Financial technology has changed the traditional ways of doing things in the lending land. Fintech lenders use Artificial Intelligence (AI) to analyse data, obtain vital customer insights and provide faster e-application and loan approval processes.
Modern fintech lenders use AI to understand business behaviours to provide minority business loans to Latino-owned Businesses (LOBs). Speaking on this topic is Sean Salas, CEO and co-founder at Camino Financial. Salas is often featured discussing FinTech and Latinx entrepreneurship, including written articles and appearances on Forbes, Univision, and CNN. Prior to co-founding Camino Financial, Sean worked at a private equity fund where he invested $50million in direct equity investments and helped manage four portfolio companies with over $250million in combined revenue. Before then, Salas worked as an investment banker at UBS Investment Bank.
Having built a team of 90+ associates across two offices in Los Angeles and Mexico City, supporting thousands of underbanked Latinx businesses across the US. Salas works directly with the product and data science teams to build capabilities around data aggregation and machine learning models that predict credit performance and business insights in the Latinx market. Here, Salas provides his insights on how AI should be used to help benefit all businesses:
Six ways Artificial Intelligence works for fintech
- Optimises credit risk evaluation
AI data mining techniques help fintech gather credit reports through third-party services, bank income reports, and past credit behaviour in real-time to correctly determine the client’s creditworthiness and return an immediate assessment of the borrower’s credit risk.
They use the data to pre-qualify and suggest loan offers based on the borrower’s credit profile. Additionally, they use AI tools to provide simple paperless pre-approval processes, credit scores, and loan calculators. That makes for a transparent decision-making process on the side of the customer.
- Faster lending process
AI-driven underwriting uses automated decision-making systems to predict customer credit behaviour and creditworthiness in seconds making that these decisions will be made in only hours. Models are updated in real-time, making for an improved client risk profile approach, hence a faster, more accurate underwriting process.
- Less bias
Financial bias towards minority business owners is a bane when seeking minority business loans from banks. It’s due to stereotypes and selective use of applicants’ data based on gender, race, et cetera.
Fintechs use AI-powered lending tools to solve gender bias. As long as AI algorithms are fed relevant, up-to-date customer data, they can determine applicants’ credit level, loan amounts, and repayment terms without human bias.
- Generate more leads and conversions
Fintech lenders use NLP and Text mining tools to find information and understand their target audience’s financial habits and preferences based on past online behaviours. That helps fintech lenders interact with customers in customised ways —like suggesting accurate and relevant loan offers. Well-targeting results make better conversion rates and reduced customer acquisition costs.
- Customer support
Chatbots, Robo advisors, and automated customer support use Natural Language Processing and Machine Learning technology to offer customers support 24/7. Also, they can reduce operations costs and vouch for improved customer experience due to increased customer satisfaction.
AI financial tools also process relevant consumer data to help customers determine their ability to meet loan obligations, track spending and perform complex calculations to see whether they’ll meet their financial goals.
- Fraud detection
Fintechs are custodians of sensitive consumer data. Thus, lenders need to provide higher levels of security and financial safety to avoid mistrust, reputational damage, and non-compliance penalties.
AI fraud detection and monitoring tools help avert the risk of fraud to a large extent. They identify patterns of questionable transactions and predict suspicious customer behavior to provide real-time fraud detection.
Customers and financial institutions are kept in the loop with real-time alerts of suspicious activities on their accounts or credit cards.
Luna.Ai: artificial intelligence focus on Latino businesses
Although not so many financial institutions are investing in AI to understand businesses, new developments are helping savvy fintech lenders offer better services to minority business owners. For instance, Camino Financial has leaped with Luna.ai.
Luna.ai is a platform that helps the fintech lender understand Latino business behaviour and insights. Thereby, lenders provide better, faster, and wider financial services to Latino business owners. This AI platform has helped reduce: customer acquisition costs, credit default risk, automate operational workflows, and offer more competitive minority business loans.
Some Latino business insights:
- Credit market
Per the recent Luna data, 50% to 60% of Latino-owned businesses applying for credit generate less than $100k in revenue. Due to covid-19, this proportion dropped to 45% as lenders focused on providing credit to larger, lower-risk businesses.
- Credit score
In Q2’21, Latino applicants’ credit scores remained stagnant with an average credit score of 641. Non-Latino applicants had a higher average credit score of 657. On average, non-Latino business owners have a stronger balance sheet than their Latino counterparts.
- Credit demand
Loan applications for new LOBs grew to 26% in Q2’21. That shows that Latino entrepreneurs are more optimistic about the market and ready to grab growth opportunities to expand their businesses.
- LOBs are adopting digitisation
Latino-owned businesses are adopting digitisation to meet new consumer needs in the COVID era. Luna.AI data shows that 18% of LOBs reported generating over 50% of their revenue online vs. offline within the last six months.
- Minority business loans with AI
There you have it. That’s how vital AI is to the fintech industry. Fintech lenders are using AI and ML to optimise the lending process, eliminate human bias, fraud detection, customer support, and target marketing. For instance, Camino Financial uses Luna.ai to understand Latino business behavior and insights. Looking for providing better, faster minority business loans.