SPOTLIGHT Sponsored by: Provenir
The business of lending money is changing — and rapidly. Innovative technology, fueled by expanding data and artificial intelligence, is redefining borrowing.
New Data Sources and Innovative AI Are Redefining the Business of Lending September 2022
Written by: Aaron Press, Research Director; and Raymond Pucci, Research Director
Market Overview The business of lending money is rapidly changing. Innovative technology, fueled by expanding data and artificial intelligence (AI), is redefining borrowing. Traditional lenders, as well as alternative sources such as nonbank and "buy now, pay later" (BNPL) providers, are reimagining how people and businesses obtain credit. Intuitive online interaction and rapid delivery are becoming increasingly common across a range of services. Consumers have grown accustomed to the ease and efficiency of ecommerce, which in turn has changed the way they think about the customer experience in a variety of other business interactions, both personal and professional. Lending decisions, meanwhile, have been made in much the same way for decades, leveraging labor-intensive, meticulously built risk scoring models based largely on traditional data. This limited data is then combined with relatively blunt rules and binary decision points that can needlessly leave borrowers without access to funds and lenders without access to customers. But the same advances that are changing experiences and expectations in ecommerce are finding traction in lending, making ecommerce levels of customer experience possible. Data about consumers, businesses, and transactions is growing in both volume and availability. AI and machine learning (ML) are creating opportunities to leverage that data for advanced analytics and risk modeling (see Figure 1). And cloud computing is allowing fintechs and banks to bring new functionality to market with increased speed and less infrastructure (see Figure 2).
AT A GLANCE KEY TAKEAWAYS » Artificial intelligence (AI) technology, accompanied by new and diverse data sources, is critical to enabling accurate and time-sensitive digital lending approvals. Financial institutions (FIs) and fintechs are investing in AI-based risk decisioning technology that adds agility and process productivity to their decisioning systems. » Models using AI and powerful data ecosystems play a critical role in adding speed and scalability and ensuring accurate and equitable loan underwriting. » Lenders realize positive outcomes and revenue growth from expanded loan throughput, higher approval rates, reduced fraud, and fewer credit losses. » Borrowers, including unbanked and underbanked consumers, also realize benefits from AI-based risk decisioning such as enhanced customer experience, fast decision response time, more accurate reflection of financial health and ability to pay, personalization of current and future borrowing needs, and optimal pricing.