The consumer financing industry is evolving more rapidly than ever before, thanks in large part to innovations in artificial intelligence and machine learning. Lending and credit decisions have moved away from traditional, manual processes to a more streamlined and accurate online approach.
This article from United Consumer Financial Services, a nationwide leader in consumer financing, explores the roles of AI and Machine Learning (ML) in this industry. Read on to learn more.
Predictive Underwriting
A successful consumer financing program relies on fast, accurate underwriting. Traditional underwriting often relies on static credit scores and a consumer’s limited or incomplete financial history. This approach can exclude borrowers who might be financially responsible and a low-risk candidate but who don’t have a long credit history (like younger demographics who are less likely to own credit cards or rely on traditional credit).
AI and ML capture a more accurate, holistic view of consumers by analyzing a wider range of data, including
- Income trends
- Payment and spending behaviors
- Alternative data, like rent history or utility payments
By spotting patterns that human underwriters might miss, AI-powered predictive underwriting can identify creditworthy borrowers faster and with greater accuracy. For merchants, this reduces default risk while speeding up approval times, helping businesses increase sales. For consumers, it creates a fairer path to financing, especially for those who are traditionally underserved.
Real-Time Risk Scoring and Adaptive Credit Limits
Identifying risk tolerance is essential for every business, especially those offering consumer financing. While conventional credit lending typically includes a one-time consumer credit evaluation, AI allows for dynamic, continuous assessments through real-time risk scoring. Machine learning models can evaluate shopper behaviors and market conditions in real-time, providing lenders and merchants with the agility to adjust their risk management approaches and adapt consumer credit limits.
United Consumer Financial Services empowers merchants to customize risk tolerance with flexible fees. Merchants opting for a low-risk approach can choose to pay a lower percentage fee, signaling to UCFS to be more conservative with customer approvals, reducing the risk of defaults. Businesses prioritizing high volume can choose a higher percentage fee, allowing them to serve a broader range of consumers, including those with less-than-ideal credit, to increase sales volume.
Automated Know Your Customer (KYC)
Consumer identity verification is an essential, federally required step in secure consumer financing, but it’s not without its challenges. Manual KYC processes can be slow, prone to errors, and frustrating for consumers who are ready to move forward with their purchase.
AI streamlines consumer identification with automated KYC. By automating verification tasks like document scanning, detecting anomalies or inconsistencies, and analyzing financial records, AI tools can quickly and accurately confirm consumer identity.
The benefits of automated KYC include
- Faster onboarding
- Complete regulatory compliance
- Reduced fraud
- Expedited approval
- A faster sales process
By leveraging automated identity verification, businesses can stay compliant while providing consumers with the financing services they need and want.
Conversational Loan Assistants
Consumer financing can be a confusing and overwhelming concept for shoppers. Borrowers often need guidance and reassurance along the way. AI-powered chatbots and conversational loan assistants provide instant answers to frequently asked questions and help applicants navigate forms, making the entire process faster and easier for the consumer, leading to more sales.
By leveraging AI chat assistants, merchants can provide 24/7 assistance to consumers, thereby increasing financing adoption rates, enhancing the customer experience, and reducing service costs.
Broader Benefits of AI in Consumer Financing
Employing AI in consumer financing automates and streamlines nearly every step of the financing process, allowing teams to focus on tasks that require their time and talents. Partnering with the right consumer financing firm –– one that optimizes financing through AI –– will enable businesses to reap both immediate and long-term benefits:
- Increased efficiency and scalability: Automating manual consumer financing tasks frees teams up to invest their energy and expertise where most needed. Instead of manually reviewing applications, running credit checks, and communicating with regulatory bodies, they can rely on AI-powered programs to automate those tasks faster and without the risk of human error, resulting in more efficient, scalable programs.
- More accurate fraud prevention: Manual verification and consumer approval leave room for significant errors and gaps in consumer data collection that can be detrimental to businesses. AI and ML applications reduce the risk of errors, oversights, and incorrect or incomplete data collection, leading to more robust fraud prevention.
- Enhanced customer experience and loyalty: Shoppers exploring consumer financing solutions want accessibility, affordability, and convenience. By streamlining the financing experience start to finish, businesses provide an enhanced customer experience that not only guides them toward the current sale but also cultivates trust and loyalty that result in long-term revenue.
- Expanding access to credit for underserved populations: Traditionally, many individuals have been excluded from traditional loans or credit access because they lack extensive credit histories or collateral. AI and machine learning can bridge this gap by analyzing a broader range of data points beyond just credit scores, including rent payments, utility bills, transaction patterns, etc. These alternative signals allow lenders to better assess the financial reliability of borrowers who might otherwise be overlooked, expanding the merchant’s customer base.
Conclusion
AI and ML play transformative roles in the present and future of consumer financing. Shoppers want faster, smarter, more customer-centric experiences, and these innovative tools deliver.
Responsible adoption of AI helps merchants create a more fair, efficient, and lucrative consumer financing program while still maintaining a full staff to speak with both merchants and consumers. By partnering with the right consumer financing firm, businesses can maximize their financing options to better serve customers, increase sales, and sustain the cash flow required for long-term success.
United Consumer Financial Services, a Marmon company, a division of Berkshire Hathaway, is one of the nation’s top consumer financing providers. With more than 45 years in this industry, we have evolved with merchant and consumer needs –– and continue to innovate. UCFS is continuously adopting new technologies that advance our consumer financing capabilities while maintaining a client-centered approach, making us the ideal choice for businesses across the country.
Partnering with UCFS is easy, and you can begin your application today. Contact us today to discover how consumer financing with UCFS can help you boost sales and grow your business starting now.
