4 Ways AI Can Transform Your Lending Business in 2024

Software solutions and tools powered by artificial intelligence (AI) have become prevalent across all sectors, including the lending industry. Today, AI lending tools support many financial institutions, such as banks, credit unions, and other lending businesses. 

They are more efficient than traditional risk assessment and customer acquisition methods, such as manual credit scoring or paper-based financial processing. Discover how AI can transform your businesses in 2024 to be more efficient and accurate in lending.

1. Reduce Lending Risk

Risk assessment is central to the success of any lending institution. Whether you operate a bank, a credit union, or another lending platform, accurately assessing risk helps you price loans fairly, minimizes the risk of borrower default, and ensures compliance with your industry’s rules and regulations.

AI lending tools enrich this process with the ability to analyze extensive financial data and provide valuable insights quickly. Here’s how they transform risk assessment for your business:

• Rapid data analysis. AI tools process vast amounts of financial data at an unprecedented speed, delivering critical insights much faster than traditional methods. This lets you make quick, data-supported lending decisions.

• Pattern detection. These sophisticated algorithms identify financial behavior patterns, offering a deeper and more nuanced understanding of borrower risk.

• Incorporating unconventional data. AI can interpret information from non-standard sources, such as online purchasing histories or rent and utility payments. This can broaden the scope and accuracy of risk assessments.

• Predictive analytics. AI tools predict future borrower behaviors by using historical data. This assists you in making proactive decisions, ranging from pricing adjustments to offering customized financial services.

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2. Convert More Customers

AI-powered solutions can assist businesses with customer conversions. They employ various measures to help you reach up to a 30 percent conversion rate, much higher than traditional methods. These strategies include:

• AI-powered personalized marketing. AI software can analyze customer data and financial information to build targeted marketing campaigns. It can analyze borrowers’ financial behavior, individual preferences, and purchasing habits to create targeted, relevant messaging with higher conversion rates.

• Enhanced customer experience. AI lending tools can streamline the loan application process, helping customers apply more quickly and efficiently. They can also power assistant chatbots and answer customer questions in real-time using natural language. These features help potential borrowers feel more confident, ensuring they complete the application process.

• Better risk analysis. The algorithms powering AI lending tools can analyze a potential customer’s financial history and assess their creditworthiness. Algorithms can read and interpret data from traditional and non-traditional sources, painting a broader picture of the customer’s profile. This helps more individuals qualify for a loan, even if they have a non-traditional financial history.

• Providing risk-adjusted offers. AI lending solutions analyze and evaluate a customer’s risk, but they can even help lending institutions adjust their prices by providing customized, risk-based suggestions. For example, AI may suggest higher interest rates to customers with a higher risk level. If the customer’s financial behavior shows a decreased risk level, the algorithm may suggest lower rates to match this change.

• Improved fraud protection. AI systems are built to detect abnormal behavior patterns in a customer’s financial history. Fraud detection methods include real-time monitoring of transactions, historical financial data analysis, and cross-referencing with public databases for discrepancies. These systems build customer trust and improve your lending business’s reputation, increasing conversions.

3. Expand Financial Access

In the past, lending businesses relied on more limited traditional methods to acquire new customers. The transition to AI has made it easier for a lender to reach new customers by broadening the criteria used to find them:

• More inclusive creditworthiness criteria. Traditional methods often relied exclusively on standardized credit history and banking records to determine their creditworthiness. AI expands on these methods by including non-traditional data sources, such as rent and utility payments or eCommerce purchasing habits. It helps ensure individuals can receive loans and lending services even if they don’t have a standard credit history or FICO score.

• Customized product offerings. Lending companies using dated or conventional approaches to customer acquisition might not identify customer needs effectively. AI lending solutions deliver insights that enable the tailoring of financial products and services for individual customers. These tailored offerings aid in attracting new consumers, broadening financial inclusion, and unlocking new market opportunities.

• Better processing in underbanked areas. AI lending tools automate many tasks that are necessary to process loan requests — from verifying documents to assessing

creditworthiness. It can help individuals in regions with limited banking infrastructure receive loans and services that would otherwise be challenging for them to obtain.

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4. Build Deeper Relationships

Besides finding and converting new customers, AI tools can help lending institutions build stronger relationships with them and help ensure their long-term financial needs are met.

AI tools let lending businesses provide continuous, tailored advice to their customers. The AI algorithms can continue monitoring borrowers’ financial health and situation after they take out a loan or buy a service. As the borrower’s situation and credit score evolve, the lending business can adapt its pricing or loan terms accordingly. 

Lending businesses can even suggest personalized financial advice using an AI tool’s data and recommendations. For example, if the algorithm recommends that a specific borrower follow a savings plan or specific investment strategies, the lending business can offer these recommendations to the borrower. This solution can help foster a positive long-term relationship between you and your borrowers. 

Lenders can also use analytics and recommendations from an AI lending tool to help borrowers who need to build or repair their credit scores. In turn, you can provide advice to improve the borrower’s financial health. This can boost your business’s reputation and demonstrate your reliability to customers.

Implement AI-Lending Solutions in 2024 to Boost Lending Efficiency 

AI-powered lending tools provide a major competitive advantage to the financial institutions that adopt them. These solutions help banks, credit unions, and other lenders determine a potential borrower’s risk, offer accurately priced services, and provide tailored long-term financial advice. 

Adopting AI lending tools is an excellent solution to reach previously underserved markets and offer loans to individuals with unconventional credit histories, such as those who primarily operate with cash, have a limited credit history, have had previous financial hardships, or have inconsistent credit records. With efficient AI tools, you can grow your customer base and see improved profits in 2024.