and interest rates have brought in new challenges, impacting treasury yields and net interest margins. Moreover, companies are facing higher borrowing costs at a time when supply chain costs are rising and the global economy is slowing. Banks that can quickly adapt to changes in customer behavior and spending, supply chains, and credit costs will benefit from stable business growth.

Banks have used historical data like payment history, current level of debt and average length of loans to forecast default rates. Credit scoring models should be agile and flexible to incorporate feedback from analysis and due diligence of the loan portfolio to evaluate performance across different customer segments and market feedback on industry and sector performance.  

Stability to keep pace with a highly competitive environment

Lenders have relied on robust credit scoring models built with experience gained over the years incorporating critical economic and market conditions and regulatory policies.

Credit scoring models consider different parameters across liquidity, leverage, repayment history, intention to pay, ability to pay, longevity, and market dynamics in addition to a bank’s internal exposures and net interest margin.  

These robust models need to also consider new customer data, because the target customer definition may evolve and change over time, due to macroeconomic factors. With market volatility and increasing inflation, banks need to increasingly focus on factors such as rising inflation and ability to pay. All while ensuring that the loan portfolio is secure and there is no negative impact of increasing interest rates on the net interest margins and profitability.  

The answer to growth with stable ROI generation

The only answer to solving the challenges the banks are facing today is leveraging technology. Technology is the essential ingredient to create, offer and service financial products in a risk controlled, regulatory compliant, efficient and cost-effective manner.

To succeed in this rapidly transforming market all you need is a catalyst and infinite power of technology at your fingertips. Imagine the power of:

• Granting instant approvals to offer seamless experience to digital first customers.
• Accommodating policy changes and new regulations without any delay using a robust platform on cloud which is scalable in a highly regulated and volatile environment.
• Generating rapid ROI using an adaptive platform to configure and launch new products within days without dependency on developers and IT teams.
• Increasing efficiency by rolling out AI based modelling backed with RPA tools to reduce loan application turnaround time to minutes or even seconds by automating credit evaluation.

With the right technology and tools, you can stress test your loan portfolio and quantify the potential impact of changing economic and market conditions on the asset quality, interest margins and liquidity.