AI and the Future of Cash Flow Lending
The cash flow lending industry is rapidly adopting artificial intelligence (AI) and machine learning (ML) technologies to help optimize the lending process.
The primary drivers of AI adoption amongst lenders are requirements for faster turnaround times, more cost efficient application processing, and improved underwriting and risk analysis. There is a wide range of both current and future applications for AI and ML in the cash flow lending industry, ranging from applicant screening and customer service to automated data extraction and analysis, real-time fraud detection,predictive underwriting, and automated loan servicing.
All of these technologies, both individually and when used together, are rapidly reshaping lender operations and borrowers' loan application experiences. In this article, we will explore the future of AI and ML in cash flow lending, including the exciting potential of automated bank statement processing, and how these technologies can benefit lenders and borrowers alike.
AI-Powered Application Screening and Customer Service
With the rise of online lending platforms, there is a growing need for efficient and automated ways to screen loan applicants and provide customer service to borrowers.
AI-powered chat tools offer a promising solution to meet these needs. These chat tools can be integrated into online lending platforms to provide instant and personalized interactions with borrowers. For instance, when borrowers fill out loan applications online, AI-powered chat tools can conduct preliminary screenings by asking questions about their financial history, employment status, and loan requirements.
The chat tools can analyze the responses and provide immediate feedback to applicants, helping to streamline the screening process and provide a seamless user experience.
Additionally, these chat tools can be used to provide real-time customer service to borrowers, answering their questions, addressing their concerns, and providing updates on their loan applications, all without the need for human intervention.
Importantly, AI-powered chat tools present an opportunity to provide significant benefits for both lenders and borrowers alike. For lenders, these tools can greatly enhance the efficiency of the loan screening process, allowing them to quickly assess the creditworthiness of applicants and make informed lending decisions. This can save time and resources, reduce human error, and improve the overall underwriting process.
Moreover, AI-powered chat tools can provide 24/7 customer service support to borrowers, ensuring that their questions and concerns are addressed in a timely manner, even outside of business hours. This can result in improved borrower satisfaction and retention, as well as reduced workload for customer service teams. For borrowers, these chat tools can provide a convenient and user-friendly way to interact with the online lending platform, get instant feedback on their loan applications, and obtain assistance when needed.
Automated Bank Statement Processing
Another exciting application of AI in cash flow lending is AI-powered bank statement processing and analysis. As all lenders know, bank statements are critical documents for assessing a borrower's financial health and creditworthiness. However, manually extracting relevant information from bank statements can be time-consuming and error-prone.
AI and ML technologies can automate the extraction and analysis of data from bank statements. Using optical character recognition (OCR) and natural language processing (NLP) techniques, these technologies can accurately and quickly extract key financial data, such as transaction details, balances, and trends from bank statements. This can streamline the underwriting process, improve data accuracy, and reduce human errors.
Importantly, modern bank statement processing tools also provide the opportunity to enrich the data that has been extracted from bank statements by inserting commentary and metadata at a transaction-level. This metadata can help lenders quickly and efficiently identify important transactions, including recurring revenue and expenses as well as potential payments to existing lenders and financing partners.
Automating bank statement analysis is one of the highest leverage activities a lender can perform, helping to reduce costs and turnaround time while simultaneously freeing up valuable employees to perform additional due diligence and more detailed credit analysis.
EXB Financial is one of the emerging leaders in the field of bank statement analysis, with industry-leading AI tools which allow for rapid turnaround times, low costs, and deep insights into a borrow's cash position and transaction composition.
Real-time Fraud Detection
Once data has been extracted from bank statements, cash flow lenders have the opportunity to review that data to flag potential fraud before pushing it into their underwriting process. While open banking standards attempt to reduce the opportunity for fraud in the loan application process, they are not yet widely adopted, and there are always certain borrowers who aren't comfortable with the concept. For many small businesses, open banking is not a feasible or attractive option when applying for loans. This means that a large percentage of applicants are still providing paper bank statements to support their revenue and cash flow positions.
As a result, fraud remains one of the biggest risks for cash flow lenders. Fraudulent loans can lead to significant financial losses for the lender, and often even complete loss of principal. Fortunately, AI and ML technologies can be used to detect fraud in real-time, allowing lenders to take immediate and preventative action to prevent losses.
AI algorithms can analyze large amounts of data to identify patterns and anomalies that may indicate fraud. For example, they can flag unusual transactions or identify patterns of behavior that suggest fraudulent activity. Additionally, AI can be used to monitor social media and other online sources for signs of fraud in a business or a fraudulent application.
AI is likely to replace the need for thorough due diligence in the lending process, but automated fraud detection goes a long way towards reducing the threat of fraudulent documents being used to underwrite a bad loan.
Predictive Underwriting
Predictive Underwriting refers to the application of AI and ML algorithms to automatically assess the risk of an applicant or a specific loan. The process involves analyzing various data points to assess the risk of a particular borrower / application, and specifically to determine the probability of loan repayment repayment. This data can include credit scores, financial statements, bank statements, and other financial data.
Predictive underwriting technology is already widely used in the insurance industry, with startups and incumbents like Verikai and Betterview providing AI-powered underwriting and predictive risk analytics tools for insurers.
The technology has yet to be widely adopted by lenders, most of whom rely on in-house underwriting platforms and proprietary risk assessment algorithms to determine the probability of payback on a given loan. However, with the recent explosion of advanced AI models, lenders have an opportunity to significantly improve the efficiency of their underwriting process, and reduce the time and resources required to evaluate loan applications. By analyzing a broad range of data points, lenders can more accurately assess the creditworthiness of borrowers and make informed decisions about loan approvals.
Automated Loan Servicing
Finally, AI and ML can also be used to automate loan servicing for active borrowers, making it easier and more efficient for lenders to receive payments on their outstanding loans. Automated loan servicing involves using algorithms to manage loan repayment schedules, monitor payments, and communicate with borrowers when there is a lapse in payment.
By automating the loan servicing process, lenders can reduce the workload on their staff and improve the customer experience. Borrowers can receive automated reminders about upcoming payments, and their accounts can be updated automatically when payments are made. This can help to reduce the risk of late payments or defaults, improving the overall quality of the loan portfolio.
Implementation: Bringing It All Together
While the concepts themselves may be relative straightforward, the process of implementing AI and ML to your underwriting process can still be relative daunting. Many lenders are put off by the upfront investment in the necessary technology and infrastructure to host and maintain a machine learning model or a large language model. Furthermore, custom applications may require lenders to develop in-house AI and ML capabilities. Lenders will also need to ensure that they have access to high-quality data to train their AI algorithms effectively. This may involve working with data providers to obtain the necessary data sets or investing in data cleaning and normalization tools.
Fortunately, services like EXB Financial's automated bank statement extraction tools make this process easy. These outsourced service providers have already done the leg work required to build and implement the AI systems, and often provide a simple API endpoint or email address for lenders to send in documents or tap into a natural language processing system.
The future of cash flow lending is undoubtedly being shaped by AI and ML technologies. Predictive underwriting, real-time fraud detection, and automated loan servicing are just a few examples of how these technologies can enhance the efficiency and effectiveness of cash flow lending. Despite challenges, the potential benefits are significant, and lenders that embrace AI and ML are likely to gain a competitive advantage in the marketplace.
Next Steps
Ready to supercharge your cash flow lending process with cutting-edge AI and ML technologies? Explore our bank statement extraction software today and experience the power of AI tools in your underwriting process. Don't miss out on the potential benefits of these advanced technologies. Contact us to learn more and schedule a demo with our sales team.