AI investments boost loan decisions among lenders

Banks, credit providers and telco companies in Australia and New Zealand are significantly increasing investment in AI to enhance the speed and accuracy of lending decisions, according to new research from Experian.

The report, conducted in collaboration with Forrester Consulting, surveyed 150 senior executives from credit providers across both countries.

It revealed that 47 per cent of these companies are boosting their investment in automation, despite 72 per cent acknowledging the need to better educate senior leadership about the value of generative AI.

With more borrowers applying through digital channels, consumers now have more options and less patience than ever before. This shift has raised the competitive bar for the speed of loan approval, with automation playing a key role in meeting these demands.

However, globally, the research found that fewer than a quarter (24 per cent) of lenders have adopted automated credit risk decisioning, with only a third (33 per cent) believing they have achieved wide adoption. Companies in Australia and New Zealand appear to be ahead of the curve, with only 17 per cent reporting limited or no adoption of automated credit risk decisioning tools.

Despite this higher adoption rate, challenges remain. Less than one in five (17 per cent) Australian or New Zealand lenders reported being able to approve a standard consumer loan in less than an hour, which is below the global average of 22 per cent.

This puts these companies at risk of losing customers to more agile competitors. On a more positive note, the statistic for same-day approvals is higher, with over half (56 per cent) of respondents in Australia and New Zealand saying they can approve a new application for a typical customer loan within one day. This is significantly above the global average of 39 per cent.

The report highlighted that credit leaders are increasingly viewing AI as a critical driver of industry success, with 64 per cent of respondents stating that the future of their industry will depend on effective AI utilisation.

More than half (53 per cent) reported significant improvements in decision-making speed and quality due to the application of AI and machine learning.

However, almost three in five (58 per cent) admitted challenges in identifying which generative AI use cases would yield the best return on investment.

Despite the push for rapid analytics cycles, only 29 per cent of businesses are able to implement models in less than six months. This challenge is compounded by the fact that 42 per cent of data and analytics leaders say they lack the in-house expertise required to develop and manage advanced analytical models.

As economic pressures continue to build, there is growing attention on identifying vulnerable customers. A significant 62 per cent of respondents acknowledged that rising inflation and interest rates are affecting their clients’ ability to repay loans.

According to the Experian Risk Radar Report, while 77 per cent of credit risk leaders believe Australia has weathered the worst of the economic downturn, 69 per cent anticipate higher levels of credit stress, missed repayments, and delinquencies over the next 12 months.

In response, 39 per cent of risk leaders plan to further prioritise improving their ability to detect financial vulnerability within their customer base.

Jordan Harris, head of innovation at Experian, commented: “Leaders in the financial services and telecommunications sectors recognise the importance of investing in customer insights and automation to stay competitive.

“As they embrace these advancements, it’s crucial they bring senior leadership on the journey to understand the value of technologies such as generative AI.

“Although the tools that enable automation are available, the adoption and transition are taking longer than some lenders would like, with integration of data, analytics, and software.

“As the need to detect and assist financially vulnerable customers grows, we are seeing greater investment in solutions that provide early identification of hardship, in addition to the expansion of hardship programs and tools that help consumers manage repayments more effectively.

“By fostering collaboration, education, and a customer-centric approach, organisations can not only unlock the full potential of these technologies but also drive meaningful change in the industry,” Harris said.

[RELATED: Globally, banks are struggling to adapt to change]

Adrian Suljanovic is a journalist at Broker Daily with more than two years experience reporting on all facets of the third party distribution channel.

Adrian has written for a range of business and finance titles including IFA, Investor Daily and Lawyer’s Weekly before joining the mortgages team in 2022.

He graduated from the University of Wollongong in 2021 gaining a Bachelor of Communication & Media with a major in Digital & Social Media.

E-mail Adrian at: This email address is being protected from spambots. You need JavaScript enabled to view it.