One big problem faced by the banking and fintech industries is dealing with defaulters in loan payments and non-performing assets. Banks have to give various loans like car loans, home loans, and personal loans to their customers. And if some percentages of borrowers didn’t pay the loan in a timely interval or didn’t turn up. It is a significant loss for the bank. Data obtained from bank statements helps a great deal in knowing the financial position of small businesses at any point in time.
This helps to assess risk and make informed lending decisions. But, checking these statements manually in this fast-paced world is tedious. Here comes the need for bank statement analysis tools. These tools can do these jobs in much less time and show the platform’s well-designed interface results. Thus, the lending bodies can get an overview of the customer’s account balance, income, spending habits, obligations, etc., and then can decide whether to give a loan or not.
With COVID-19, its cascading effects, and the rising popularity of contactless payments, the use of these types of tools is overgrowing. By 2025, it is expected that these types of digital payments will reach Approx.$10 billion in size (7.4 billion dollars already in 2019 in the United Kingdom) and feature prominently in the economy. All the platforms used in these tools are AI/ML-enabled.
How do Lending bodies check your credit risk through this type of platform?
- Loan applicants who apply for a loan on a lending platform complete an online application that solicits personal economic information, as well as information about education, employment history, and credit score.
- Applications are assessed in an online bank statement analysis platform, and risk and credit ratings are determined.
- A proposed interest rate is assigned to the applicant, which is the rate you would expect to pay if you wish to borrow money.
- When your application is approved, you will get notified of your available options based on your credit rating and assigned interest rates. Then you can compare the options and decide which one is best for you.
- The interest payments and repayment of principal at maturity are mandatory under the terms of these loan agreements. Suppose a borrower fails to repay their obligations. In that case, they could have negative consequences that may damage their creditworthiness in addition to their ability to obtain future loans from peer-to-peer lenders.
Who are the users of these platforms?
The unsecured lending ecosystem in India has historically divided loans through formal sector institutions and informal credit networks. With the growth of P2P lending platforms, these alternate forms of financing have gained traction with retail and institutional investors and borrowers. The P2P lending platforms have an overwhelming majority of users from an urban audience. This leaves a considerable proportion of the rural population underrepresented.
Why is an analysis of the bank statement essential for lending bodies?
Bank statements play an essential role in analyzing the borrower’s credit score, which plays a significant role in deciding the interest rates and approval of loans.
P2P lending platforms use the borrower’s bank account for bank statement analysis and create a financial report on the borrower. The research is performed based on the credit score, the cash flows from their bank accounts, repayment capacity, etc. These platforms use software that is built using AI technologies. So you need not worry about data not being parsed correctly. They help both the lender and borrower make the lending and borrowing process easy. Using AI-based tools for transparent P2P lending with efficiency, including verification of customer details and performing KYC.
How does this software work?
Bank statement analysis software takes in data from a borrower’s bank statements, parses it, and analyzes it to develop insights. A bank statement analysis might account for deposits, loans & liabilities, investments, recurring payments (EMIs), and other charges on the borrower’s accounts.
It is a financial modeling technique that helps in analyzing monthly account statements, calculating data points such as net monthly income and expenses, average daily expenses, etc. Perfios’s bank statement analysis model helps banks, NBFCs, and financial institutions assess the creditworthiness of borrowers by analyzing account statements and credit history.
What are the main features to search for in a bank statement analysis tool?
- The ability to adapt and handle unstructured data is one of the features you should consider when choosing a bank statement analysis tool.
- A good tool should organize unstructured data and produce information in readable formats.
- Apart from extracting data from scanned bank statements, accuracy is another thing to look for in a bank statement analysis tool. Investing in a bank statement analyzer that doesn’t guarantee high levels of accuracy is not worth it.
A good bank statement analysis software can free up valuable resources. And allow your workforce to focus more on other parts of the business. However, choosing the best software for analyzing bank statements is an overwhelming task. Compare different solutions and read online reviews from users and experts before settling on your final choice.
Advantages
- One of the main advantages of a bank statement analysis tool is that it reduces operating costs in the long run, which may have cost big on a manual basis.
- Also, the work is done in the most efficient and fastest process, thus turning productivity in banking businesses.
- Also, the tool shows everything. The arguable customer can also get an overview of their credit score.
- Much transparency
Few Challenges
- If there is some system failure or slow internet connectivity, it can slow down the process.
- Also, maintaining and designing the platform is very costly and has to be modified on a timely basis to add more features.
Summary – P2P lending is still in its emerging stages in India. The government has recognized this opportunity by creating a risk-sharing framework for P2P lenders and removing the industry’s RBI oversight. Perfios Software Solutions Private Ltd. has raised funds as a part of its plan to compete with larger Indian banks. Perfios’s bank statement analysis tool derives insights from a bank statement using pattern recognition algorithms to understand borrowers’ payment regularity and financial stability. It also identifies possible instances of fraud in applications submitted.
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