Are Digital Platforms Transforming Lending Decisions?
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The effects of technology and the disruptions technology make, manifests itself in clearly perceivable ways. This is very evident in many sectors - in a short span (just eighteen months after its release) Google Maps had knocked out GPS navigation device makers and Amazon and Taobao (Alibaba) have disrupted how consumers shop for goods by moving them to online from offline (O2O). Enterprises are worried about being Uber-ed or Airbnb-ed as new age companies are challenging traditional ways of doing business.
Banking and Lending space have also gone through an amazing level of rapid innovation and disruption starting at the turn on the new millennium. Traditional banking monoliths can no longer feel impervious as they were protected by a myriad of government regulations which used to make it hard for fintech start-ups. Fintech start-ups don’t have to deal with the large legacy systems that drag down big banks and are nimbler and more suited to adapt to global trends and changing regulations. Internet only online banks with meagre to no brick and mortar branch presence have come up and have shaken up the large banks by offering better interest rates for deposits and borrowing than traditional banks. As an added benefit with the ubiquity of eKYC systems and adoption by fintech industry, accounts can now be opened in a matter of minutes and can be ready to transact than days and after an insane amount of paperwork that needed to be filled in earlier days.
There is a snowball effect going on and these innovations are driving further innovations in the fintech space. Fintech industry has accepted new technology trends like blockchain and cryptocurrencies and are coming with novel products that are working on a global trust/digital id of the customer, more secure, easily auditable and blurring geographic boundaries with ease of international transactions.
Key trends in banking and lending space
Marketplaces acting as matchmakers for Peer to Peer (P2P) lending, lending entities to the customer (B2C) and Lending entities to small and medium enterprises (B2 MSME) lending have gained traction. Lenders and borrowers can lend and borrow amounts as little as 5$ and for tenures as short as a week.
Birth of new lending products offering a plethora of combinations with respect to tenure, interest rates, loan amounts, EMI flexibility are helping the customers pick and choose the best product as per their need while not worrying about pre-payment or be locked in for tenures longer than what they really need. Interests can be calculated on a daily and in some cases even every second! so that the customer is charged only for the exact duration that he has borrowed the money or made a deposit for.
Novel lending products are being surfaced by innovators in spaces like education loans, health emergencies, travel loans, auto loans, buying electronic gadgets on eCommerce stores, subprime customers, millennials and microlending for underbanked segments thus helping customers who hitherto didn’t have much options before.
Innovations in risk assessment of customers - Social data is becoming more and more relevant as the new age lending entities process and evaluate the risks based on the digital footprint left by the customer. Innovations are made for a global trust id that will help evaluate the risk profile of a customer not just limited to a certain country or geography but with global customer presence in mind.
Social data, AI, machine learning and big data technologies have become the enablers in disrupting the consumer lending industry globally and changing the way credit risk is assessed along with other novel technologies.
e-KYC has become the norm, even in India with the spread of PAN and Aadhar, businesses are now able to verify the customer in a matter of few minutes. This has helped in providing services to the customer in a faster manner as the underwriting time has decreased. Banking services are now available anytime and anywhere for customers.
Fintech lending is going through interesting times and churning out innovative products that are helping the customers as well as opening novel avenues for doing business. Big banks and governments have taken notice and are also trying to evolve to adapt to the new landscape. Fintech firms have tailwinds going for them as they are much better positioned to respond to business and regulatory changes in a faster manner.