Australia & NZ invest in AI to enhance lending decisions

Experian's recent study highlights a trend among financial services and telecommunication leaders in Australia and New Zealand towards increased investment in artificial intelligence and automation to enhance lending decisions.

The research by Forrester Consulting surveyed 150 senior executives from the financial and telecommunication sectors in Australia and New Zealand. It found that 47% are augmenting their investment in automation as lenders strive to process decisions more swiftly in an increasingly competitive digital environment.

In Australia, 49% of financial service and telco leaders are increasing their budgets for customer insights. The study also underscores a noticeable gap in educational awareness, with 72% of participants acknowledging the need to educate senior leadership on the potential benefits of Generative AI.

The report states that with growing numbers of consumers applying through digital channels, speed in loan approval has become a crucial competitive factor. Despite this, only 24% of lenders worldwide have adopted automated credit risk decision-making, with about 33% believing they have achieved significant adoption. In contrast, Australian and New Zealand companies show greater progress, with only 17% reporting limited or no adoption of these tools.

Even with high levels of automation adoption, less than one-fifth of Australian or New Zealand lenders indicated their capability to approve standard consumer loans in under an hour, a figure below the global average of 22%. However, more than half of the respondents (56%) reported being able to accomplish these approvals within one day, exceeding the global average of 39%.

A commitment to AI is evident as 64% of respondents believe the future of their respective industries is conditional upon effective AI application. Over half (53%) have noted notable improvements in decision-making speed and quality through AI and machine learning, yet 58% face challenges in identifying the most beneficial Generative AI use cases.

The report indicates that only 29% of surveyed businesses can implement analytics models in under six months, hindered by 42% of data and analytics leaders lacking the in-house expertise necessary for managing advanced analytical models.

There is also an increasing trend towards improved data analytics, with 49% of leaders confirming they have raised budgets for customer insights. More than half (56%) of technology leaders expect to expand their technology budgets as economic conditions stabilise, and 51% are investing in cloud solutions to make data more accessible for AI-driven credit risk examinations.

Experian's research also highlights concerns about rising financial vulnerabilities among customers. As economic pressures such as inflation and interest rates grow, 62% of respondents recognise the impact on clients' loan repayment abilities. The Experian Risk Radar Report found that while 77% of credit risk leaders believe economic conditions in Australia have reached a turning point, 69% foresee increased credit stress and missed repayments over the next year. Correspondingly, 39% of risk leaders plan to prioritise strategies to detect financial vulnerabilities within their customer bases.

Jordan Harris, Head of Innovation at Experian, commented, "Leaders in the financial services and telco 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 GenAI."

"Although the tools that enable automation are available, the adoption and transition is 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 or hardship programmes and tools that help consumers manage repayments more effectively."

Harris concluded, "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."