How Technology And Fintechs Are Changing the Landscape of Lending In India
The fintech digital lending startups are doing what no other traditional financer does-bring credit facilities right to where the user is
Digital lending is booming in India. With a significant rise in new users’ on-boarding digital platforms, there has also been a rise in businesses supporting digital lending ultimately changing the very landscape of lending in India.
The USP of digital lending
The fintech digital lending startups are doing what no other traditional financer does—these digital lending platforms bring credit facilities right to where the user is, on his mobile or smartphone. By coming up to the customer, these startups are also solving the credit access issues and the delivery conundrum. This focus on credit seekers is in keeping with the various initiatives taken by the government for driving greater financial inclusion of people on the credit-fringes of society. This people-focus driven approach has also brought to light the challenges they face while trying to obtain finance.
Technology is changing the credit landscape of the country
Digitalization and technological interventions have helped establish an alternative credit ecosystem in the country by facilitating the creation of fintechs—a new form of service providers in the credit and lending business. Technology has made possible the emergence of instant digital lending system which consumers can access on their smartphones, without having to enter a bank. With millions of Internet users in the country, digital lending has given access to affordable credit opportunities to a large segment of the country’s population. There are many ways in which technology is enabling and facilitating this revolution.
The basis of most fintech platforms is the unique combination of advancements in technology and emergence of innovative business models. The financial industry itself has significantly evolved due to infrastructural developments technological advancements. Fintech companies have benefitted from the agility, flexibility, modularity, scalability, security and cost-optimization offered by cloud technology. These technologies in finance are reducing the lines of distinction between the old and new-age lending process, thereby easing the lending and borrowing processes, evaluating risk more precisely and enhancing user experience.
Digitalization allows consumers to register on an online lending platform from their smartphones, fill a loan application, and upload the necessary documents all in a few minutes, unlike traditional banks which take a minimum of seven working days to process and approve loans. Digital credit lending apps on the other hand, approve customers for a loan in a matter of minutes. As their processes are largely driven by automated technologies, online lending platforms also have substantially lower operating costs compared with banks and NBFCs. The fintechs are able to expand their reach faster across geographies and segments that too at a fraction of the cost incurred by brick-and-mortar establishments. Thus, they can channelize such costs of expansion cost towards higher investments in technology and facilitate lower interest rates and processing fees for borrowers.
Artificial intelligence/machine learning (AI/ML)
AI/ML-based systems can be designed to consume data and predict consumer credit worthiness and risk involved for lending. These are self-learning systems which keep updating their algorithms to become more robust and risk free over time. The evolution of AI to include technologies and sophisticated machine learning that can analyze immense volumes of unstructured data and make sense of them, creates an unprecedented opportunity to deliver the same benefits to the credit market that has been achieved in the consumer markets. AI technologies have the power to unlock debt every year that currently doesn’t get to creditworthy SMEs just because the cost and time involved in underwriting these loans is too high. Gradually most of the financial organizations would move towards such AI/ML systems for risk-free lending.
Use of 4G/5G
The Indian payments landscape has evolved rapidly over the past few years, driven by an increase in the number of digitally initiated consumers, rising personal consumption expenditure, increase in usage of digital payments, urbanization and improvement in technology and mobile data usage. All this together builds up the case for adoption and growth of credit seeking via fintechs.
The digital lending market is growing at a fast pace, but the demand forecasts are proving to be a big challenge for the lenders. They say the bigger the challenge, the bigger the opportunity. Lending is a huge opportunity and has seen significant signs of disruptive innovations. Of course, there are exciting times ahead for the lending industry and technology will again be the great enabler and creator of a level playing field for many.