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AI in lending: going beyond chatbots

13 Jul 2023
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Artificial intelligence (AI) has been responsible for significant advancements in nearly every industry – and the lending sector is no exception.

While AI is often simply associated with chatbots, its potential impact goes far beyond that narrow perception in the lending industry. 

AI is more than a singular solution, encompassing a gambit of specialized algorithms and machine learning models used to automate key processes, improve risk assessments, enhance the customer experience and streamline lending operations. 

That’s not to say chatbots aren’t useful. In fact, chatbots are expected to deal with up to 90% of financial inquiries in 2023. But as more financial institutions embrace AI, going beyond chatbots to leverage more advanced tools and technology has the ability to revolutionize the lending industry.

Automation in lending processes

AI has emerged as a game-changer in lending, enabling lenders to automate manual and repetitive tasks that were once time-consuming and prone to human errors. Lenders can streamline various processes by utilizing AI-powered automation technology, allowing them to dedicate more attention to strategic decision-making and customer interactions at every step.During the application process, AI-powered document automation technology can extract relevant information from applicants’ submitted documents, verify data accuracy and enable lenders to more accurately identify documents that have been tampered with in applications. This reduces the need for manual data entry and accelerates the loan approval process. 

During underwriting, AI can automatically analyze vast amounts of data including credit histories, financial statements and market trends to assess risk and determine the creditworthiness of applicants in an instant, rather than the hours it may take a human. This automated risk assessment speeds up the underwriting process and enhances accuracy by reducing human biases.

Regarding collections, AI plays a crucial role in identifying and preventing delinquent accounts. By leveraging machine learning algorithms and complex models that analyze customer behavior, payment patterns and other key variables to optimize their collections strategies, lenders are able to detect potentially risky loans better ahead of time.

Enhanced risk assessment

As data volumes continue to expand, AI is becoming increasingly instrumental in lenders’ approach to evaluating risk. With its ability to process and analyze vast amounts of data, AI-powered systems can effectively assess risk more comprehensively and timely than humans alone. 

By leveraging sophisticated algorithms and machine learning models, lenders can gain valuable insights from diverse data sources, including credit histories, financial statements and market trends. This automated risk assessment expedites the underwriting process and enhances accuracy by minimizing the potential for human error.

With AI, lenders can make more informed decisions regarding the creditworthiness of applicants by analyzing customer behaviors, payment patterns and other key variables to detect potential risks. By analyzing vast amounts of data in real-time and identifying patterns and trends that may indicate a borrower’s likelihood of defaulting, lenders can tailor their underwriting efforts and strategies, optimizing their approach to each individual borrower.

Another significant advantage of AI in the lending industry is improved accuracy in identifying and detecting fraud. AI algorithms analyze data from multiple sources, such as credit reports, financial statements and real-time transaction data to identify anomalies, unusual patterns and suspicious behavior.

By proactively raising red flags and alerting lenders to potential fraud or tampering, AI enhances risk management strategies, enabling lenders to take timely actions and prevent unnecessary financial losses.

Optimized lending operations

In addition to automating processes and improving risk assessments, lenders can leverage AI to optimize their loan portfolio management and overall operational efficiency. 

AI-driven algorithms for loan portfolio management and optimization enable lenders to make data-driven decisions regarding their loan portfolios by analyzing borrower data, loan performance and market trends nearly instantly and on a large scale. These algorithms are able to identify risks, determine the allocation of resources and recommend specific strategies for portfolio optimization. 

These tools also enable lenders to proactively adjust their lending strategies and respond to changing market dynamics. For example, suppose the AI system detects a sudden increase in default rates within a specific industry. In that case, the lender can take preventive measures to minimize exposure and adjust lending criteria accordingly.

Finally, lenders can utilize AI to automate compliance processes by generating accurate reports in real time. This not only reduces the burden on compliance teams but also minimizes the risk of errors and ensures adherence to regulatory standards.

Improving access to credit

As more financial institutions adopt document automation for better, faster lending decisions, they are able to improve access to capital for their applicants. 

AI-powered automation can transform the customer experience by enabling lenders to offer personalized loan offers to borrowers more efficiently. AI can help provide tailored loan recommendations for borrowers such as loan amounts, interest rates, repayment terms and suitable loan products to match borrowers’ specific needs and qualifications. 

In one example, Lendflow, a leader in embedded lending infrastructure, turned to Ocrolus for a solution that enables its customers to offer more accessible and faster credit access to a variety of small business owners leveraging cash flow data. The unique solution developed through this partnership enabled Lendflow to automate more of their operations for drastically reduced loan processing times and more accurate financial assessments, ultimately increasing access to capital by helping ensure applicants are evaluated fairly, consistently and efficiently.

The role of AI in the lending industry goes well beyond the commonly associated chatbots. AI has the potential to revolutionize lending operations by automating processes, improving risk assessments and optimizing loan portfolio management.

As the lending industry continues to evolve, embracing AI and staying informed about emerging trends will be essential for financial institutions to remain competitive and meet the changing needs of borrowers. 

By harnessing the power of AI responsibly and strategically, lenders can unlock new possibilities, drive operational efficiency and deliver improved experiences for borrowers in the rapidly evolving lending market.

Book your demo to discover how Ocrolus can help you achieve unparalleled efficiency and best-in-class accuracy with Human-in-the-Loop automation and machine learning.

Takeaways
  • AI in lending extends beyond chatbots, offering automation of manual tasks, improved risk assessments and streamlined lending operations.
  • AI enables lenders to enhance risk assessments by detecting potential fraud, improving operational efficiency, maintaining compliance processes and minimizing human biases.
  • AI enhances the borrower experience through personalized loan recommendations and improved access to capital.