The NBFC sector has emerged as a driver of inclusive growth in the Indian economy playing a crucial role in providing credit to the underserved segment. What sets them apart is their ground-level understanding of their customer’s profile and their ability to customize the product as per their credit needs.
Considering the multitude of players in the financial sector, the new generation of consumers is spoilt for choice. Switching brands is just a click away. The key differentiator here is the customer experience.
In the last decade, the BFSI segment witnessed large-scale technology adoption in order to make the process agile, eliminate customer pain points, and provide a seamless lending experience. The findings of a recent survey published by FICCI and PWC underscore the importance of technology in improving the customer journey. According to this survey, 83% of Indian financial organizations say AI helps enhance their customer service.
However, despite some key changes, NBFCs continue to face challenges in improving customer experience. In this post, we’ll explore eight key challenges faced by organizations.
1. Simplifying operational complexity
NBFCs perform a wide range of functions on a daily basis. From offering loans and advances to credit review and interest accrual to foreclosures, keeping a tab on a multitude of financial operations could be difficult. Lenders working without an agile and well-defined process and well-defined processes to originate and onboard customers face heightened operating risk.
Moreover, if responsibilities are unclear, handoffs between departments could slow down decision-making and increase turnaround time, thereby negatively impacting the customer experience. An efficient CRM system can potentially revolutionize and reduce many difficulties associated with manual procedures. As per a PwC survey, the operations and finance functions have seen the maximum RPA adoption and demonstrated a very high ROI.
A major finance NBFC recorded a 25-30% reduction in turnaround time for loan application process through digital channels after it leveraged Robotic Process Automation to reduce administrative effort and the bulk of paperwork.
2. Cost optimization
Covid-induced liquidity crunch has led to higher borrowing costs making it imperative for NBFCs to improve margins through cost optimization. Automation can help businesses scale up and optimize costs by reducing paperwork. NBFCs can optimize cost across customer lifecycle management by looking beyond traditional channels. NBFCs could reduce the cost of customer acquisition by up to 30% by leveraging digital channels over traditional DSA. Effective use of IVR, chatbots, and other self-service channels can also help bring down costs.
A large NBFC recorded a 20-25% increase in the adoption of its payments platform by asking its field collections agents to enroll and educate customers on their payments platform for future payments. The NBFC immediately saw an increase in field agent productivity and a reduction in CTC by 10–15%.
3. Understanding evolving customer expectations
Misalignment in product offerings with customer needs is another key challenge faced by NBFCs. Over 91% of people unsubscribe from emails, 44% of direct emails go unopened and 60% opt out of mobile notifications primarily due to a glut of irrelevant messages.
Flooded with choice, customers only focus on those products or services which are most suited to their needs. This makes micro-segmentation more crucial than ever.
NDFCs need to build a better communication strategy. They need tp price loan products to minimize customer churn. This would require identifying the smaller segment of people to whom a specific product, service or feature of a product could be vital.
4. Addressing gaps in underwriting
An effective underwriting model involves a tacit understanding of customers’ profiles and needs and the ability to determine the creditworthiness of applicants based on local context. For NBFCs, finding an effective underwriting model for low-income groups and informal MSME enterprises has always been a challenge primarily due to the lack of data and financial history of the segment.
Select NBFCs have suffered from declining asset quality because their underwriters lack experience or understanding of local dynamics that drive credit demand. NBFCs are leveraging analytics-driven underwriting models which also use intellectual capital to understand individual risk, line of business, and book levels (for MSMEs).
An innovative application of “risks like this” that provides a link to accounts that have similar risk properties and how these accounts were priced and packaged
5. Making recovery more customer-centric
Historically, lesser attention has been given to creating a good customer experience during debt recoveries. For a lending institution, it’s not always easy to balance recovery with good rapport.
However, a bad experience can cause damage to any the customer’s lifetime value and can also have an impact on the brand image. If a lender’s technology infrastructure is disconnected and disparate, it may not be able to provide a unified view of the customer’s relationship with the lender.
Collections groups engage with customers in conflicting ways, resulting in inconsistent correction strategies and remediation tools. So, it is important to get the human-technology mix right.
NBFCs need to develop different digital collections models to serve customer goals effectively along with efforts to keep them updated with the right mix of calls, emails, and messages based on their previous credit behavior and current financial situation.
6. Ability to manage field resources
NBFCs have a vast pool of field resources deployed in various services including sales, collections and leads management. It’s crucial to monitor and optimize field outcomes and eliminate miscommunications and delays in business processes. It becomes more challenging in the presence of dynamic customer demand. An efficient virtual relationship management tool can help improve sales productivity, real-time tracking of executives, and auto lead management.
Efficient routing to virtual relationship managers who have a deep understanding of the product and customers is critical. Customers shold be abel to route calls or WhatsApp messages directly to their to them, whether they are at theri desks or on the field.
7. Managing IT infrastructure
NBFCs with legacy systems struggle to bring down their capital expenditure due to the burgeoning cost of managing IT infrastructure. Expenses on maintaining a server, storage hardware, physical space, along with data security software licenses constitute a substantial portion of CAPEX and affect profitability.
Cloud-based technology such as CCaaS can take away the pain of managing IT infrastructure for NBFCs. It can substantially reduce the cost of both hardware and software while elevating the customer experience.
NBFCs should adopt a loosely coupled architecture to enable efficient scale-ups. It helps connect legacy systems with new systems with minimal effort and bottlenecks.
8. Data privacy
Financial services have always been the top target of cyber criminals Post pandemic, the dependence on digital channels has increased manifold. Hackers have multiple entry points to steal sensitive information and compromise systems. So, it has become imperative for lenders to build tight information security controls. Cloud technology not only brings down the cost of overall operations but also provides an extra layer of security when incorporated into the system.
Despite covid-led disruptions, NBFCs have emerged stronger with the space leading the fray in retail lending. In FY2021, NBFCs disbursed 12 crores of loans and registered a 64 percent growth from the previous fiscal. Technology has made round-the-clock connectivity a reality and enabled NBFCs to develop a deeper understanding of customer behavior. However, with the emergence of new players in the retail lending space, NBFCs will need to reinvent their operational capabilities and rethink their customer outreach strategies.