Digital revolution spurs new ways for banks to assess risks

Sidhartha ShuklaMoneycontrolIncreased regulations, demonetisation and the push towards Digital India have brought the country’s banking system and financial services sector into the limelight.

With more of the country’s population steadily becoming a part of the formal economy, it has increasingly become more important for financial institutions to know the risk of their customers they aim to cater.

With rapid advancements and huge inflow of data, having analytics and Big Data tools/services is now critical for any financial institution to be able to understand and analyse credit risk, fraud risk or to make more efficient, fast and profitable decisions.

“India is a large and growing market and the core area of growth remains acquiring new customers,” says Vishal Goyal, Country Manager, South Asia, FICO, a global leader in credit scoring and provider of predictive analytics to improve operational decisions.

He says that as competition increases, various organizations will move towards a following a data-driven business structure to mitigate risks and boost profits.

Speaking to Moneycontrol, Goyal said that in India, the digital movement will lead to more reliable data collection.This is great news for FICO whose credit rating services would come in handy for institutions in the lending business."This is a huge opportunity, as more information is available about the same person, when the person does an electronic transaction, a lot of data footprint is left behind, which is further used to create value,” he says.

A growing consumption and shift to digital or disruptive modes of financial transactions like P2P lending, brings along risks like fraud, data theft and cyber crime.

With growing demand, credit outtake is likely to increase and borrowers may willingly default on their loans – especially in cases such as peer-to-peer (P2P) lending -- if there is lack of fear for the consequence.

In a recent study by Kroll, global provider of risk solutions, when survey participants were asked what dissuaded them from operating in a particular country. About 19 percent of respondents stated they were dissuaded from operating in India because of digital fraud concerns, the second most after China (25 percent).

Such security concerns make global companies wary of setting up shop in India and can hurt the government’s ‘Make in India’ initiative as well.

With the help of data analytics tools, debt laden banks can make wiser decisions and pick creditworthy customers from a segment of people that had historically never been given credit because of lack of sufficient information for banks to assess their risk.Financial institutions can further increase revenues by deploying analytics frameworks to improve customer cross-sell, enhance acquisition effectiveness, increase wealth management, penetration in high net worth customers and staying more cautious of ‘riskier’ customers.

Follow @shukla_05sid