India’s digital lending market has grown from strength to strength. In the financial year 2023-24, the sector experienced a remarkable 49% increase in disbursements, totalling ₹1.46 trillion across over 10 crore loans issued. A significant growth in the number of outstanding credit card dues and gold loans are two major factors driving the demand for personal loans.
As internet penetration and the swelling middle class continue to grow, the adoption of digital lending platforms has witnessed consistent growth, raising the demand for advanced tools, including bank statement analysers.
Bank statement analysis is one key aspect of accurately evaluating the borrower’s financial stability. It eliminates the possibility of manual errors and discrepancies. This article explores compelling reasons lenders are turning to bank statement analysis solutions to minimise risk and increase accuracy.
What is a Bank Statement Analysis Tool?
A bank statement analysis tool, as the name suggests, is a software tool that evaluates bank statements to determine an individual’s financial stability and creditworthiness.
These solutions harness technologies, including artificial intelligence (AI) and machine learning algorithms, to accurately process large volumes of data.
Key Features of Bank Statement Analysis Tools
- Data Extraction: Automatically extracts relevant data from bank statements, reducing manual effort.
- Transaction Categorisation: Organizes transactions into categories (e.g., income, expenses) for clearer analysis.
- Real-Time Reporting: Generates comprehensive reports that provide insights into spending habits and financial patterns.
How Does Bank Statement Analysis Work?
Now that we understand what a bank statement analyser is, let’s explore the different steps involved with bank statement analysis.
1. Organise Crucial Documents
The first step is to ensure all the important bank statements are neatly organised so that you do not waste time finding them. You can organise them by creating folders based on month, year, and other parameters that offer more context to financial transactions.
2. Convert Bank Statements to Editable Files
It is crucial to convert bank statements from PDF format into editable file formats, including Excel and CSV, to facilitate efficient bank statement analysis. This allows you to sort, organise, manipulate, and integrate data into different analysis platforms, improving the accuracy and overall efficiency of the process.
Precisa’s bank statement analyser allows you to seamlessly convert bank statements into CSV and Excel files, making it evaluate financial data.
3. Categorising Transactions
Categorising financial transactions based on different metrics, including income, expenses, and transfers, is vital to understanding your financial flow. Additionally, it also allows you in financial planning, budgeting, and management.
Some of the best bank statement analysers are integrated with features that automate the categorisation of financial transactions using relevant keywords, simplifying financial analysis.
4. Detecting Anomalies and Unauthorised Transactions
One of the major functions of bank statement analysis is to spot anomalies and unusual activities. It can help detect unusual financial transactions, uncharacteristic large-amount transfers, frequent small-amount transactions, and other entries that do not tally with your bank statements.
Why Is Bank Statement Analysis So Important for Lenders?
Bank statement analysis or automated evaluations using advanced tools provide a host of benefits over manual techniques. Here’s why it is so important for lenders:
Better Accuracy
Lenders can leverage cutting-edge technologies, including Optical Character Recognition (OCR) integrated within bank statement analysers, to extract financial data accurately, reducing the chances of human error and improving the credibility of financial assessments.
Higher Productivity
Manual financial assessment and statement analysis are time-consuming, hindering productivity and efficiency. Automating this allows you to save a significant amount of processing time during data extraction, providing a safe and seamless passage to crucial financial data.
Security and Compliance
Leading bank statement analysers include a range of security and compliance features, including audit trails, real-time monitoring, and fool-proof encryption, which enhance the credibility of the automated financial statement analysis software.
These features aim to promote regulatory compliance and safeguard sensitive data from fraudulent and suspicious activities.
Cost-savings
Although investing in a bank statement analyser requires a significant initial investment, the trade-off is worth it in the long run, as it offers a high degree of efficiency and productivity during the processing of financial data.
Additionally, the security and compliance features justify the upfront costs, making bank statement analysers a worthy asset for financial institutions and lenders.
Common Challenges Faced by Lenders During Bank Statement Analysis
While bank statement analysis aids lenders in making informed decisions and detecting anomalies, there are a few challenges involved:
High Volume of Transactions
Lenders, particularly those dealing with mid-sized to larger customer bases, have to deal with high transactional activity, which can be intimidating and prone to inconsistencies if carried out manually.
Incorrect and Inconsistent Transaction Descriptions
Many vendors use different descriptions for similar types of transactions, making categorisation a major roadblock, especially without a bank statement analyser.
Duplicate or Missing Entries
It is easy to miss a few entries or make duplicate entries, particularly while dealing with high volumes of financial transactions.
Handling Complex Transactions
Handling complex transactions, particularly those involving foreign exchange and financial instruments, can get complicated while analysing bank statements.
Missing Suspicious Activities
It is easy to miss inaccuracies and detect suspicious and unauthorised transactions, especially infrequent and small transactions.
Parting Words
Although bank statement analysis is one of the most standard practices primarily used by lenders to improve decision-making, the advent of technology is transforming the key processes involved. These include automated categorisation and risk evaluation with AI-powered analytics.
The repetitive and error-prone nature of manual bank statement analysis makes it ripe for automation. On the other hand, automated tools streamline a lender’s financial management processes, providing several advantages, including better accuracy, processing time, and compliance.
Equipped with some helpful features, Precisa’s bank statement analyser helps you minimise processing time by 5x and improves productivity by 8x. Unlock deep, actionable insights with statistical analysis and fraud risk checks and make informed lending decisions to mitigate risks.
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