Non-Banking Financial Companies (NBFCs) have played a crucial role in fulfilling the financial needs of individuals, as well as businesses that have conventionally remained underserved or un-served by banks. However, the NBFC governance has grown stringent over time, leading to increased cost of borrowing and emphasis on personalized products & services and niche markets. Not just urban but rural customers, too, are gaining focus, irrespective of their income groups and whether they belong to the organized or unorganized sectors.
In this scenario, NBFCs are taking measures to safeguard themselves by adopting business and operational models backed by technologies that effortlessly facilitate the launch, designing, and execution of tailored products and services. Not only that, NBFCs are no longer hesitating to invest in advanced technologies and strategic partnerships with FinTech and financial institutions that enable them to better service existing and new clients and de-risk important processes along the way. If you look around, it’s evident how new-age NBFCs are leveraging technology and embracing partnership ecosystems across the business chain – whether it be for lead generation, customer on boarding, credit/loan disbursement, or debt collection/recovery.
Digital World Carving a New Paradigm for NBFCs
Traditionally, lenders have followed a ‘one-size-fits-all’ approach, assessing all kinds of customers from a single lens. However, with FinTech companies creating models on AI along with ML, NBFCs can adopt a customized approach to deploy solutions. Some NBFCs, in fact, are already in the process of testing and implementing services in collaboration with software companies to automate processes, which shall make them structured, transparent, and swift.
The modern-day customers, a larger portion of which comprises the younger generation, are tech-savvy and desire alternatives that are digitally accessible and friendly. In India alone, more than 90% population owns a mobile phone, which makes it easy and possible for NBFCs, too, to reach out to customers through the digital medium at a time convenient to them. Rather than having resources invested in following up through reminder SMS, calls, or emails; assessing creditworthiness; emerging facilities like digital loan recovery can facilitate such resources to focus on core business needs.
The technology-driven models of debt collection software businesses, which intend to reduce dependency on manual allocation and follow-up tasks, can prove to be beneficial to only the NBFCs but also to their customers. The transformation shall aid lenders to differentiate from fellow players, save time and cost, improve customer experience, and ensure uniform application of solutions. Evidently, with so many benefits laid out for NBFCs, the question that arises is – what is stopping the sector from modernizing and prospering completely?
Present-Day Challenges Facing the NBFC Sector
- Unfavourable laws for the lending ecosystem
- Onset of the COVID-19 pandemic
- Improper access to connect with the customer base from rural areas
- Direct digital disbursement of small ticket loans without appropriate KYC
- Non-cooperation from customers to respond to follow-ups and repayments
Loan Recovery Automation – Enabling Seamless Recollection
There still exists immense scope for NBFCs to adopt innovative digital loan collection solutions at scale. For instance, lenders and NBFCs have a considerable number of cash-reliant agent-based collections. This physical collection system can be swiftly automated through field apps, substituted with digital and automated mandates, that also embrace UPI and QR-based payments, coupled with DD and micro POS-based debit cards. From a wider perspective, this approach also eliminates unmonitored manual interactions with collection agents, which, for the longest time has been a point of discomfort for customers. In addition to this using digital soft communications via bots, customers can be provoked to make payments at just the click of a button.
The upside is that certain high-end software is designed in a way that functions even on a low-to-medium internet speed, which is particularly beneficial when it comes to educating and reaching out to customers residing in rural regions with poor internet connectivity. Not only that, the AI-based categorization of defaulters makes it even more convenient for NBFCs to plan and implement a more efficient collection strategy, all at the cost of minimal human intervention. From monitoring customers to the collection of repayments (asset and non-asset-based), cash handling & management to customer retention and delivering a good customer experience, digitized debt recovery platforms encompass all of these solutions.
Interestingly, digitized loan collection is applicable for all segments in the retail arena – whether that includes two-wheeler loans, four-wheeler loans, construction loans, personal loans, credit card loans, or rural-centric loans in tractor & Farm equipment, commercial vehicles, agricultural loans, and microloans. And from the customer’s perspective, dsigital collection platforms seem more secure and reliable in terms of maintaining the privacy and securing the payment has indeed been handed over to the right person to prevent fraud. In scenarios where customers are willing to pay but require an extension of time, the digital source works best, as it eliminates the intervention of agents, penalty charges, countless follow-ups, and legal notices.
The FinTech industry is working swiftly with pioneering technologies, to ease repaying for customers and solve the collection challenges of the banking and NBFC sectors. The latter also changed their mode of operations, but at a relatively-slower pace owing to their infrastructure, approval processes, existing technologies, and close integration across business value chains. Perhaps, NBFCs have a better chance of progressing and succeeding by seeking strategic partnerships and transitioning sooner to modern operations. By adopting innovative market offerings, banks and NBFCs ca