Home Lending 2.0: How Covid accelerated the transformation

To paraphrase a famous quote, with every great crisis, comes great opportunity! Circa 2020 has been the most challenging year for businesses and individuals alike. While the pandemic notably stalled economic activity across the globe, it catalyzed businesses into rethinking their business models, adopting digitization, and redefining the customer experience, in a world that is socially distant and yet, more connected than ever before.

The Indian lending landscape has also undergone its fair share of transformation in the past few years. The aftermath of COVID still looms large with price correction in real estate, hesitant home buyers, and cautious lenders. However, the pandemic has definitely accelerated digital transformation in the Indian home lending space.

Here is a sneak peek at what we can expect in the days to come.

Home Lenders will now be a ‘Cloud’ above the rest –
 COVID 19 has brought businesses face to face with volatility and uncertainty. Consumer needs and expectations are now changing at a rapid pace, and keeping pace with such changes, means that organizations need to trim their fat.

In the financial services space, this transformation is being spurred on by cloud computing. With several fintech players already being cloud-native and remaining financial service providers migrating to the cloud, cloud computing translates to faster efficiencies in data storage, security, and cost.

Going forward, most home lenders will consider cloud technologies that can improve revenue generation, assimilate customer data, deliver customized loan products faster-to-market, and lower operating costs. Loan processing and disbursal will become easier with fewer silos between risk, compliance, and underwriting, given integrated data insights that can quicken the entire loan cycle.

The Rise of Machine Learning & Artificial Intelligence – Post pandemic, the accelerated digitization of lending platforms has translated to increased adoption of Artificial Intelligence (AI) and Machine Learning (ML). This has allowed lenders to provide customers with a unique and intelligent customer experience that is personalized to their credit needs.

For example, a borrower can now access his complete digital loan history (current outstanding amount, repayments made, payment schedule), on their smartphone. They can also use digital tools available on the app to restructure their loan, by finding answers to frequent questions of reducing EMIs by staggered prepayment, adjust loan tenure, etc., to reduce monthly EMIs, and also understand top-up eligibility in case of home improvements.

Also, the AI has fairly improved the credit appraisal process on the lender side. Going forward, AI-aided chatbots can also help advise on spends and income to facilitate easy repayments on your home loan, saving time and money, and being available literally, at your fingertips. In terms of risk mitigation, lenders are able to easily cross-validate borrower data with the help of e-KYC and the government tech stack to understand income, spends and liabilities.

With biometric screening as part of the loan process, the risk of benami accounts and loan default is significantly reduced. In the days to come, credit-underwriting will now become streamlined, leading to faster decision-making and loan disbursal. Additionally, this would translate to a lower cost of processing, both for the lender and customer.

Data will be pivotal – In an environment that is exceedingly cautious, data and analytics will play a significant role in determining the creditworthiness of a potential borrower. Understanding the actual net worth of a borrower will be more important than accumulating information about income or salary.

Data analytics can also help predict defaults by constantly evaluating borrower behavior which will lead to improved credit appraisal models. It also can help lenders offer pre-approved loan packages that can be customized to the needs and requirements of customers. This offers an opportunity for lenders and borrowers to better understand each other and accordingly meet each other on common ground that is conducive to both parties, rather than being skewed.

Welcome Neobanking – In the Indian lending space, neobanks have a pivotal role to play in the post-pandemic world order of business. In a cautionary environment, neobanks offer a digital-first approach with a low-cost business model that can be rolled out across remote geographies with ease.

Neobanks are expected to bring easy access to credit and financing across the length and breadth of the country. With India’s increasing internet and mobile penetration, neobanking would significantly change the lending process, underwriting and improve formal access to the end consumer.

In summary, the new year will herald a new model of home lending in India, one that is driven by technology and powered by data. Hyper-personalisation and technologies such as AI, ML etc., will now allow for larger transaction transparency as well as an increased advisory that homeowners can benefit from.

Home lending will inch towards customized offerings and simpler app-driven processes, allowing homeowners to be in better control of their home loan payments. All in all, home lending in the new year, is set for a much-needed version update – one that is more suited for agility, adaptability, customer-centricity, and technology!

The article has been authored by Kalyan Josyula, Co-founder & COO, BASIC Home Loan

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

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