Recently, the Bank of Tokyo- Mitsubishi UFJ revealed that it is creating a new financing model. The model is designed for fledgling enterprises, particularly those that utilize artificial intelligence to evaluate their credit prospects by looking at the data contained in financial statements.
Mitsubishi UFJ Financial Group is Japan’s most acclaimed banking group. The group’s unit will invest 100 million yen or $950,000 in ExaWizards, an AI developer based in Tokyo, on Tuesday. In turn, the AI developer will work together with MUFG financial technology‘s subsidiary Japan Digital Design to design the new screening model. The AI-based technology is expected to be complete by fiscal 2019.
Bank loan applications typically involve satisfying various standard documentation prerequisites. One of them includes three years of earnings statements to evaluate whether the company qualifies for funding. On the other hand, Bank of Tokyo-Mitsubishi UFJ (BTMU) pictures a flexible process that will be powered by AI. It awards firms creditworthiness scores based on not only cash flows but also other factors. In turn, the score is then utilized to quickly deny or approve the requested loan as well as determine the interest rate.
Once complete, the AI-based screening system will evaluate a wide range of data, including the stability of a startup’s leading suppliers and customers as well as its record of paying expenses such as rent and salaries on time. In addition, the system will have the ability to distinguish between sales growth driven by windfall profit and growth driven by increasing monthly sales.
Bank of Tokyo-Mitsubishi UFJ’s AI system will learn the kind of factors it needs to consider independently and the amount of attention to give them. As such, it will be in a better position to evaluate the probability of repayment by a potential borrower accurately.
More often than not, startups require the most funding even before they are a few years old in their operations. New startups do not have the necessary data to facilitate a good loan screening exercise. This situation increases the chances of most of them sliding through the cracks of standard loan screening processes. Nevertheless, artificial intelligence (AI) can get rid of such conflict and boost the accuracy of loan screening efforts.
Mostly, banks avoid assigning relationship managers to both small and mid-sized companies since such customers generate little business for them compared to large firms. However, Bank of Tokyo-Mitsubishi UFJ believes it can leverage this underserved business segment of the corporate banking market through a cost-effective solution. The move involves creating an online application process that does not need face-to-face meetings.
Aside from Mitsubishi UFJ Financial Group, other leading banking institutions in Japan are also expediting their efforts to tap into the potential of AI. In fact, Sumitomo Mitsui Banking Corporation, a subsidiary unit of Sumitomo Mitsui Financial Group, plans to begin utilizing artificial technology (AI) in searching for changes in customers’ vital details. In addition, Mizuho Bank, a part of Mizuho Financial Group, also intends to start using AI technology in fiscal 2018 in screening small enterprises for loans.