With the advancement of computers, concerns arise regarding the potential replacement of humans. However, the reality is that smarter computers result in easier, more efficient, and often more profitable work for humans.
Artificial intelligence (AI) plays a significant role in today's lending processes. AI possesses the capability to replicate human intelligence, enabling the recognition, contextualization, and analysis of data. As back-office systems accumulate vast amounts of data, businesses can leverage this information to mitigate risks, streamline processes, and enhance profits.
Data and analysis form the foundation of the lending industry. Consider the extensive data lenders gather and maintain on borrowers and applicants, including financial details and payment histories. Modern automation and AI already utilize this data to transform the lending landscape.
So, how exactly does AI contribute to lending? Let's explore four contemporary examples of how AI powers the lending industry.
1. The Use of AI in Detecting Fraud
While humans are capable of empathy, relationship building, and decision-making that a computer can never master, they can also fall prey to overlooking subtle indicators of a fraudulent document or an inappropriate transaction. That’s why the collaboration between humans and machines in document fraud detection is so powerful.
AI, with its ability to swiftly analyze vast amounts of data, can effectively identify suspicious patterns or illegitimate documents and transactions. By providing an additional layer of support, AI significantly reduces the likelihood of human error, ultimately enabling lenders to detect and prevent more instances of fraud. This synergy allows human experts to focus on their core strengths and responsibilities, maximizing the efficiency and accuracy of the fraud detection process.
2. Utilizing AI for Informed Credit Decisions
AI plays a crucial role in making well-informed credit scoring and risk assessment decisions by swiftly and accurately analyzing vast amounts of data. As the lending landscape evolves, there is a growing interest among lenders to extend loans to individuals with limited credit history, such as those in emerging economies or younger populations like college students, who may not possess a traditional FICO score. In such cases, AI can leverage alternative data sources, including online behavior and mobile payment history, to predict creditworthiness. According to Forbes, this innovative approach holds tremendous potential to revolutionize the lending industry.
3. Streamlining Processes with AI
While AI excels at handling repetitive and time-consuming aspects of the lending process, it is also capable of managing tasks that involve higher-level analysis. For instance, document processing used to require hundreds of hours or more, but with AI-powered intelligent document processing (IDP) from Vaultedge, the same work can now be completed with utmost accuracy in a matter of minutes.
Leveraging AI in lending not only significantly reduces costs, but it also empowers lenders and finance professionals to dedicate their time to more advanced tasks.
4. Helps reduce Bias
In the past, lending decisions often had procedural bias. However, lenders are now more committed than ever to eliminating bias and making fairer lending decisions. AI can be a valuable tool in achieving this goal. For example, AI algorithms can be designed not only to match historical data but also to prioritize fairness, as highlighted in a Harvard Business Review article. By using AI solutions that are designed to avoid bias, lenders can overcome inherent human biases in making loan decisions.
Conclusion
The lending industry, with its abundance of data, is well-positioned to leverage the opportunities offered by AI. By utilizing machine learning to enhance fraud detection, credit decision making, process automation, and bias elimination, lenders can improve their efficiency, effectiveness, and profitability.