Why Financial Institutions Need Business Rule Engine Software Today

Financial institutions are increasingly adopting Business Rule Engine (BREs) software to automate their decision-making processes, reduce risk, and save time. According to a report by MarketsandMarkets, the global Business Rule Management System (BRMS) market size is expected to grow from $951 million in 2020 to $1.4 billion by 2025, at a CAGR of 8.2% during the forecast period. 

The use of business rule engine software is becoming more critical for financial institutions to streamline workflows and stay competitive. A business rule engine software can easily handle the growing demand for automation in the digital economy. The lending business needs a tool like business rule engine software that can make decisions based on data from multiple sources. 

Traditional lending processes often rely on manual underwriting and fragmented systems, leading to delays, errors, and inconsistent credit decisions. However, business rule engine software has transformed how lenders operate, ensuring consistency across all stages of the lending lifecycle.

In this blog, we will provide a complete guide to understanding business rule engine software, including its definition, types, benefits, and challenges. 

What is Business Rule Engine Software?

A business rule engine software helps automate decision-making by following a set of business rules. It does so with the help of advanced process automation. These are a set of ground rules that define how business users should operate and their limitations. Business rule engine software processes these decision rules and determines the appropriate action to take using advanced decision logic, helping stakeholders make informed decisions.

To make such business decisions, BREs require logical reasoning, a trait that has long been considered uniquely human. Since the inception of computing, developments have occured at a rapid pace. Today, it’s possible to mechanize logic with the help of business rule engine software, as it integrates smoothly with existing systems, such as CRM. A systematic method of reasoning is applied to large amounts of data to make everyday decisions.

The entire end-to-end process involves key decision points, such as determining the applicant’s eligibility through underwriting or deciding on loan pricing, interest rates, and tenure. The business rule engine software assesses millions of data points against these predefined conditions (rules) during runtime and takes action based on whether the condition is satisfied or not. Rule execution is triggered based on inferences drawn at these decision points. Business rules (the cause) trigger a set of tasks that are collected into workflow automation (the effect) to generate a specific outcome, such as an application being approved or rejected.

Benefits of BREs in Lending

Business rules are crucial for ensuring that banking processes operate efficiently, accurately, and in compliance with regulations. However, manually managing business rules through spreadsheets can be time-consuming and error-prone.

A business rule engine software can be used to automate the implementation of business requirements. This can improve the efficiency, accuracy, and compliance of banking processes while providing a user-friendly interface for managing complex rule sets.

Here are some of the key benefits of using a BRMS in banking:

1. Speed and Automation in Loan Processing

Making credit decisions manually is a slow and error-prone process. A business rule engine software automates repetitive checks and scoring logic, enabling instant loan approvals for eligible applicants while improving time to market for new products.

2. Consistency and Reduced Errors

Human decisions can vary, but a BRE ensures every applicant is evaluated using the same predefined logic. This helps to make fair decisions and reduce bias or oversight. A BRE system can validate applications consistently and can help to reduce the risk of errors. This can help to protect banks from financial losses and regulatory penalties.

3. Regulatory Compliance

With the RBI tightening digital lending norms, lenders must stay compliant in real-time. A BRE ensures:

• Instant application of regulatory checks through automated rule execution
• Audit trails for every rule and outcome with proper versioning
• Dynamic updates when regulations change to allow for quick rule changes

4. Scalability Without Overhead

Whether you’re processing 100 or 10,000 loan applications daily, a BRE scales without adding more staff or infrastructure. This is important for high-growth NBFCs and Fintechs.

5. Faster Product Launches

Lenders can create and deploy new loan products by simply updating rule sets through simulation and testing without any need for full-scale tech rollouts. For example, launching a festive season offer for select customers or a targeted MSME credit scheme.

Types of Business Rules Engine

Several types of business rules engines cater to different decision management needs:

• Script-based rule engine

  This type uses a programming language, such as Java, to define the rules. The programmer writes the code and tests it before deploying it in production. Script-based engines are good for simple logic, but if you have complex logic, then this type of engine will not be suitable for you.

• Declarative rule engine

  The declarative rule engine is a more sophisticated type of business engine that can be used in an enterprise setting. It enables more complex workflows, decision automation-based BRE, and calculations to run in the background without the need for user input or involvement from business analysts.

• Hybrid rule engine

  It combines the best features of both script-based and declarative engines. The hybrid rule engine has a drag-and-drop graphical interface for ease of use, but it also supports programmatic development or coding-based BRE with version control capabilities.

• Rule-based rule engines

  This type of engine is very easy to use and can be accessed by non-technical users through no-code interfaces. The primary drawback of this type of engine is that it’s not scalable and struggles to handle complex decision logic efficiently.

• Coding-based rule engine

  This type of rules engine is good for complex logic, but it’s difficult to write and maintain code because you need programming skills to create the rules using this kind of system. However, many modern solutions offer low-code alternatives and open-source options.

Use Cases of Business Rule Engine Software

Business rule engine software is used in a variety of ways in banking:

• Fraud detection

  BREs can be used to automate fraud detection by evaluating complex rules that define what constitutes fraudulent activity. These functions help banks to identify and prevent fraudulent transactions, thereby protecting them from financial losses.

• Risk assessment

  BREs can be used to automate risk assessment by evaluating customer data and transaction history to determine the level of risk associated with a particular customer or transaction. This can help banks make informed decisions about whether to approve loans or other financial products.

• Compliance

  BREs can be used to automate compliance by ensuring that business processes are aligned with regulatory requirements. This can help banks optimize their compliance procedures and avoid fines and other penalties for non-compliance.

• Pricing

  BREs can be used to automate pricing by evaluating factors such as customer risk, product features, and market conditions to determine the appropriate price for a particular product or service. This can help banks to maximize profits and remain competitive.

• Customer service

  BREs can be used to automate customer service by providing a single point of contact for customers to interact with the bank. This can help banks improve customer satisfaction and reduce the cost of customer service.

These are just a few of the many use cases for BREs in banking. As the financial services industry continues to evolve, BREs are likely to become even more important for banks that want to remain competitive and compliant.

Top Challenges That BREs Face

• Integration

  One of the most significant challenges facing BRES is integration with other systems. Most organizations have multiple systems across which customer and process data is stored. Ensuring sync and accuracy through these systems is a significant challenge for BRES.

• Complexity

  BREs can be complex and require skilled personnel to implement, maintain, and operate them. The complexity can lead to increased costs and longer implementation times.

• Performance

  Depending on the complexity of the rules and the amount of data, performance can be a significant challenge. BREs must be able to handle large volumes of data and make decisions in real time.

• Data Quality

  The accuracy and completeness of data are critical to the success of BREs. If data quality is poor, the rules engine will produce inaccurate results, leading to incorrect decisions.

• Regulatory Compliance

  Depending on the industry, BREs must comply with various government regulations. Non-compliance can result in legal punishment and financial penalties.

How to Choose the Best Business Rules Engine Software 

Here are some considerations that should be made when implementing a business rule engine software in banking:

• The right rule engine: The chosen rule engine should be the right fit for the specific needs of the banking organization.
• The right rules: The rules that are used by the rule engine should be accurate, complete, and consistent.
• The right people: The people who develop and maintain the rule engine should be skilled and experienced.
• The right processes: The processes for developing, maintaining, and deploying the rule engine should be clear and efficient.

If these considerations are taken into account, implementing a business rule engine software can be a successful project for banks.

Book a demo today for your BRE!

FAQs About Business Rule Engine Software

• What are the benefits of a business rule engine?

  Rules engines streamline processes by automating decisions, ensuring consistency, and reducing manual intervention. They are widely used in industries, such as finance, healthcare, and e-commerce to handle tasks including fraud detection, compliance checks, and personalized recommendations.

• What is BRE in finance?

  In finance, BRE is a Business Rules Engine. It’s a software system that automates decision-making by applying predefined rules to data. These rules, which can be quite complex, are separated from the core application code, allowing for easier management and modification of business logic. Think of it as a ‘brain’ that analyzes data and makes decisions based on pre-set conditions.

• When to use a Business Rules Engine (BRE)?

  It is used to fulfill a set of rules, reducing manual data entry and automating repetitive tasks such as reporting and eligibility requirements. Companies can use a BRE for decision-making, to cut costs, improve efficiency, reduce errors, and accelerate time-to-market.

• What are the use cases of a business rule engine?

  Business rules engine use cases in the finance industry include calculating risk assessments for loan approvals, identifying potential customers for lending capital, and ensuring the business complies with all lending policies and regulations.

• Which is a core tool of the business rules engine?

  Business Rules Engine is a suite of services, components, and objects that apply advanced logic and automate complex decision-making. The engine contains three core tools: expression sets, decision matrices, and decision tables.