How Harnessing the Power of AI Can Revolutionize Alternative Lending

Using artificial intelligence (AI) in our everyday lives and in business is firmly in the mainstream, and it’s now commonly accepted that any organization that doesn’t ultimately integrate AI into its services and offering is going to fall behind.

When Manx Financial Group asked 44 brokers at the NACFB Commercial Finance Expo last June about advancements in AI, and how that will affect small and medium-sized enterprises (SMEs) over the next 12 months, 40% said it would be used to further facilitate commercial finance application decisions.

Twenty percent of SME brokers thought that it would be used to identify new business opportunities, and 19% that SMEs would use it to determine future business risk, while 9% believed it will replace back-office and non-client-facing roles.

But how does an industry like alternative lending for SMEs – which requires sometimes emotive decision-making, calling for a human thought process – adopt unemotive artificial intelligence?

Enhancing Customer Service

AI algorithms can be deployed to very quickly analyze vast amounts of data, including financial records, business performance and wider industry trends. All this data is then used to provide the basis of highly personalized loan recommendations to founders, which ultimately increases the chances of loan approval and – in a world where customers are expecting personalization – greater client satisfaction. 

 Conister COO Haseeb Qureshi: Upgrades in service and security.

Traditional loan application processes can be arduous, time-consuming and complex, leading to frustration for SME owners whose time is better spent on running their business.

AI-powered alternative lending platforms can simplify and expedite the application process through automation. Chatbots and virtual assistants can guide applicants through the necessary steps, collect required information and provide real-time support, saving on both time and paperwork. 

24/7 Access and Fraud Detection

AI has made chatbots increasingly intelligent and almost unrecognizable from the “computer says no” chatbots of old. This allows customers to speak to their lenders 24/7, and while a chatbot still won’t replace an actual human being, it does mean that basic queries can be answered, and waiting times reduced.

There are also financial and security benefits to utilizing AI, particularly when it comes to fraud and risk assessment of complex structures.

AI’s ability to process and analyze data in real time significantly strengthens fraud detection capabilities. By monitoring ongoing transactions and evaluating patterns, AI algorithms can swiftly identify suspicious activities and potential fraud attempts – for example, is the customer suddenly checking their account multiple times a day, or at strange times?

This proactive approach allows lenders to mitigate risks promptly, protecting both parties’ financial losses.

AI can also enable secure authentication mechanisms such as facial recognition or voice biometrics, adding an additional layer of security.

Advanced Risk Assessment

As already mentioned, AI excels in analyzing large volumes of data and identifying patterns that human analysts may overlook, and by leveraging machine learning algorithms, alternative lending platforms can assess SMEs’ creditworthiness incredibly accurately. AI algorithms can analyze and take data points from credit histories, transaction records, social media activity, along with other relevant data to generate comprehensive risk profiles.

That said, this is the area where that human interaction is still needed. Many lenders will ensure that a person takes a second opinion on more complicated applications, for example, when historic financial or credit data also needs to be considered. 

Outperforming Competitors

AI is the future, and its advent has brought significant advancements in alternative lending at a much-needed time for SMEs, allowing them to faster overcome financing challenges and fuel their growth.

AI, used correctly, will also give alternative lenders the advantage over traditional lenders, who can struggle to keep up with the rapidly changing digital world. It will also streamline resource within our organizations, allowing us all to spend our energy and personnel hours on tasks where human touch really is irreplaceable.

While there are common misconceptions that AI “will take our jobs”, our feeling is that used properly, it is a tool that will just make us better at them. 

Haseeb Qureshi is chief operating officer of Conister Bank, a community bank that is based in the Isle of Man and in 2023 expanded its U.K. business by obtaining a deposit-taking license.