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Understanding the role of AI in financial services


Artificial Intelligence promises to dramatically change financial services as we know them. What does this mean?


How can AI help a bank or an NBFC leapfrog into a digital-first world?


AI is a field of computer science that enables us to create intelligent machines, which can learn from us or on their own, to perform tasks like humans.


When utilised the right way, AI can help banks, NBFC and other organizations in financial services with:

  1. Safer underwriting of loans

  2. Refined underwriting of insurance

  3. Creating personalised banking experiences


While the above list is not exhaustive, let’s delve deeper and examine each point to discover more.


Safer underwriting of loans


Conventional underwriting of loans usually comprises assessing an applicant’s existing assets and liabilities, debt to income ratio, CIBIL score and other relevant factors to decide whether s/he can be eligible for a loan.


It makes perfect sense to analyze these numbers before deciding to lend. However, certain scenarios may be subject to exceptions:

  • If the personal loan applicant is a young fresher right out of B school, they may not have an asset, to begin with.

  • A high debt-to-income ratio, typically 40%, may not mean a commercial real estate loan applicant cannot afford to pay their EMIs. It could simply mean they are from a well-off family, with basic needs already cared for, who wants to use debt to further grow their assets.

  • A CIBIL score could be over 650 or 700 because someone has paid their credit card bills on time. But the credit limit could have been INR 50,000 while they seek a loan of 50 lakhs.


Leveraging AI, one can create several times more refined credit underwriting model, which can additionally cover data points such as:

  • Annualized CAGR of applicant’s income growth in the past few years

  • Past payback behaviour basis category and size of loans

  • Prediction of job security basis average tenure at applicant’s employers

  • Spending pattern analysis from applicant’s bank statements

  • Social circle of the applicant and social connectedness

  • Sentiment analysis of applicant’s social media posts

  • Risk profile analysis from applicant’s invested assets


Aggregating all of the above datasets and more, for a large number of people, will start throwing up trends that a conventional underwriting process may not be able to predict. These trends can help banks and NBFCs refine their underwriting models, and help build large and healthy loan books.


Refined underwriting of insurance


Traditional underwriting of health insurance includes assessing the following parameters:

  1. Age of the applicant

  2. Medical test report

  3. Past medical history form filled by the applicant


Similarly, to underwrite life insurance, a firm would factor in:

  1. Age of the applicant

  2. Collecting information from various sources, and manually feeding them into a computer

  3. Medical check-up


While all of the above steps are on the right track, a well-rounded AI-based insurance underwriting model provides the following information about the applicant:

  • Lifestyle patterns basis the bank statement analysis of where h/she tends to spend more frequently

  • Information from all kinds of documents procured quickly and in a standardized manner using OCR

  • Past medical history and test reports, which when compared against thousands of previous cases, can help predict future diseases or risks

  • Geospatial data to predict the living environment and its impact


Using all of the above data points will help an insurer price risk premiums correctly, and help build a bankable business, trusted by many.


Creating personalized banking experiences


A bank’s key function is to offer all kinds of financial services to customers. Every customer has a unique relationship with their bank.


Some have a lending relationship with the bank.

Others have a banking relationship.

Many have both banking, and lending relationships.

Some have a credit card-based relationship.


However, every customer will never avail of all the services that a bank offers.

But, when you log into a digital banking app, some banks will show you everything on one tiny screen, even if you just hold a simple credit card with them. This may not provide the customer with their optimum experience.


That’s where the beauty of AI comes in!


By integrating a layer of artificial intelligence into your user experience, you can ensure that your customer does not have to tackle a cluttered screen with options that may be irrelevant for them, to choose from.


Let’s say the customer who has just logged into your app only holds a credit card with you, and nothing else. Why not tailor the app experience to display the credit card section at the very top?


If your customer always uses their credit card to pay bills from your app, why not directly take them to the credit card authorisation page, instead of showing the whole gamut of payment methods that range from UPI to debit card?


You save your customers precious minutes scrolling through the interface and ensure they are satisfied with their app interaction experience.


Banks can, and must use AI to create personalised banking experiences, and make life easy for their customers!


If you are part of a bank, NBFC, or a financial services organization, and want to make your life easy - reach out to us today at info@executepartners.com. We have the right experience, and expertise to help you implement artificial intelligence at scale.


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