NBFCs leveraging Fintech to Build a Customer-Centric Business Model

Fintech is systemically changing the functional paradigms of the Indian Non-Banking Finance Company (NBFC) domain

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Both new and established NBFC's are harnessing the power of technology to create tailored lending solutions and expanding their business on a Pan-India basis. The JAM Trinity (Jan-Dhan-Adhaar-Mobile), increasing internet penetration in the Indian hinterlands, and the rising prevalence of digital avenues for disbursal of loans, have made India one of the hottest markets for the growth of Fintech. Seeing this, NBFC's are investing heavily in digital transformation.


Harnessing Data, The Immense Untapped Asset

While the overall transformation will impact several aspects of the business, including the Loan Origination System, Loan Management System, Data warehouse, etc; at the heart of the digital transformation is Data-driven decision making. Companies are fast realizing the importance of Artificial Intelligence (AI) and Machine Learning (ML), to gain insights into customer behaviour over the loan life-cycle and make prudent lending decisions. Customer data collected for lending includes demographic profiling, income, cash-flow, tax payment, asset base information and asset usage details. Having digitized this client information, the next step is to build analytics-based capabilities with a focus on three broad areas: new customer acquisition, collection analytics, and up-sell/cross-sell recommendation engine for the existing customer base. The focus clearly is on leveraging AI/ML to increase the STP (Straight-Through-Processing) and speeding up the loan processing time. Collection Analytics is proving to be a panacea for the NBFCs in segmenting their customer base efficiently and improving EMI payment rates across delinquency buckets while lowering servicing costs.

Role of Fintech in Building a Customer-Centric Operational Model

Placing the customer at the core of all operations, NBFCs are re-engineering their processes to improve customer experience. The Fintech revolution in the country has spawned robust digital alternatives to conventional physical processes, facilitating a frictionless transactional interface for the customer. Companies are likely to leverage the IndiaStack for digitally documenting customer data, easing KYC process, conducting automated transaction analysis, detecting frauds, executing agreements and setting up repayment mandates. There is a heavy emphasis on partnering with FinTech companies who have invested in building Application Process Interfaces (APIs) for importing customer data from various sources including financial statements from MCA, GST returns, ITRs and bank statements. As customer-related processes are subject to constant changes, it makes prudent sense for lenders to opt for a partnership model rather than go for a build/buy model.

Over the last few years, NBFC credit disbursement has witnessed robust growth. NBFCs are performing a crucial role in filling the retail lending gap in the Indian banking system by providing credit to a section of the society either deemed unworthy of credit or found difficult to be serviced by banks. A deeper understanding of customers and better management of risk has led to lower credit costs, while an efficient last mile credit delivery model has led to manageable operating costs. The widespread proliferation of Fintech will require the BFSI sector to reinvent their functional capabilities and revamp its customer outreach strategies. Eventually, NBFCs prioritizing customer experience will garner a larger share of the market pie than those who are slow to move. The Amazon effect is coming to lending…