By Mary Morton, Collective iD

The business of lending is not a new one. For many hundreds of years across all walks of life, cultures and civilisations, humans have transacted with each other to borrow money, build businesses, fight wars, plant crops, the list is endless. But throughout, surprisingly, little has changed about the fundamentals – Party A lends Party B money based on the former’s personal assessment of the latter’s risk, reliability and the potential return on investment.

Until the last decade or so, that is, when digital transformation has impacted nearly every industry. And perhaps none more so than the Finance sector where technology is having an increasingly profound impact on the way financial institutions approach their business.

Collectively, advancements in computing power, data science and Artificial Intelligence (AI) have all exponentially improved the ability of lenders to generate and process vast amounts of data in machine learning (ML) environments. The outputs can then be shared and used to predict – and anticipate behaviour. This, in turn, has allowed companies to plan more strategically and share potential products, upsells and cross-sells with customers.

AI and ML, particularly, have moved from the research labs to the mainstream, where software that learns and improves on its own is now upending entire existing industries. Indeed, according to NOW Finance founder and CEO, Richard Blumberg, in the very rapidly expanding credit industry, ML and AI are proving to be game-changers.

And he should know. Over the past 8 years, the Australian-owned fintech has developed a stronghold in the personal loans market as a leading alternative to the banks, successfully attracting ‘middle market’ bank consumers with a streamlined positive customer experience and competitively priced product. According to Blumberg fintech advancements such as ML and AI have played an integral part in driving this success and profit growth.

“Our company has invested heavily in the development and utilisation of innovative, cutting-edge technology including numerous sources of data, advanced ML and AI capabilities, and automated systems, to innovate the verification process and improve everything from the customer experience and our processing efficiency through to risk management and compliance activity. Our ability to leverage high performance cloud-based data warehouses to perform real time decisioning, has also ensured it’s an investment that continues to deliver significant uplift in customer acquisition, and it’s been key to our ability to scale quickly and efficiently.”

Of course, a big part of success in the fintech industry is about managing risk. Data analysis can help identify potential bad investments or flag customers that are showing warning signs of trouble. Tech can also help when it comes to compliance. In addition to tracking transactions, for example, AI can analyse and detect where financial irregularities are more likely to occur, allowing fintech companies to take preventative measures before a problem grows.

Says Blumberg, “The utilisation of fintech to maintain a rigorous credit assessment and risk framework, supported by a proprietary multi-factor pricing and decision engine, has enabled NOW Finance to originate a prime quality portfolio and consistently deliver market-beating credit quality measures. The use of AI, particularly, means we can optimise our risk setting and tailor customer pricing for each individual applicant. A proprietary fourth generation credit decisioning engine leveraging numerous data sources and behaviour scores now allows us to guarantee customers personalised interest rates up front that are aligned to the risk of each lending transaction.”

He adds. “At a minimum, AI has basically rendered the old-fashioned credit score and one price fits approach largely obsolete as it allows businesses like ours to optimise risk taking and how we price for risk. For us, this is clearly the way forward, and those lenders which are not already well along the path are going to be left behind.”

However, Blumberg cautions that ML and AI shouldn’t sit in the proverbial ‘black box’. “Good governance and the ability for lenders to explain their decisions is still critical, “ he says. “

Credit bureaus are also getting in on the act, using advanced ML in the development of scores they supply to lenders. “But non-traditional data sources should be used to augment what lenders know about their customers, not simply replace this”, says Blumberg. “While existing internal data is often overlooked for sexier and newer data sources, in most if not all cases, it will often provide the bulk of a model’s predictive power. By using this score as an input to a more bespoke ML platform, for example, we can price for the individual while maintain any insights provide by the credit bureau in the process.”

Fintech is continuing to evolve rapidly. AI, ML and data proliferation have all changed both the experience and expectations of customers, leading to even greater personalisation and product customisation. And in the Finance Sector’s emerging new world order, where factors such as these have become key differentiators, they have enabled fintech companies like NOW Finance to establish an enviable beachhead from which to attract customers from traditional financial providers and grow market share.

For media inquiries, please contact:

Mary Morton
ID Collective
E: marym@idcollective.com.au
M: 0418 369 636