Can eVerification reduce the TAT in Personal Loans? Should NPCI venture into eVerification?
Personal Loans are an integral part of most of Indians
financial portfolio. Personal Loans can broadly be divided into formal and
informal.
Informal personal loans are those
loans which are taken from acquaintances. Formal personal loans are loans which
are taken from Banks or Financial Institutions.
Personal loans are popular due to low
interest rates as compared to Credit Card EMIs. Further, in most cases no
collateral is required.
Banks and Financial Institutions
prefer to deal with existing customers. However to increase their customer
base, they are open to on board new customers.
The Personal Loans have to be repaid
in monthly EMIs. EMIs are usually recovered through PDCs or ECS Mandates or ACH
Debit Mandates.
Cash is preferred only for defaulted installments.
One of the key verification points for
new customers is the Bank Account verification process.
Typically the process is as under:
1)
Customer
fills in the documents.
2)
In one
document, he/she mentions about his/her bank account details.
3)
The
back office team approaches the respective bank branch for conformation about
the bank account number and signature verification.
All the above steps take 5-7 days depending
on the customer’s location and the respective bank branch location.
Some
institutions skip the above process, by directly sending the ECS Debit Mandate
for bank verification.
Apart from delay in processing the
loan application, there are chances that the customer’s verification turns out
to be negative, due to
1)
the
account being closed
2)
account
having transaction risks
3)
signature
mismatch
These
are associated business risks. However with improvements in technology, can the
above process to migrated eVerification mode.
The
basic technology is in place and an Indian Institution has the broad process in
flow. Only minor tweaking is required to get this rolling.
The
Indian Institution is NPCI.
The
channel which can be adopted is the ACH Debit Mandate Verification mode.
eVerification
means, electronic conformation from the customer’s bank that
i)
the
account number mentioned in the form is active
ii)
no
restrictions are attached to the account
iii)
customer’s
signature is valid
No
physical papers are exchanged, only digital images are exchanged
9
chief benefits of eVerification
1)
New
business stream for NPCI
2)
Enable
quick disbursement of personal loans
3)
Decrease
the failure rates viz closed accounts/signature mismatch etc
4)
Increase
the customer base.
5)
At
present personal loans are encouraged in Tier I to Tier III cities which may be
expanded to Tier IV to Tier VI towns too
6)
Decrease
the reliance on formal sources.
7)
Enable
customised offers at the time of festivals without much financial investments
8)
Encourage
new customers to join banking industry
9)
Bring
in transparency in the verification process
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