Data has changed the way retail lending is done
Data on retail clients has made a significant impact on the way banks lend to retail customers. Various information sources such as PAN, Aadhar, and Credit Bureau scores have significantly transformed the way banks lend to individuals. Cycle times to identify, qualify, verify, and do credit checks on individuals have significantly come down too. As a result of the lower cycle times and related costs, there has been a rapid proliferation of retail loans. The current boom that we see in retail lending has its origins in ‘good data’, the story of which goes back well over a decade.
A similar transformation has started to happen in corporate lending
Very similar to the way retail lending has been transformed in India, we are beginning to see a rapid transformation in the way lending is happening to businesses, especially to the mid-sized and smaller companies. Note that currently there are over 10 lakh active companies, of which nearly 3 lakh companies have existing borrowing relationships with banks and other institutions. These figures will double over the next 5-6 years, as the economy continues to expand. The challenges to tap into this opportunity are massive for the banking industry as the stakes are quite enormous. However, the winners have much to gain. Firms that leverage data, and do it well, will have a significant head start on this journey.
How can Banks and NBFCs benefit through use of data?
Early adopters are showing the way
Sales Identification and Qualification
Today, there are over 10 lakh active companies and nearly 3 lakh existing companies with borrowing relationships in India. As this number continues to grow, it is essential for banks to use data to identify and qualify potential customers very early in the sales cycle. In today’s information-rich, digital world, unlike say five years back, it is possible to qualify prospects very early in the sales cycle. The cost of converting potential customers has dropped by nearly 90% over the past five years. Pre-qualifying the sales funnel will increase the productivity of the sales teams nearly twofold.
Also, by using data to identify the right customers, the sales teams can significantly expand their qualified target markets, at pace.
That said, transforming the sales team’s existing processes, which in many cases are still based on Rolodex-based approaches, to a more data-oriented approach is a key challenge and opportunity.
Faster Credit Analysis and Disbursement
Gone are the days where your ability to analyze a case better gave you a competitive edge. With information on prospects now widely available, speed is the only factor that will provide you with a competitive advantage. (We remember a personal loan used to take 15 days in the mid-90s, whereas we take about 30 seconds now.)
The availability of high quality, reliable information can significantly enhance the speed of decision making, thereby giving the lender a competitive edge in the marketplace. More than 50% of the information that is being collected from the borrower today is already available in the public domain.
Use of information also significantly reduces cycle time, therefore improving employee productivity. We have already seen several hours being cut out of the business credit analysis process thanks to the introduction of data.
Effective Monitoring
Scale and growth are often accompanied by their own challenges. The number of companies that have relationships with banks is rapidly increasing. Many of these companies leave a long trail of digital footprints. Regulatory requirements are also becoming stringent, making more reliable data available in the public domain, hence dependence on data is increasingly important. Active monitoring of these companies on an ongoing basis needs to be supported by data and analysis.
Amongst the significant challenges bankers face is the multiplicity of data sources, lack of standard identifiers across sources, and credibility of data sources. Given the above, it is not an easy position to be a banker in today’s world. In such a situation, technology and organized data can play a significant role in helping support the banker through the journey of monitoring.
Summary
Overall, including employee productivity, payback on the investment in data is significant. In nearly all situations, gains from using it effectively are far ahead of the cost of the data.
We see early, but strong trends, on how data availability is transforming the way business lending is done in India. Quickly and rapidly, precious minutes and hours are getting chipped away from the entire credit qualification, disbursement, and monitoring process. We are rapidly moving towards the day when a business, as long as it is good, has credit available on tap – very similar to the way retail lending operates.
