Why NBFCs Need A Digital-First Approach

Managing an NBFC today looks very different than it did a decade ago. From approvals to disbursals and support, customers have higher expectations and expect near-instant responses. Pair this with AI-supported technology, and the need is clear: digitization is not just an add-on; it’s the focus of the hour.

Why NBFC Digitization Matters Today More Than Ever

Going digital-first isn’t just isolated to NBFCs… it’s a worldwide shift that’s also visible in the regulatory pushes from official bodies like the RBI. Even seemingly minor changes like website optimization in the banking sector, a traditionally ‘non-digital’ sector, are part of this larger shift. Legacy paper-based processes lead to bottlenecks that in turn lead to compliance issues and missed opportunities. In the meantime, fintech startups are quick to gain market share by implementing technology from the get-go.

Place this against the context of a post-pandemic world, and the urgency is evident. The COVID-19 pandemic fundamentally altered customer behavior and expectations around digital financial services. Lengthy paperwork and multiple branch visits were once standard procedure… now, several view them as red flags to be avoided.

NBFCs that fail to meet these digital-first expectations don’t just lose individual customers; they lose entire demographic segments who don’t consider traditional, offline-heavy providers as viable options.

Why NBFCs Need To Be Digital First

Improved Credit Scoring And Risk Assessment

Digital-first NBFCs are in a position to use non-traditional data sources such as digital footprints, transaction history, and behavioral data. Advanced analytics and machine learning algorithms can execute on this massive quantity of data to generate more precise credit profiles, particularly for customers with a low credit history.

Plus, machine learning-based scoring models are able to review scores of data points in real-time to make better lending choices. Holistically, this strategy allows NBFCs to reach historically underbanked segments while ensuring strong risk management.

Simplified Document Verification And KYC Procedures

Digital document verification can be a time-consuming process. When trained for the task, AI and machine learning allow NBFCs to instantly verify customer data while cutting down on manual errors. 

This digital process not only speeds up the onboarding process but also ensures regulatory compliance through automated validation. It also preserves digital audit trails, helping with regulatory reporting purposes. 

Faster Loan Disbursal And Processing

A digital-first strategy allows NBFCs to shorten loan processing time from weeks to hours or even minutes. Automated tools can perform application processing, credit scoring, approval, and disbursal without human intervention for valid applications. Digital channels can connect to banking systems and enable real-time money transfers, so customers can receive money directly in their accounts on approval. This works two-fold by improving both customer satisfaction and competitive advantage considerably.

Operational Cost Reduction And Scalability

Overall, digital transformation enables NBFCs to provide more competitive interest rates while ensuring healthy profit margins. Digital operations reduce the need for large physical branch networks and limit dependence on paper-based operations. Cloud-based infrastructure and digital processes save overhead associated with physical storage space, manual processing, and administrative activities. Automated systems can process multiple loan applications without proportional staff increases, helping NBFCs to scale operations in a cost-effective manner. 

Improved Customer Experience And Convenience

NBFCs going digital-first can also offer 24/7 convenience through mobile apps and online channels, where customers can apply for credit, view application status, and conduct repayments at their own convenience. Smooth, transparent processes build customer trust, improving the organization’s credibility.

Self-service websites minimize customer reliance on branch visits and allow for real-time query resolution via chatbots and automated channels. This strategy especially suits customers in distant locations who might have restricted access to physical branches, widening the NBFC’s addressable market.

The Road Ahead: Critical Considerations

Regulatory Compliance: Meeting all regulatory requirements is a must, so ensure you partner with tech providers who understand NBFC regulations.

Data Security: Invest in robust cybersecurity from day one. Data is essential for any digital business, and must be kept secure to prevent undesirable consequences.

Change Management: Your team needs to embrace digital transformation; invest in training sessions and always maintain clear communication about why changes matter.

Gradual Implementation: Start with high-impact, low-risk processes and build from there. A small win will help the larger team realize the value of the changes while also being great to boost morale.

NBFCs that are winning today started their digital transformation yesterday. The second best time to start is today. Your customers are ready, the technology is proven, and the competitive advantage is real! The future is undoubtedly a digital-first future; will you lead that future or try to catch up to it?

FAQs

What Is The Role Of AI In NBFC?

AI plays a critical role in NBFCs. It facilitates quick credit scoring and allows them to offer personalization to customers. Overall, AI helps ensure that NBFC operations are fast and hassle-free.

What Are The Challenges Faced By NBFCs?

Some challenges faced by NBFCs are difficulties with funding, pressure to adhere to several regulations, bad debt, and high-risk lending. While these can hold back the progress of an NBFC, several players are taking steps to ensure they are affected less by them.

What Is The Future Of NBFC In India?

The future for NBFCs in India is quite bright. The sector is growing significantly, and the upward growth is only expected to increase with customer demand for funds.

What Are Examples Of Digital Finance?

Digital finance is a broader term that encompasses not just NBFCs, but all financial services operating on the internet. This includes netbanking services offered by legacy banks as well. 

What Is The Role Of NBFCs?

NBFCs play a crucial role as they make funds more accessible to people. They eliminate the hassle of having to visit a physical bank and fill in pages of paperwork. With quicker approval rates, they are a popular choice among people who apply for loans.