Top changes that ruled the lending sector in 2017

Change is the only constant. The need for simplicity and improvised customer experience is the major factor that drives the change.

Irrespective of the sector, innovations and advancements happen in every field. Lending Landscape keeps changing as well. In order to stay up-to-date in the cutting edge competition, it’s vital to keep track of the latest trends in the sector.

Here’s a list of top changes that ruled the lending sector in 2017.

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The Impact of Robo Advisor’s

What is this “Robo Advisor?” Well, it is nothing but a software that uses various strategic algorithms to automatically allocate and match an individual’s profile serving personalized investment recommendations, rebalancing and financial planning.

Robo Advisors are the boon for Retail Investors. In India also the “Digital Transactions” have increased drastically in the year 2017. Robo advisors have been trying to get a successful model which will provide a balance between advisers and investors.

The main advantage of Robo advisors is that they will provide transparency and quality service at much lower cost.

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While there are several prominent Robo Advisors in the market, “Betterment Robo advisor” and Wealthfront would come out top when we take the overall functionalities and popularity into account.

Betterment is popular among Retired Investors, Intermediate Investors, and College students. Wealthfront tends to attract beginners with its lower fees and user-friendly aspect.

When the stability factor is taken into consideration, Charles Schwab and Vanguard will take the second close spot. Charles Schwab offers diversified portfolios to investors with automated rebalancing while saving taxes efficiently. Vanguard is often preferred by advanced users to save taxes and perform complex financial plannings.

Wise Banyan and Personal Capital could be considered as rising stars in the Robo Advisor Arena. Wise Banyan is a free service which could be operated without a minimum balance. Personal Capital is a good option to track investments, manage & track bills, and even arrange for retirement planning.

Improved Focus on Credit Risk Analysis

Several firms have started to look for ways to optimize the process of Credit Risk Analysis using artificial intelligence and data science.

They accomplish this using four major prospects such as Information collected directly from the User, Financial History, Social Media and Third-Party Information. As this process is carried out using digital channels, it reduces the overall turn around time and the cost involved while ensuring excellent user experience.

Traditionally, the credit risk analysis is considered as a complex function which is treated more like a mandatory chore performed to ensure profitability and mitigate risks. To ease down the process and reduce the complications involved, a range of specialized institutions and software applications emerged.

However, even the present credit risk analysis techniques were not completely error-free and often tended to result in less optimal conclusions.

As financial firms dedicated a lot of time to improve and remodel the present solutions to arrive at rational and well-informed credit decisions, the innovations in Artificial Intelligence sector not only came as a boon to credit risk analysis but also simplified the complicated process of Credit Underwriting.

The Credit risk analysis models which are devised with the help of AI help the financial institution’s to detect and predict defaults accurately.

Marketplace Lending gaining more prominence

Open Marketplace lending has started to gain more prominence and is being accepted widely by the individuals all around the world.

Marketplace lending is well known for its quick loan process to ensure rapid decisions and ensure that the products are tailor-made to suit the customer needs, the marketplace platforms leverage data analytics and technology.

These new asset classes have not only started to attract customers but also funding sources like hedge funds, venture capital, depository institutions and leasing organisations. Even traditional lending institutions have started to form a partnership with these platforms.

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Partnerships between marketplaces and traditional institutions have started to increase in number. Hybrid business models like customer mining seem to be increasing rapidly to meet the essential needs feasibly.

Due to the high-risk factor associated with this prospect, regulators are taking a much more active role to monitor the happenings in the sector.

Role of Chatbots

Innovations in the artificial intelligence and the machine learning sector have been disrupting the lending sector left and right. The most important innovation in that is the Chatbots. Chatbots are nothing but computer programs which automate a business process by conversing in a human-like way via text messages.

Following is the notable impact made by the Chatbots in the Banking Industry.

  • Providing round-the-clock support:

          For better quick actions and Financial recommendations, Chatbots have and are trying to provide 24×7 support by analyzing data and mining from all users.

  • One-on-one better interaction:

            It has provided ‘Half-baked’ bots, with ‘if-then-else’ approach, and building intelligent bot which can understand context and intention of the customer.

  • Breaking down complex processes:

Bot technologies have simplified and are trying to simplify more to keep track of investments, deciphering complex process of mortgages and loans which are actually risk-prone. They are trying to do without manual intervention.

  • Personalized Financial advice better:

          Chatbots have and are trying to provide personalized guidance with smart insights on options of investment to the customer.

  • Better Security:

          They prevent and are trying to prevent fraudulent practices & improve security by executing authorization & authentication techniques like self-destructing messages, end-to-end encryption, and authentication timeouts.

  • Cross-selling:

In a user-friendly conversation, they have developed a great tool and are improving to cross-sell and up-sell financial products.

Fintechs and Banks

Instead of looking at Fintechs as a competitor, the banks have started to form partnerships with them in order to accelerate financial inclusion.

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  • HDFC Bank has launched “Industry America” which is aimed at mentoring and handholding Fintechs and the first of its kind in the country, the objective is to find potential Fintech ideas at start & entrepreneurship cells in the Institutes and help to evolve a consumer-ready product.
  • In order to extend insurance to new customer segments, AXA is partnering with MicroEnsure in emerging markets. In order to serve retail merchants, Diamond Trust Bank & Kopo Kopo partner in Uganda & Kenya.
  • For the purpose of attracting new customers with the help of mobile-enabled banking products, Societe Generale is partnering with TagPay in Ivory Coast and Senegal.
  • With the intention to reach the unbanked social grant recipients in South Africa, Gridnod Bank, Net1. and Mastercard are joining hands.
  • Similarly, to build a blockchain-enabled payments network, ICICI Bank is partnering with Stellar for customers in abroad and India.
  • To offer mobile payments platform, Stanbic Bank is partnering with DreamOval for underbanked merchants in Ghana.
  • To integrate a peer-to-peer payments platform with messaging application Santander is partnering with PayKey.

While several changes disrupted the lending sector in 2017, the list of changes mentioned above are the most notable changes that ruled in 2017. Amongst these, the partnerships of Fintech Companies with Banks became a trendsetter of sorts. Though the emergence of Robo Advisors seemed to be a bit risky several pieces of research, promise that they would perform well. 

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