The demand for credit among diverse audiences in India continues to rise. This has created opportunities for lenders to scale quickly and deliver more value to their customers.
For instance, a recent survey indicated that in the Financial Year 2024, Gen Z borrowing amounted to between INR 3.5 and 4 lakh crore. Additionally, millennials had borrowed INR 25-28 lakh crore of 62 lakh crore retail loans.
The Micro, Small, and Medium Enterprises (MSME) sector, on the other hand, is experiencing an unfulfilled debt demand of $530 billion.
So, lenders must be able to respond quickly to the growing number of loan applications.
However, many lenders still use manual processes in the lending workflow. This approach increases errors, reduces flexibility, and generates a poor user experience, which collectively reduces conversion rates.
In this blog post, let’s explore how adopting cloud-based bank statement analysis software can pave the way for operational efficiency.
What is a Bank Statement Analysis Software?
Bank statement analysis software refers to a cloud-based, AI-powered solution used by lenders to automate the financial analysis process, a key step in the underwriting function.
The software delivers the following advantages:
- Razor-sharp Analysis: Enables lenders to analyse borrowers’ financial health swiftly and accurately.
- Alternative Credit Score: Based on the analysis results, the software offers detailed reports and a creditworthiness score, which helps lenders make data-driven underwriting decisions.
- Predictive Data Analytics: Artificial Intelligence (AI) and Machine Learning (ML) enable lenders to get in-depth insights that predict borrowers’ ability to repay loans.
- Inclusive Lending: Lenders can transcend the barriers and biases that limit the traditional banking sector from opening up credit access to a wider spectrum of borrowers.
For instance, they can serve retail and business borrowers without credit history or assets.
6 Ways Bank Statement Analysis Software Broadens Credit Access
Here is a look at how lenders can open up credit access to a wider audience by adopting superior bank statement analysis software:
1. Leverage Alternative Data
The traditional banking system reviews borrowers’ credit history to ascertain whether they can repay a loan. This approach excludes many borrowers from accessing credit from a legitimate lender.
- By adopting bank statement analysis software, lenders can go beyond the usual data points and evaluate alternative data.
- They can analyse a combination of bank statements, goods and service tax returns, income tax returns, and balance sheets to get a holistic view of a borrower’s finances.
- This approach reduces inherent human biases and paves the way for borrowers with healthy cash flows and no credit history to become eligible for a loan.
- By doing so, lenders can convert underserved audiences, which otherwise would have accessed credit from unregulated lenders.
2. Accelerate the Financial Analysis Process with Automation
As the number of loan applications increases, lenders must be able to expedite loan approvals and keep pace.
- By introducing bank statement analysis software, lenders can automate the entire financial analysis workflow.
- This software can extract data from over 700 document formats.
- Every transaction is then segregated into over 60 inflow and outflow categories.
- The software flags any transactions that are unaccounted for and then generates an alternative creditworthiness score. The entire process is wrapped up within minutes.
3. Deliver Customised Solutions
One of the key challenges borrowers face is that the traditional banking ecosystem offers them standardised products and solutions. This approach drives up the overall cost of the loans.
Though lenders attempt to offer customised solutions, manual interventions consume significant time and resources. They are often not sustainable.
With a bank statement analysis software tool, lenders can automate the loan personalisation process. They can harness the borrower’s financial analysis results to bring more precision to their efforts.
This approach brings down the overall cost of loans and aligns the terms and conditions of the loan with real-time borrower needs.
4. Reduce Risk and Potential for Fraud
Processing too many loan applications quickly and without due diligence can increase lenders’ risk.
- They may inaccurately assess a borrower’s ability to repay a loan. In turn, they run the risk of growing Non-performing Assets (NPAs) and loan delinquencies.
- They also face risks of borrowers engaging in identity theft, submitting forged documents, or concealing dubious transactions.
AI-driven bank statement analysis software enables the software to flag any irregularities in banking transactions. This way, lenders can stay alert to avert potential loan fraud.
5. Automate the Compliance Function
Due to non-compliance, RBI recently cracked down on a number of non-banking services companies (NBFCs) and peer-to-peer lending platforms.
Failure to follow regulatory guidelines can result in the following consequences:
- Investigations: Consume time, resources, and investment in legal fees
- Fines and Penalties: Disrupt operations and make lenders go bankrupt.
- Perception: A lender’s reputation and share price can take a nosedive.
Lenders can avoid these outcomes by rigorously complying with RBI’s guidelines. The use of bank statement analysis software enables lenders to automate compliance. As a result, lenders can execute overnight changes in regulatory guidelines quickly and efficiently.
6. Promote a Data-driven Lending Culture
Bank statement analysis software can process data extensively.
- Using the power of predictive data analysis, they can predict the ability of a borrower to repay a loan in various market scenarios and enhance the decision-making process.
- Lenders can also leverage their large reserves of customer data to understand borrower patterns, needs, and behaviours.
- Plus, they can build customer-centricity into their processes and products and predict future business trends.
Key Takeaway
In the face of rising demand for credit, lenders are struggling to serve borrowers quickly and efficiently. Cutting-edge bank statement analysis software empowers lenders to automate the financial analysis process.
Presica’s user-friendly bank statement analyser aims to simplify the analysis process through automation, which enables the results to be delivered in minutes.
The software provides actionable insights on an easy-to-use dashboard, helping businesses make informed lending decisions.
Request a free demo today!
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