Financial companies need the credit monitoring process or loan monitoring to find out and monitor the process of applying for credit facilities and the process of running the credit. This step is essential for creditors (lenders) to ensure they get an optimal rate of return. This is also one aspect of the data that must be reported to the regulator.
In fintech lending, several metrics are used to measure credit performance on the platform, the two most crucial of which are TKB90 and TWP90. OJK Requires every platform to display this information on its website or application.
TKB90 measures the success rate of fintech lending providers in facilitating the settlement of borrowing obligations within 90 days from maturity. At the same time, TWP90 is a measure of the failure rate of payment of duties stated in the agreement above 90 days from the due date. Therefore, to ensure that TKB90 gets the most optimal percentage, credit monitoring activities are needed as a preventive measure.
What are credit monitoring and the activities it performs?
A loan monitoring process will consist of three main stages. First, starting from Pre-Processing, the stage to determine whether incoming leads deserve to be considered. After that, credit monitoring is carried out by evaluating documents validating the validity of debtor information.
The next stage is Processing, a series of evaluations by looking at and matching data related to the debtor. This is a crucial step because, in this process, the company will determine whether the credit application will be continued or not. At the same time, ensuring that he gets the right credit product (usually related to the amount, tenor, type of loan, and others).
Then finally, there is Post-Processing, which is the process of monitoring the portfolio and performance of each borrower. Ensure they make repayments or payments on time. The transaction process will also be data mining as the following reference from the related debtor when applying for a credit product.
What are the components taken into account in credit monitoring?
There are at least five scopes of activities that are usually monitored to assess credit quality, namely:
- Credit Execution
- Administrative Completeness (including the documents required in the application)
- Debtor achievements (traditionally related to credit usage data, transaction history, and previous financial records)
- Business Development
- Guarantees Provided
The credit monitoring process is usually carried out on-desk or on-site. On-desk monitoring is carried out by verifying the submitted files and checking the credit history of each creditor. The person who works in loan monitoring also analyses or detects any potential deterioration in the customer's financial condition. This activity can be done when a prospective customer comes to the head office and makes a request for submission.
Meanwhile, on-site monitoring is carried out utilizing on-site surveys. For example, a house that is used as collateral or seeing cash flow from a business run by a debtor. Usually, this stage is carried out after the filing process is complete or at the final step before the financial institution finally decides to give / not provide credit.
The credit monitoring process or loan monitoring also includes activities to ensure debtors can complete their obligations. For example, there are times when financial institutions must anticipate early to minimize loan collectibility failures. This can be done by:
- Looking at the activity of the debtor's account (especially if the relevant financial institution is in the form of a bank)
- Looking at arrears in detail (either in the form of principal, installments, or interest that has not been settled),
- Monitoring if there is negative information related to the debtor (usually done through on-desk tracking, call monitoring, credit checking, or third-party information).
How does technology streamline the credit monitoring process?
The series of activities described above are generally carried out by almost every conventional financial institution that provides credit products. Meanwhile, with its development, fintech services have sprung up to offer similar services, such as p2p lending, paylater, and digital banks. They hope that the credit monitoring process or loan monitoring can be streamlined with the help of technology.
If we look more closely, one thing that is needed for the three stages above is the disclosure of financial data. Therefore, Open Finance technology is relevant to assist technology-based financial institutions in monitoring credit. The Open Finance technology used can be divided for each stage of the process:
- Pre-Processing; e-KYC and Identity Verification-based services can be used to digitize all existing processes, starting from the file collection process to verifying the authenticity and validity of the file.
- Processing; Credit Scoring-based services can be used to generate relevant data to assist institutions before taking further steps.
- Post-Processing; The Account Aggregator service provides the ability for digital applications to aggregate financial account data such as bank account balances and transaction records with user approval for the monitoring process.
One of the Open Finance providers that have the above features is Finantier. Through a secure Open API mechanism, every existing capability can be consumed by the application service backend seamlessly without friction. In addition to reliability, data security and privacy are also special concerns that are highlighted. One of them is by ensuring that the system meets the rules and standards in the ISO for data management and security.