Optimizing the onboarding process and analyzing alternative data allows personalized digital loans to be granted to more customers.
Although the adoption of digital accounts has accelerated in the last two years, this hasn’t necessarily led to an increase in access to virtual credit. But it does bring into focus the opportunities that banks have for developing alternatives for financing.
There are currently more than 850 million mobile accounts registered in 90 countries, with transactions of US$1.3 billion per day, according to World Bank figures. They’re the starting point for offering more sophisticated products, such as credit.
Digital loans differ from traditional methods because they use technology to record, qualify, approve and distribute credit efficiently and virtually instantaneously: approvals are often given in less than 72 hours.
Non-traditional data, such as digital consumption and bill payments, are increasingly used to determine the applicant's creditworthiness, in addition to traditional sources of information such as credit scores and bank accounts.
But for an effective strategy, it’s important to consider critical aspects, such as fluid digital onboarding and the use of technologies that allow customer transactions to be “tracked” inside and outside financial applications, in order to evaluate the user's consumption habits and, therefore, their ability to pay.
In order to make digital loans available to users, the bank must have the ability to register its customers in a virtual process that’s secure and meets all regulatory requirements.
Digital onboarding is a process for registering new users online that reflects new banking habits and requires remote attention on customer demand.
A good registration process offers agility, ease of use, and speed, which favorably impacts the user experience and the bank's administrative processes. If onboarding proceeds smoothly, the chances of retaining the customer grow substantially.
The ally for digital customer registration is the smartphone. It’s estimated that by 2025, 80% of mobile users in Latin America will have a smartphone, according to GSMA Intelligence.
This approach can also yield additional information about the applicant that helps the bank get to know them better and increases the likelihood they’ll obtain a loan: for example, details such as their place of work, time of employment or income level.
Digital accounts constitute an important asset for expanding the availability of digital loans.
A digital wallet makes everyday payments easier for customers. But these applications also helps them in their everyday lives and collect alternative data that can be useful when applying for credit.
Entities can become smart banks by harnessing artificial intelligence (AI), machine learning, automation, and data science to refine user profiles and better predict needs and trends.
Confirming that a user has a formal job and earns a certain amount of money isn’t sufficient to paint a full—financial—picture of them.
For example, in Latin America, one out of every two jobs that emerged during the pandemic is informal. In addition, according to the International Labor Organization, in the first quarter of this year, about three quarters of all self employed workers and just over a third of employees were informal.
But someone who’s self employed can make timely use of a loan and prove that they’re a good borrower.
Consequently, exploring alternative data can produce better economic gauges: knowing whether users pay utility bills, rent, or school fees on time, is valuable data that allows their financial profiles to be brought up to date in the wake of COVID-19.
Quickly analyzing digital loans that adapt to each client's income and expenses positively impacts the user experience, but this requires banks to modernize their data analysis processes.
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