Opinion Alternative Lending

How ChatGPT can be used as a lending tool

Breaking down the complex process of loan origination into increasingly automated components is one important area AI can help with, writes Nucleus Commercial Finance's CEO Chirag Shah.


ChatGPT is changing the way that we work and interact with other people and technology.

The generative artificial intelligence (AI)-enabled chatbot is trained using large amounts of data and utilises natural language processing (NLP) to engage in human-like conversations with users. It’s capable of doing everything from answering questions and telling stories to writing essays and computer code.

Since its launch by OpenAI in November 2022, it has been used in a wide range of different industries to good effect. One of the areas where it has proved most successful is in the banking and finance sector, from providing customer service to fraud detection.

The biggest call for ChatGPT, however, is in the lending space. Lenders such as Nucleus have already gathered and continue to gather significant amounts of data that they use to train their chatbots. 

There are multiple applications that it can be used for to make the lending process and approval decisions quicker, more efficient and more accurate. That’s because it provides greater clarity on the reasons why the decisions are made. Here are some of the use cases. 

Loan origination

One of the most significant areas of lending is loan origination. It’s a complex process that involves multiple steps, including collecting customer data, analysing credit scores, assessing risk, processing loan applications and providing real-time feedback on them.

But by leveraging ChatGPT’s NLP and machine learning (ML) capabilities, lenders can automate many of these tasks, making the loan origination process quicker and easier for customers, and the lender themselves. 

That means when customers apply for loans, ChatGPT can provide them with real-time guidance and support throughout the process. Its ability to analyse vast amounts of data and make accurate predictions also enables lenders to make better-informed loan approval decisions and helps reduce the risk of default.

Here’s an example of how ChatGPT will be used by Nucleus in the loan application process. An SME goes onto our website to apply for a loan. 

They put in their details and the chatbot determines that, based on the available data, they qualify for certain loans. They choose the offer they want to accept and the loan documents are sent to the directors to sign. Once signed, the funds will be released to them within a matter of minutes.

Risk management

ChatGPT can help lenders to identify and manage potential risks. It can also be used to monitor transactions and flag suspicious activity and potential fraud.

The model can also analyse market data to assess the potential impact of external economic and political risks. In addition, its ML capabilities enable the lender to learn from past risks and, thus, improve its risk management processes.

Regulatory compliance

Compliance is a key part of lending. Lenders are bound by a host of regulatory requirements that they have to comply with, which are regularly modified and updated.

ChatGPT can help lenders to adhere to these requirements by monitoring transactions and identifying potential violations. 

They can also be used to automate know your customer and anti-money laundering processes by analysing large amounts of customer data, checking their identity and details, and detecting any compliance issues.

Customer service

Lenders can use ChatGPT to provide real-time support to customers via a chatbot. Using its NLP capabilities, it can respond to customer queries, complaints and requests for information quickly and efficiently 24/7. According to research, there’s a big demand for this, with 35 per cent of consumers wanting more companies to use chatbots to answer their queries.

The technology can also be used to provide personalised support. By gaining greater insight into a customer’s financial needs and situation, it can suggest products and services that may best fit their requirements, based on their location, preferences, interests, behaviour and purchasing history. 

It can also adapt to different tones and styles to make the customer feel as if they are being treated like a valued individual, in addition to helping the company to improve its offering and customer service, seek feedback and reviews, and design more effective marketing strategies.

Fraud detection

ChatGPT can help lenders to detect and prevent fraud by analysing data to identify any suspicious or fraudulent activity or patterns. It can also be used to improve security by authenticating users and verifying information.

Fraud manifests itself in many different ways in lending, including application fraud, impersonation, deliberately using incorrect information and hiding data. ChatGPT has the potential to uncover this type of fraudulent activity, saving time and resources that would otherwise have been spent on tackling the problem.

Pros and cons

The benefits of ChatGPT in lending are clear to see. It speeds up and makes processes more efficient and accurate, as well as cost-effective by eliminating the need to take on additional customer service staff. Additionally, it can be programmed to send out reminders and confirmations to customers.

But the technology also comes with its downsides. Chief among them is the fact that it’s relatively new and its reliability hasn’t been fully tested over a sustained period of time.

Another problem is that it can be open to AI bias or discrimination. That’s because algorithms have been incorrectly programmed by humans and that bias is merely perpetuated if it isn’t properly addressed. 

Then there is the cost concerned. Lenders will have to integrate the technology into their systems and train and deploy it, not to mention the operational and regulatory costs of maintaining it.

New technology

ChatGPT may have only been in the market for six months, but in that time, its makers have already made significant improvements to the technology, culminating in the launch of the latest version - GPT-4 - in March. The key benefit is that it improves the ability of the chatbot to understand and complete tasks.

ChatGPT is just the start. Since then, Google has launched its rival AI chatbot Bard and Microsoft has released Bing Chat, with a host of other generative AI technology developments in the pipeline.

Now it’s time for lenders to harness the power of ChatGPT to improve the outcomes for both themselves and their customers. The new technology has the ability to transform lending in the future for the better.

The views and opinions expressed are not necessarily those of AltFi.

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