AI helps FIs grow / pool credit profitability

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Although the total number of banks using artificial intelligence (AI) to assess credit risk has tripled in the past three years, those gains have been largely confined to the largest lenders.

According to AI in Focus: The Navigating Bank Credit Risk Playbook, compiled by PYMNTS and Brighterion, In 2018, just under 5 percent of financial institutions (FIs) said they used AI systems in areas such as credit risk management and fraud detection – but by 2021 that number had tripled to 16 percent.

Additionally, the report showed that about 88 percent of FIs said the pandemic made lending and lending more difficult, and the proportion of FIs using AI has increased 200 percent over the past three years. However, the growth of AI in FinTech is unevenly distributed among banks – 79 percent of banks with assets of more than $ 100 billion use AI, but only a fraction of the smaller banks.

It’s a divide that is on the verge of change, said Amyn Dhala, vice president of AI for Credit Risk at Brighterion, in a recent discussion with Karen Webster, as bank managers across the board are now looking to leverage their investments in AI to manage Credit risks increase, driven by the changing needs of the market and its customers.

Consumer debt in the United States grew faster in 2020 than it has seen in more than a decade, reaching nearly $ 15 trillion. AI enables FIs to do two things better than they have previously been able to: avoid losses and increase customer loyalty.

“Banks see it increasing savings in terms of credit losses,” Dhala said. “In addition, there is greater profitability and potential operational savings from offering higher credit limits, new products, and new product designs. It is really starting to generate a lot of interest and also banking services. “

Contain the loss

Assessing risk in the current environment has been made difficult by the number of public and private forbearance issues, as well as things like stimulus dollars flowing into consumer accounts, making this a more data-intensive process. Even so, Dhala said that period will end when the pandemic subsides and all economic stimulus and borrower protection programs wear off.

“These programs are ending and basically some customers will not be able to pay and it will be critical for banks to effectively manage credit risk while improving the customer experience,” he predicted. “Credit default is a place where even a small improvement from AI can save millions.”

This ability to avoid losses is reinforced over the course of the consumer’s credit cycle, powered by AI based on real-time datasets to make better lending decisions – but also better management over time, with the improved ability to manage potential bad debts for months recognize in advance and intervene before losses are incurred.

AI also does a better job of circumventing both sides of the loss-related equation related to transaction fraud, Dhala said, as it blocks fraudulent attempts and minimizes false rejections.

All of this has the added benefit of improving the customer experience – which will become more secure over time, but will be less haunted by barriers to warding off losses and more actively generating profit growth in the increasingly digital age we live in.

The opportunity grows

AI is a tool that basically gives banks a broader, more focused view of their customers, Dhala said, which in turn gives them better insight into what is on offer.

Better interpretation of data enables banks to increase their profitability by using this data for initiatives such as offering new and personalized product lines. Banks can be more confident that they are doing everything right with a real-time view of customer behavior and are therefore more open to expanding offerings to deepen the customer relationship.

What AI offers – and what bank executives are now flocking to – is a better view of their clients’ progress. This knowledge, when used correctly, helps banks to offer a higher level of personal experience that is more readily available and tailored to customer needs. Because real-time data gives FIs the opportunity to design their offers and experiences in an agile manner.

“There are many benefits to managing credit risk across the lifecycle, with the common goal of improving the customer experience and increasing the company’s profitability,” said Dhala. The AI’s ability to deliver on both fronts is why its growth has exploded – and the data says it will only skyrocket from here.

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NEW PYMNTS DATA: TODAY’S SELF-SERVICE TRIP – SEPTEMBER 2021

Above: Eighty percent of consumers are interested in non-traditional checkout options like self-service, but only 35 percent have been able to use them for their recent purchases. Today’s Self-Service Shopping Journey, a collaboration between PYMNTS and Toshiba, analyzed over 2,500 responses to learn how merchants can address availability and perception issues to meet demand for self-service kiosks.

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