P2P Lending And Uberization Of Financial Services In India
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We live in a world today, where from booking a holiday, cab, flight, movie tickets to ordering food or even catching up on the latest news -- all are enabled by the smart phones we carry.
As technology is advancing, so is consumer demand for simplified, tech-enabled services across industries. The emergence of fintech or financial technology in the consumer-banking space is pushing banks to update themselves and adopt a more consumer-centric and technology-based approach.
Banks Catching Up With Technology
Banking has been one sector that has been categorized by its low level of differentiation and engagement. It is also an industry that has been the slowest to change and evolve with the times, often leaving consumers exasperated by the complexity of the banking process. On the other hand, the advent of new technologies, evolving expectations of customers, emerging business models and stricter regulations are making banks constantly play catch up with technology in a rapidly changing world.
Fintech Sectors Adopting Uber Model
Let's look at the example of Uber, a company which in a period of six years has become synonymous with disruption. What Uber has done for the transportation sector, fintech companies are doing for the banking and financial sector.
Uber envisions playing a much larger role in the market than as a mere service provider. Unlike most brands, its focus has been on understanding its users and creating solutions that fulfill greater functional needs so that its service becomes the default behaviour of the customer.
'Uber Possible Because Of Smartphones'
Uber couldn't have been possible 10 years ago as it needs a large population of smartphone users along with GPS and robust mapping facility. Therefore, today anyone can put his or her car on hire and earn extra revenues while it is not being used, thereby, surpassing the monopoly of established taxi operators.
Digitization Ensures Access To Financial Data
Similarly, today the barriers in lending money have been broken as the most important aspect of lending is the availability and access to financial data. With the digitization of data, practically anyone can access each other's financial and credit data at negligible costs. This enables totally new business model just like Uber, where individuals can lend money to each other, thereby removing financial institutions from the process.
Government Understands Need Of Fintech In Banking Sector
The Indian financial sector hasn't remained untouched by this sweeping trend of digital disruption as the growth of the fintech sector has intensified. As the adoption of fintech products by consumers has been unexpectedly quick, big banks are also gearing up to the meet the needs of a customer expecting a slick, new digital financial sector.
The government too has gained cognizance of the large-scale implications of financial technology on consumer banking, financial inclusion and evenits vision of a digital India. The government, playing an arbitrary role between fintech companies and banks, is pushing for a more collaborative financial ecosystemwith the old and the new.
P2P's Impact On Financial Market
Peer-to-peer (P2P) lending is the most revolutionary of all fintech disruptions in recent times. P2P lending platforms connect individuals looking to borrow with those willing to lend. Formerly a space dominated by unorganized money-lenders, banks and NBFCs, this age-old business model has now made a shift online with P2P lending platforms. With tech-enabled processes, they have been able to cut down on intermediary costs, thus enabling borrowers to enjoy lower interest rates and lenders to make higher returns. As a result, it is finding great traction with Indian consumers. YTD loan disbursals through Faircent increased from just about INR 2 crores in February last year to INR 14+ crores same time this year.
P2P lending is expected to have an indelible impacton the Indian financial market. As per research, Globally, P2P lending space is growing at a CAGR of 48 per cent and is expected to reach $800+ billion by 2024. Similar potential lies within the Indian market, which is expected to grow up to $5+ billion in the next 4-5 years. The possibilities are endless. As long as P2P lending platforms continue to innovate and maintain their lending standards, and regularly upgrade technology, the democratization and uberization of lending shall continue.