With the development of technology, small lenders like payday lenders and shylocks stand a chance of competing with major lenders like banks. These lenders have an upper-hand in technology adoption due to their lean decision making process as opposed to major lenders. In today’s market, retention of borrowers is heavily influenced by the ability to offer smooth online experience, same day approval and competitive rates.
Adoption of technology in lending would go a long way into improving the following key areas critical in business:
- Improved credit underwriting
Small lenders usually need to collect data from various sources. This data-set may include social economic data and company data. The data then needs to be cleaned and important information extracted from it to determine financial eligibility and set pricing. Collection of this data can be a hectic back and forth process which may involve relying with various parties including credit bureaus. The data collected may contain a lot of inconsistencies due to the manual process involved in collecting it.
These lenders can benefit a lot from automation of data collection and analysis process. Leveraging technology will enable the lenders to come up with advanced risk profiles of the borrowers from both borrowing history and external data points
2. Fraud detection
Fraud is a major source of losses in the lending business. Predictive models can be used to assess a borrowers history for fraudulent incidences to avert risk. Fraud can be mitigated by automatically checking against credit bureaus for fraud history and other third party fraud data providers. Fraud models can also be obtained from in-house data sources like extrapolation from previous fraud cases.
3. Customer acquisition
Lending business cannot become a success if the lender is not able to acquire customers. Due to the size and duration of loans provided by small lenders, effective customer acquisition is very crucial. Small lenders usually operate on a lean customer acquisition budget and therefore keeping expenses on a minimum is highly important.
These lenders may benefit a lot from marketing methods like sending out mail to potential customers and analyzing probability of response. The data acquired from this process can be used to extract leads and send a follow up mail for the same
Conclusion
To compete with mainstream lenders, small lenders need to leverage emerging technologies like machine learning to improve automation of their processes. This in turn helps to improve the decision making process and drive better customer experience.
