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Non-Banking Financial Companies (NBFCs) started humbly in the 1960s in India to serve as an alternative for savers and investors having financial needs that the existing banking system could not fulfill.
Initially, NBFCs operated on a limited scale and didn’t have much impact on the finance sector. But with time, these companies grew significantly. One of the major reasons for the growth of NBFCs has been the technologies. In this article, we will discuss how various technologies are helping NBFCs.
According to the Reserve Bank of India (RBI), a Non-Banking Financial Company (NBFC) is a company registered under the Companies Act engaged in the business of loans and advances, acquisition of shares, stocks, bonds, securities and debentures issued by the government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.
An NBFC might be considered to be more beneficial compared to a traditional bank due to the fast loan sanctioning process, flexible terms and conditions and attractive features and benefits for both new and existing borrowers.
Now, let’s discuss how technologies are helping NBFCs.
The modern NBFCs have been leveraging technology more than ever for utilizing partnership ecosystems throughout the lead generation, onboarding of customers, credit/loan disbursement, underwriting and collection.
Due to the Artificial Intelligence (AI), Machine Learning (ML) and big data, lenders can measure customer insights on an individual basis and form alternative models for credit scoring. With the help of mobiles and smartphones, NBFCs have been able to connect with low-income customers who can use their mobile throughout the lending cycle of application, engagement, e-KYC and digital signature for loan disbursements. The operational workflow has been streamlined by the robotic process automation (RPA) due to which there has been an increase in productivity, accuracy and cost savings.
Many business and operational models powered by technologies are being adopted by NBFCs as they help in the design, implementation and execution of tailored products and services. By investing in new technologies, NBFCs can lower their costs when it comes to increasing their customer base, lowering the costs related to customer acquisition, servicing existing customers or de-risking the portfolio while trying to overcome the increasing formal credit penetration in a growing financial system.
NBFCs have been experimenting with and beta testing the distributed ledger technology for various uses such as e-KYC, data exchange, loan disbursement, collection and cyber security. Application programming interfaces (APIs) are being built and tested for various institutions and stakeholders for a robust connected ecosystem.
To serve the banking customers, text messages and email updates are really important. Due to technologies, NBFCs can send personalized messages and share loan bill payment reminders or send financial statements to customers. Due to the personalized messages, the NBFCs can build a personal relationship with the customers and continue the communication. A satisfied customer is really important for an NBFC because they can offer great references to their friends. Word of mouth advertising is one of the best ways to get more customers.
In today’s world, lending companies have to be agile and secure in order to protect themselves from being the victims of fraudulent activities. Tools like business process management helps NBFCs to deploy defined rules for lending and workflow processes for internal teams within the company for the acceptance, rejection and disbursal of loans and collections management. Since all the services from loan origination to loan servicing run under the defined rules and workflows by the senior management, the NBFCs are saved from frauds and they can successfully build a customer base which is fraud-free and create efficient workflow. AI makes business operations and expansion much easier for NBFCs and helps them to save the cost of administration. It helps to properly utilize the assets and manpower which are available in less time and resources, and helps to offer better services and business processes.
However, for the smaller NBFCs adopting technologies can be a struggle due to high cost, but cloud and Saas-based models have made it easier. Nowadays, technology solutions are widely available on-demand at affordable rates.
The competition between NBFCs is increasing in India, as everyone is trying to be ahead in the game. How can an NBFC be one step ahead of other competitors? With the help of AI, Machine Learning and Analytics. Such technologies are really helpful for NBFCs to track product performance, customer performance, trends, etc. Interested in starting an NBFC? Connect with Registrationwala!
Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.
