Non-banking financial companies (NBFCs) have played a critical role in meeting the financial needs of individuals and businesses; especially those that have traditionally, banks have unserved or under-served. However, given the legacy infrastructure of these lenders along with India’s pace of change and customer expectations, NBFCs are now falling back on keeping up with the demand. Further, FinTech companies, on the other hand, are efficiently making use of new-age technologies to overcome challenges.
They build products and services including customer lead generation, alternative credit models, fraud detection, and operational automation to leverage more opportunities and solve the current limitations of the NBFC sector.
Challenges faced by the NBFC sector and how FinTech partnerships can benefit:
“One size fits all” credit modelling
“One size fits all” credit modelling is an age-old limitation the sector is adhering to. Traditionally, NBFCs have been depending upon a credit model which limits their product offering. As a result, they are not able to service customers due to the ever-evolving requirements of businesses and consumer demands. This further results in the exclusion of a large population of potentially creditworthy customers.
FinTech companies are now adopting and building models based on AI-ML and advanced analytics. Thus, NBFC lenders can look to adopt a personalized approach to underwriting by incorporating segment-defined guidelines. These are empowered by alternative data sources to arrive at a scorecard-based credit decision. This approach has helped broaden the customer base by allowing sales teams to acquire customers by offering relevant products. Technology is transforming the manual, time-consuming, human judgment-based underwriting process to provide real-time approvals. This transformation benefits NBFCs to differentiate themselves from competitors, improve customer experience, ensure uniform credit policies and reduce costs.
Customer Acquisitions and on-boarding
Customer Acquisitions and on-boarding of traditional lenders have depended upon the “feet on the street” and physical infrastructure model to acquire customers. While this has been effective to a certain degree, it is certainly extremely costly. Furthermore, the cost of onboarding a customer due to the physical nature of gathering information and storing documentation is eating into the ever-decreasing margins.
Mobile and smartphone penetration has enabled FinTech companies to connect with customers who can now use their mobiles devices throughout the lending cycle of application, engagement, e-KYC and e-signature. This also allows NBFCs to rapidly increase their customer base and lower their customer acquisition and servicing costs.
Manual operational processes
Manual operational processes are out of trend, especially after the outbreak of COVID-19 in the whole world. Today, the majority of NBFCs have a large dedicated team to ensure that they run the operations smoothly. FinTech companies aim to reduce manual task dependency and are built on the capabilities such as Robotic Process Automation (RPA). This lead to cost-effectiveness, credit quality and a faster turnaround time.
Furthermore, historically, NBFCs have relied on historical performance and customer account balances to prioritize non-performing and delinquent accounts to formulate strategies for collections. With the next level of growth expected to come from accounts with little or no credit history, NBFCs would need to leverage big data processing capability to derive insights into non-performing or delinquent accounts.
Adopting technological innovations by partnering with FinTech startups; especially startups who bring novel solutions for stakeholders; across the value chain will enable NBFCs to increase their penetration. They can also reduce the turnaround time, automate decision making and ensure accessibility of credit for customers tailored to their profile. Thus, collaborating with FinTech startups would allow NBFCs to increase revenue, profitability. It will also provide more services with a more advanced customer experience.
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