How NBFCs can change banking through a mix of technology and people

Non-banking financial companies (NBFCs) have played a key role in India’s march towards financial inclusion. They have emerged as a reliable alternative to mainstream banks in India, and have particularly played a great role in providing solutions to the MSME (micro small and medium enterprises) segment.

According to a PwC report, ‘Fit for Future NBFCs’, the non-banking financial sector in India grew at a great pace till HY1 of 2018 and made up for approximately 18 percent of overall credit flow. The key drivers of this growth include changing customer needs and behavior, and the adoption of digital and cutting-edge technologies.

Rise of FinTech

Thanks to technology, NBFCs have been able to tap into regions and segments that have been thus far not included. Many other new-age NBFCs are partnering with FinTech firms that make use of artificial intelligence and machine learning, among others to build products for today’s customers. Also, several FinTech firms are using analytics and big data to offer round the clock CX and support. Customer-centricity gets a boost when a chatbot or digital assistant takes up routine, mundane tasks while agent times are freed up for more complex tasks that may require human qualities like empathy.

Online platforms for easy lending

Non-banking financial companies are now taking to online lending platforms, as they have begun to recognise that today’s workforce is seeing an increasing millennial and Gen Z population. They have begun to realise that a key aspect of millennial behaviour is the thrust on experiences. For instance, millennials and Gen-Zers are known to put a lot in store by travelling to offbeat destinations, acquiring and updating gadgets. They don’t shy away from small loans to meet some of these goals. Moreover, such small loans are zero collateral ones and therefore appeal to the Gen-Zer, who is just entering or has only recently joined the workforce. All this data and mapping customer pain points and journeys is possible with the help of analytics. Also, as an Accenture Global Consumer Pulse Research 2018 notes, 60 percent of all customers make use of channels like web portals, voice chat, and text, for self-service after the purchase of a financial product. It further notes that the adoption of a lending platform that is scalable could enhance volumes of loans by at least 15-20 percent. Costs are expected to drop by 20 percent, as well.

Areas in which NBFCs use emerging technologies

Data analytics is an area new-age NBFCs have focused on acquiring customers or creating analytics models for credit risk. If an NBFC gets data on customer pain points or needs and wants to resolve it by adding a new product, for example, an EMI loan for say, smartphones, it is data analytics that will help it evolve the product. Candidates wishing to enter the workforce or those already employed in NBFCs should look at data analytics training to stay relevant. While some back-end jobs will vanish thanks to emerging technologies, new profiles will require a fresh set of skillsets and knowledge.

Debt management and risk modelling

Tools like eligibility calculators and apps help customers with managing debt and providing them with the best options to clear loans. Data analytics and AI are being leveraged to create tools for customers to manage debt. AI-based technologies can also help NBFC predict which customers are likely to default early on, thereby ensuring that risk costs are brought down. When algorithms predict and evaluate risks in real-time, the financial company saves costs and time. Artificial intelligence, as it turns out, has emerged as a game-changer for risk modelling. It also frees up time for agents and employees to think creatively and provide much-needed human insight.

Trade finance

Trade finance is an area wherein financial companies/institutions offer credit such as short-term financing to ensure goods exchange on a domestic or international level. Many MSMEs need this kind of financing for exports and to compete at an international level. With MSMEs contributing 30 percent to the country’s GDP, it is a sector that NBFCs can ill-afford to ignore. Typically, trade finance involves a lot of paperwork, and letters of credit are drawn up. The turnaround times (TATs) are long, and costs are high in traditional trade finance. Thanks to the deployment of technology and the presence of FinTech platforms, trade finance has now been transformed into digital financing. Digitisation has lowered TATs, making documentations real-time affairs for all stakeholders. Blockchain is also being considered an appropriate technology to adopt by NBFCs who deal with trade finance.

The current pain points in trade finance include delays in shipments because of several checks and points of communication, delays in payment owing to verifications and manual creation contracts, among others. In a blockchain empowered world, smart contracts ensure sharing of the sale agreement between exporter and importer, and the consecutive processes are all done through digital signatures, digital letters of credit, and generation of smart contracts at every stage.

Equity analysis

Digital technologies are also changing the face of equity analysis and research. Equity analysis, which essentially is about analysing several companies and sectors, and offering advice to fund managers or clients on the shares to pick, can benefit from machine learning and artificial intelligence. Social listening, the inclusion of chatbots (conversational AI) that can answer analyst queries, and data science to layout patterns all help in equity research and analysis. While AI and machines take over repetitive tasks, skilled analysts gain from richer insights and patterns to make more informed decisions.

Clearly, NBFCs have begun to march to the beat of technology. Automation, however, doesn’t mean fewer jobs. It means the replacement of certain old jobs with newer profiles. Modern workforces need to upskill and reskill themselves to keep pace and step into the future. It is ideal that they empower themselves with knowledge of new technologies such as data analytics, artificial intelligence and machine learning to step into a world where it’s no longer human vs machine but humans and machines.

By Robin Bhowmik, Chief Business Officer, Manipal Global Academy of BFSI