a tower of blocks representing digital credit risk
a tower of blocks representing digital credit risk

Is Digital Risk Management the Future for Financial Institutions?

The onset of the COVID-19 pandemic forced hundreds of financial institutions to shift to a digital setting, from banks and brokerage firms to insurance companies. Together with the financial and economic effects of the pandemic, digitalization is now being embraced for improved user experience, better accessibility, and decreased risk. The introduction of customer transactions through digital also ushers in digital credit risk management.

Financial institutions are highly dependent on their ability to track credit risk, or the failure of borrowers or customers to pay and continue cash flow into the company. Faulty risk management greatly impacts their credibility, income, and the company’s stability, which makes credit risk management important, especially in digital banking where interactions are mostly done online.  Advanced analytics, automated decision-making, connectivity, and digital delivery are the primary factors in digital credit risk management.

In the Philippines, credit scoring helps banks and other institutions flawlessly determine borrowers’ creditworthiness and lower the risk of defaults and fraud. The good news is that digital credit risk management is now on the rise to help financial institutions work with better analytics and improve efficiency.

a businesswomen checking her credit status on her mobile phone

Trends Are Making the Move to Digital Credit Risk Management Necessary

The increasing number of financial institutions starting to employ digital risk management did not come randomly or unsolicited. In recent years, we have witnessed a shift in the financial landscape, from the mode of transactions to customer interaction. Some of the trends that may have triggered this change are:

Constant Changes in Regulations and Enforcement

The Philippine government enforces regulations for financial institutions to safeguard information, consumer protection and mitigate the risk of financing terrorism. Employing digital risk management helps companies properly monitor activity, avoid overlooking any errors or deviations from the government regulations, and lower the chances for fines and losses.

The Rising Number of People on the Web

With everything getting more accessible through online mediums, more and more people are expecting businesses and institutions to adopt digital platforms, be it banking or insurance. This digitalization trend is only increasing the pressure for financial institutions to migrate online and set up processes for risk management.

The Need to Access Untapped Data for Financial Digital Risk

Manual risk management is highly dependent on available bank data and transactions in determining a person’s credit score to avoid defaults and any income loss. However, manual data processing can only do so much without proper avenues and tools to efficiently go through structured and unstructured data. By switching to digital credit risk management, financial institutions can tap into alternative data from other sources to determine credit scores.

More and More Transactions Are Done Through the Cloud

The pandemic boosted the need for digital payments, with hundreds of companies pushing online and credit to avoid handling cold, hard cash. With a significant percentage of transactions happening on the cloud, risk management has to be on the same platform to keep it in the loop.

The Need for Faster Results and Turnaround

By employing digitized processes and risk initiatives, employees and customers are given results in real-time. This makes processes simpler and faster, as well as lifts revenue by allowing employees to serve other potential customers or borrowers in a shorter amount of time.

woman preventing dominoes from falling

Advantages of Digital Risk Management

The shift to digital has also introduced a different facet of technology to credit risk management: artificial intelligence. Together with machine learning-powered solutions, artificial intelligence improves the efficiency and accuracy of credit risk investigations. With at least 50% of financial institutions employing AI for digital credit risk management, more and more companies are seeing the benefit of digitizing their systems designed for managing credit risk. Three of the advantages of using AI are:

Improved Customer Experience – With customers getting more tech-savvy, financial institutions are in a race to adopt digital platforms to help reach a wider audience. Employing state-of-the-art systems give customers better value as well as better accessibility and customer experience.

Faster Risk Detection – Data used for risk management comes in two forms: structured and unstructured. Structured data includes data in numerical form and values, while unstructured data includes content, images, and audio. Digital risk management systems designed with AI and machine-learning solutions can digest and verify data in both their structured and unstructured forms in shorter intervals compared to systems that need human intervention.

Lower Risk of Human Error – With AI’s calculated and precise ability to scour data, there’s little to no room for error or for anything to go amiss, especially potential risks and fraud.

Let FinScore Help Your Transition to Digital Credit Risk Management

While digital credit risk management is now becoming a must for financial institutions around the Philippines, there are a few roadblocks that may crop up along the way, including poorly designed systems, unoptimized processes and the constant need for flexibility in the financial landscape. Add to these, digital risk management systems often work by analyzing bank transactions, which is tricky especially for customers who are essentially credit invisible.

With FinScore’s comprehensive system of digital credit risk management, we guarantee a 99.9% accuracy hit rate. You will be able to tap into alternative variables and more than 400 telco data points, to predict an individual’s overall creditworthiness efficiently and effectively. It is also extremely cost-effective since we don’t need any set-up costs

To learn more, you can request a demo or contact us here.

FinScore is a financial technology company in the Philippines that offers a powerful credit scoring platform and fraud detection tools based on alternative data, including telco-based data. 

As the pioneer in lending and scoring of the unbanked, we continuously provide fintech services that empower financial institutions, banks, and credit bureaus with flexible platforms to help them make insightful and reliable credit decisions. Contact us today to learn more about our products and solutions for financial institutions.