Companies adopting cloud technology in lending are able to establish new benchmarks in customer service, says Sarbpreet Anand, Global Head-Cloud Business, Nucleus Software.
The adoption of cloud technology has been accelerating dramatically. According to McKinsey, the expenditure on cloud infrastructure is expected to grow six times that of other IT infrastructure in 2020.
The financial services industry is also realizing the benefits that cloud brings. These benefits are not restricted to cost efficiencies such as faster processing and reduced risk. Adoption of cloud also brings about an increase in revenue with higher number of loan applications, improved conversion rates, and better pricing.
McKinsey’s analysis suggests that digitizing commercial processes can result in a 25 percent improvement in profit margins in commercial banks along with improved pull-through rate and experience for both staff and customers. While lenders have embraced digital in one form or another, they are predominantly lagging in realizing the true benefits of digital and cloud.
This delay is for reasons including a lack of comprehensive understanding of the possibilities with digital, disconnected legacy systems operating in siloes, risk aversion, regulatory restrictions, and security concerns. However, patterns are emerging in the ongoing wave of disruption.
Some customers, based on their experiences with big tech companies (Google, Amazon, Uber, Apple, etc.), are demanding seamless and personalized experiences in financial services. Bain & Company’s survey of more than 151,894 consumers in 29 countries revealed that 54% of respondents trust at least one big tech company with their money more than banks in general. Also, there is another market segment, where people have been traditionally deprived of easy, low-cost and transparent access to credit from traditional financial institutions. A unique combination of business and technology-led innovation is essential to address the requirements of both these customer segments effectively.
There is a need for financial services companies to think outside the box and devise innovative strategies, which can help service all their customers profitably. The market share of retail mortgage originations for Quicken Loans, an innovative digital mortgage lender, was 1% in 2008. The figure escalated to 6% in 2017, and Quicken Loans overtook the third largest bank in the US, Wells Fargo, to become a leading direct-to-consumer mortgage lender.
The extensive use of digital, analytics, and cloud has enabled capabilities such as on-the-spot approvals, completely automated and paperless processing, personalized loan products, 24X7 door-step service, on-demand scalability, comprehensive credit scorecards-based decision making, branchless operations, and reduced cost of customer acquisition.
A number of ground-breaking financial services companies in India have embraced cloud technologies to power their digital transformations, an approach which aligns well with their focus on customer convenience, speed, flexibility, and future readiness. Let us look at a few examples:
• Shubham Housing Development Finance is an innovative company focused on providing affordable housing finance to families with informal income and those outside the purview of formal credit structures. Shubham adopted cloud to scale up quickly and cost effectively to match their growth ambitions. By digitizing their lending workflow end-to-end on cloud, Shubham reduced loan application processing times by 72% and reduced turn-around time for loan approvals by 50%.
• Roha Housing Finance was set up with an aim to disrupt the housing loan segment by providing approvals for housing loans in less than 2 hours in an industry where the average is 3 days, a 97% reduction. Roha offers end-to-end loan processing in 7 days, which is 50% faster than the housing finance industry benchmark. The company uses the flexibility, agility and cost efficiency of cloud based technology to offer a ‘customer-first’ approach and adopt innovative ways for assessing credit worthiness.
• Ess Kay Fincorp, a leading Non-Banking Finance Company, chose a cloud-based lending platform to digitize their entire lending business. Ess Kay reduced their loan approval time by 33%, while enhancing their customer experience significantly and unlocking business growth.
• Sai Point Finance wanted to establish a new benchmark for customer satisfaction and become a leading provider of easily accessible loans for retail customers in vehicle finance. The company went live with the cloud-based digital lending platform in just 4 days, their loan application processing time was reduced by 88%, the number of loans processed increased by 70% and the number of collections rose by 40%.
The unique combination of digital operations powered by cloud technologies has helped financial services companies attain their ambitious business objectives. Many of them have established new benchmarks in terms of speed, customer service, and transparency.
At Nucleus Software, we have a deep understanding of the complex requirements of the banking and financial services industry because we have spent more than three decades helping some of the world’s most innovative financial services companies leverage technology for business results. This expertise, combined with the technology edge, enabled us to create FinnOne Neo, the 10-time winner of the world’s best-selling lending solution.
The solution covers the entire loan lifecycle—from origination to servicing to collections across multiple channels. It supports a range of products including personal loans, home loans, auto loans, education loans, loan against property, credit cards, consumer durable loans, tractor loans, agriculture loans, value-added loans, loans against securities, working capital loans, bill discounting, construction finance, structured finance, term finance and project finance. Our Artificial Intelligence-powered Nucleus Lending Analytics helps lenders in benefiting from data-driven insights across all facets of their lending operations. These include identifying new products for specific customer segments, targeting the right customers, optimizing marketing campaigns, offering risk-based pricing, enhancing the speed and accuracy of credit decision making, managing the quality of portfolios, reducing customer churn, identifying accounts at pre-delinquent stage, and improving loan collections.
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This article has been authored by Sarbpreet Anand, Global Head- Cloud Business, Nucleus Software.