Automated Software for Reducing Bank Loan Delinquency
We live in an era of increasing software automation, and the banking industry is adopting this efficient technology advancement. Computers are becoming more powerful, and software can now do banking tasks that were once thought to be the exclusive domain of employees. The features and benefits of automation loan recovery software for banks and reducing delinquency rates have been a game-changer for financial institutions.
Loan officers at banks spend their days wading through loan applications, calculating risk profiles, and determining interest rates for each customer. They must also ensure that the loans do not default to keep it running smoothly!
Banks have many different loans with different risks and interest rates, so the work of a loan officer is complex. Some banks are beginning to look for software to automate some of these tasks.
What is Automated Loan Recovery Software?
This is a loan management system primarily used by Banks and other financial institutions to manage their loans, automate several procedures and enhance operational effectiveness.
It manages customer data, recovers overdue payments from customers, takes proactive steps to prevent delinquency, and sends regular communications to customers about the repayment status of their outstanding loans.
Key areas of automation
There are four critical areas in automating the bank loan recovery process:
1. Automating collection
For a long time now, debt collection has been one of the most labor-intensive tasks in microfinance institutions.
The system works by using various tools to quickly process delinquent accounts, triggering an automated reminder when a payment is late, and sending out reminders directly to customers.
Automated reminders are critical because they ensure that the customer receives timely updates about their loan repayment status.
2. Automate payment options
The system also allows the financial institution to enable their customers to pay their loan balance using various payment options, such as online payments, Internet banking, and mobile money.
3. Communications Automation
Sending e-mails, SMS messages, and phone calls to customers are laborious tasks for an organization.
Automated communications software can automatically generate communications based on specific conditions. These communications can be custom tailored for different types of customers. For example, automated reminder notices could be sent to customers who have fallen behind on their repayments. In contrast, special offers could be sent to customers who have not made any repayments in a while to entice them into making a payment.
4. Automated Risk Scoring
Automation software also allows the financial institution to score their loan portfolios and identify at-risk customers and those who are unlikely to respond to automated communication attempts.
This allows them to focus their efforts on contacting still good credit risks.
What are its benefits?
The following are some of how this software enables banks to take proactive steps towards reducing loan delinquency:
1. Automated debt recovery process
The software streamlines the debt recovery process by sending reminder notices to customers, initiating legal action when necessary, and managing overdue accounts.
When a customer fails to repay a loan, the software automatically initiates the debt recovery process without requiring any manual intervention.
2. Access to borrower’s profile
The software provides 24X7 online access to a bank’s customer data, thereby enabling the bank to take proactive measures at the right time.
Bank agents can log in to the software and view detailed information about a customer’s payment record, repayment plans, and other essential details.
This empowers bank agents to make prompt decisions, thereby helping them reduce delinquency by avoiding taking timely action because of lack of information.
3. Customer management and profiling
The software has powerful tools that help a bank understand a customer’s repayment behavior and make confident decisions about the next step to take.
a. Customer profiling tool: By using this tool, a bank can view detailed information about a customer’s past payment records, outstanding loans, and other essential details even before initiating any contact with the customer.
b. Risk scoring algorithm: The software generates individual risk scores for each customer by using the following factors:
- Customer profile
- Credit history
- Business details
- Financial information about current outstanding loans and credit card accounts held with other banks
- Transaction behavior, like high-value transactions, made over the past few months (to understand if the customer is trying to hide its financial position by manipulating transaction records)
- Number of times the customer has failed to repay a loan if any
- Periodicity of repayment
- Borrower’s communication behavior (to identify customers who are being evasive or misleading)
The risk score is based on these parameters, and bank agents use it to make informed decisions about the following steps.
4. Automated monthly statements
The software automatically sends monthly notifications and account updates to customers, reducing costs associated with manual intervention.
These regular communications help improve customer relations as they feel that their bank is proactive in reaching out to them and looking into their account.
5. SMS alerts
The software sends automated SMS alerts to customers about the repayment status of their loans, which increases customer convenience and reduces costs associated with manual intervention.
6. Loan tracking across borders
The software helps banks manage their foreign currency loans more effectively by tracking payments made in different currencies while reducing costs associated with manual intervention.
7. Personalized payment notification
The bank can use the software to send personalized payment notifications to customers, increasing customer convenience and reducing costs associated with manual intervention.
8. Integrates with third-party applications
The software can integrate with other banking and non-banking applications, thereby helping banks improve their efficiency.
It can be integrated either by building a custom module or using a standard integration module.
9. Loan disbursement
The software facilitates the loan disbursement process by automating screening, approval, and document management tasks.
10. Workflow management
The software has a template-based workflow engine that routes tasks to be completed to the appropriate people or departments automatically.
Bank agents can also customize workflows using the workflow editor to improve the efficiency of their tasks.
How to choose an automated loan recovery software
Many companies claim to offer bank loan recovery software, but not all can provide the same set of features and benefits.
Banks should look for the following features when choosing an automated loan software:
1. Easy to use
Any bank looking to implement the software should do it quickly and easily. The software should have a simple user interface. This will reduce training costs and help bank agents complete tasks faster.
2. Should be 100% Automated
Automation always brings the highest degree of efficiency. It can’t be considered automated if the software involves manual intervention, even for basic tasks.
3. Look for an integrated solution
An integrated solution can help banks manage their loan portfolios more efficiently. The software should integrate with third-party banking applications to improve efficiency.
The software should be scalable to the needs of a growing bank. A one-size-fits-all approach can’t work, and banks need solutions to adapt to changing requirements.
5. Offers data-driven reports
Another distinguishing feature that banks should look for is generating customized information based on data analytics.
These reports will help banks make more informed decisions and improve customer service and fraud detection capabilities.
6. Reliable and easy to customize
Any bank looking to automate its loan recovery process should look for high reliability and ease of customization solution. If the software is not easily customized, it cannot be adapted quickly enough to evolving requirements.
A bank with multiple branches in different countries should also look for solutions that offer multi-currency support and multi-lingual capabilities.
The software should have a robust support infrastructure to ensure that banks receive assistance whenever needed.
Finally, the software should seamlessly integrate with other bank applications, including third-party banking applications.
7. It should have an incontestable credit assessment
If you aim to reduce bank loan delinquency, you need a solution to automate the credit assessment process.
The automation of this process will help reduce the time required to complete the credit assessment.
8. It must simplify delegation
The management system must be able to simplify delegation and workflows. Banks should look for a solution that helps them reduce the time and effort involved in loan recovery while simultaneously improving customer service levels.
9. It must offer maximum security
The software should offer data encryption, physical security, and disaster recovery capabilities to ensure maximum protection of sensitive data. However, if the software doesn’t integrate with other applications seamlessly, it will not maximize the efficiency of loan recovery processes.
The software should also recover data if any technical failure occurs during the essential stages of the workflow. This will ensure that banks can resume their activities quickly after a disaster.
10. Workflow management
The software should have an in-built workflow management system that can suit specific requirements. Banks should look for a solution that offers multiple workflows and helps them improve their efficiency in managing customer service tasks.
The bank should also be able to track the progress of each customer through a single screen rather than having to rely on different programs for different stages of the workflow.
In summary, the most likely features to reduce bank loan delinquency are automation, integration, scalability, customized reports, reliability, ease of customization, & security.
Although many solutions are available to automate loan recovery processes in today’s market, not all offer these ten features. Therefore banks looking for a system must look for an integrated solution that includes all these features.