By Rahul Chopra, Chief Digital Officer – Clix Capital
The next time a person applies for a loan, opens a bank account or does any other financial transaction, there’s a high possibility the individual will do so online in a completely paperless E2E digital process. Customers undergoing Video KYC, other verifications happening online instantly. The loan will be underwritten by an AI-enabled algorithm without human intervention. Moreover, subsequent customer service and support throughout the product’s life cycle will be provided digitally through bots and other AI-enabled means without the customer ever interfacing with a human.
The pandemic has ensured a concerted digital drive from all stakeholders – customers and companies as well as the government and regulatory authorities. The push has been necessitated due to multiple factors. These include extended lockdowns pan-India, health and hygiene concerns propelled by the fear of coronavirus infection and enabling government regulations for the digital delivery of services.
Temporary Threat, Permanent Changes
While the pandemic is a temporary global threat, many of the behavioural changes will be permanent. Although the digital drive is across industries and functions, it is more pronounced in financial services.
Many sectors have witnessed online emerge as a major sales channel with e-groceries, e-pharmacies and e-commerce amongst the biggest gainers. Monthly payments such as utility bills, government taxes and other regular outgoings are also seeing significant online traction.
Yet, the first watershed moment in digitalization of banking came decades ago with the advent of ATMs, which made visits to bank cashiers a thing of the past – except when high-value transactions were involved. The second defining moment was the introduction of Internet banking.
That was then. Today, the accelerated digital drive because of COVID-19 could be the much-needed final push towards full-scale digitalization. In the case of financial services, particularly payments, the digitalization mission is exerting a much greater impact than Demonetization. During Demonetization, although there was an initial pickup in digital payments, the effect was short-lived.
Now, the scenario is different. Whereas there was already a move towards anytime anywhere digital banking, both Internet and mobile, the pandemic has forced even the most ardent advocate of branch banking to ponder and revisit their support. In future, bank branch visits will gradually be used only for emergency and customized banking requirements. Significantly, within a couple of decades or less, bank branches may vanish completely from the financial firmament.
Nonetheless, customers will not be disadvantaged in any way since digital will fill the void successfully and more. Fortunately, the RBI has enacted enabling regulations to support the digital thrust. Consequently, customers can open an account online and undertake KYC digitally through Video KYC, enabling Offline Aadhar KYC (o-KYC), etc. Thereafter, they can apply for loans and receive money in their account via an E2E digital process. Some digital-native lenders even transfer the loan amount into the borrower’s account within minutes!
Winning Proposition for All
In facilitating seamless customer experiences, digitalization is happening across all front and back-office activities and banking touchpoints. One critical area remains ‘Collections’, which is undergoing rapid digitalization currently. COVID-19 has forced the lending industry to bust the age-old misconception that a heavy human touch is imperative to ensure efficient collections.
Presently, lenders across the board have increased digital touchpoints while majorly reducing the human intervention in their collection strategy. Humans now intervene only for special accounts.
In controlling NPAs (non-performing assets), AI and machine learning tools are also being increasingly deployed in EWS (Early Warning Systems) as part of the collections strategy. Moving forward, AI/ML-based algorithms using bureau, financial and alternate data will underwrite most loan applications. A human review will only occur for special cases. Of course, while this was happening even before the pandemic, the virus has accelerated this transition.
To elaborate, digital helps lenders in minimizing risk by deploying AI and advanced analytics in doing due diligence during the loan application process. Digital tools also help lenders in analyzing data from traditional as well as non-traditional troves for periodically reviewing customers’ risk profiles.
As stated earlier, customer service and support are increasingly being provided via AI-based digital means such as bots. The possibility of zero human interface throughout the lifecycle of key financial products is almost a reality.
Besides being a safer and more efficient alternative, digitalization is highly cost-efficient. Being easily scalable, it offers the much-needed operational flexibility in the new post-COVID world. Extremely pleased with such services, customers are adopting these features quickly. For financial services, these are exciting times indeed and the current innovations are just the tip of the iceberg.
