The consumer lending business is centered on the notion of managing the risk of borrower default. To effectively manage the loan life cycle, and specifically address the complexities of risk management throughout the loan life cycle, financial institutions must rely on the use of technologies that inherently improve business results through more efficient workflows, better risk management, and an enhanced customer experience. Fortunately, technology firms recognize the complexities inherent in commercial lending, and have introduced solutions that will enable financial institutions to better manage both operational and credit risk as well provide for an improved client experience.
One such technology is Predictive analytics, that help lenders to identify the chances of uncertainty and provide guidance for the identification, measurement and monitoring of risk.
This article aims to highlight the key aspects of traditional enterprise risk management and how the use of analytics, can improve the effectiveness of any risk management program by enhancing credit quality, improving credit decisioning and enabling a 360-degree view of customer.
What is Predictive Analytics?
Predictive analytics (Predictive modelling) is a subset of business intelligence that basically analyse past behaviours to predict future. It is the art and science of analysing and modelling data to gather insights that can be used to make meaningful decisions. It includes mathematical techniques, machine learning techniques and processes that are applied to historical data, identify trends and make a best valuation of what will happen in the future.
How predictive analytics help lenders in risk management
Credit scoring systems and predictive analytics models attempt to identify the chances of uncertainty and provide guidance for the identification, measurement and monitoring of risk. It gives the lenders a clear picture of whom to trust and who had defaulted the payments in the past. It will help lenders to make faster and more accurate credit decisions.
Lending business with huge amount of data and money at stake, has long embraced predictive analytics to detect and reduce fraud, measure credit risk, maximise cross-sell / up-sell opportunities and retain valuable customers.
Areas addressed by Predictive Analytics
Fraud detection: By considering information beyond the individual’s credit report, a more accurate estimation of a borrower’s default risk can be calculated.
Cost efficiency: Lending institutions can reduce operational cost and the loan application life cycle can be completed with fewer individuals performing fewer steps.
Faster lending decision: Predictive models make consumer lending decisions easier and improve the overall quality of the borrower portfolio. It brings consistency and predictability in the loan-disbursement process.
Improving Operations: Predictive model helps to forecast inventory and manage resources.
Customer buying habits: With predictive analytics, lending firms can rapidly segregate various customer segments. It helps to identify, target and retain the most profitable customers.
Customer acquisition: Reach the right customer with the right product
Predictive analytics for efficient risk management
Predictive analytics can play a pivotal role in driving efficiency in the lending industry. With the huge growth of data, firms can gain a strategic advantage by using predictive insights to make improved lending decisions. With predictive analytics organizations can monitor performance through risk sensitivity analysis, model key risk events scenarios, and become more risk intelligent in developing intervention and mitigation strategies. It helps the lending firms chart the best course of action for the future. Pricing decisions can be made using analytics thereby giving a deeper understanding of risks. Lenders can also use analytics to fight against credit risk and manage their portfolios optimally. More and more firms start looking at predictive analytics models as the ability to see even a tiny piece of the future can lead to happier customers, improved efficiency and productivity, and more successful business decisions.
How Insight Consultants can help?
Insight Consultants provide comprehensive business insight into credit risk-management of lenders, banks and other financial institutions. The solution uses sophisticated credit scoring models to allow credit risk managers and credit analysts create predictive scorecards. It also incorporates defined metrics that provide a unified view of customers across lines of businesses and channels. The solution focuses on the three key tenets of efficient risk management in lending: Informed Decisioning, Enhanced Portfolio Management and Fraud Prevention.
