Global Trends That Will Affect Digital Lending And Payments In India According to a report, India will contribute 2.2 per cent to the global market of digital payments by 2023

By Krishnan Vishwanathan

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In the past decade, data and technology have been the driving forces in the lending and payments industry across the globe. The Indian market has shown a remarkable acceptance of this technology, being heralded as the pioneers of the tech-based lending and seamless payments with the strong UPI backbone. It comes now with a challenge to keep this momentum going by relentlessly improving the overall experience of the end users. According to a report, India will contribute 2.2 per cent to the global market of digital payments by 2023 and the overall value of such transactions is said to reach $12.4 trillion by 2025. As per another study by the Bank of International Settlements, the use of fintech is much higher in countries with a younger population, such as India, South Africa, and Columbia. However, this industry is still far from reaching its potential and faces certain challenges. There is a need for constant regulation and monitoring of fair lending practices. By establishing a robust digital lending structure, India will witness the growth of numerous small-scale enterprises due to hassle-free credits, and consequently, see a boost in building an economy of $5 trillion.

Here are some global trends that the subcontinent can adopt to strengthen its digital lending and payments infrastructure:

Seamless point of sale financing

As customers are increasingly adopting the culture of online shopping, point-of-sales (POS) financing is the way to go. It is a type of credit specially designed for consumers, allowing them to apply for a loan or a credit for a particular purchase. Such loans either finance the entire purchase or set an amount as the limit till which the buyer can make purchases from a specific seller. These credits can be repaid by borrowers in the form of instalments.

International companies such as Affirm and Klarna are revolutionising the space with easy financing options that are trackable and offer hassle-free customisations. Affirm, a point of sale loan provider in the US, provides large loans and facilitates payments up to 12 months with an option to reschedule charges. This revolutionary service gives customers access to a dashboard where if they're sure they're going to be late with their payment, can log into their dashboard, and reschedule the payment date at no extra cost or late fee penalty. If disrupting your credit score isn't an option then Klarna, a Swedish POS company's creative solution is a great alternative. With the introduction of a virtual credit card they call "Ghost Card' customers can simply input their card details at the time of checkout, which links to a Klarna account, giving them the option to make purchases in four easy instalments, with the first payment due at the point-of-sale.

Adoption of neobanks

It is a bank that has no physical presence, existing and operating solely through online interfaces. It includes all those financial service providers who use digital mediums to provide financial solutions and services like money transfer, lending, payments and many more. As traditional banks operate on the basis of a stringent structure, they fail to offer personalised services to consumers hailing from different segments. However, neobanks are highly flexible, customer-centric.

They leverage the scalable capabilities offered through machine learning and big data solutions to streamline decision-making. The primary reasons behind its growing popularity are quick account creation, hassle-free international transactions, investments in international equity markets, user-friendly interface, instant reporting and record keeping among others.

For example, let's look at Revolut, UK-based neobank that offers banking services including GBP and EUR bank accounts, debit cards, fee-free currency exchange, stock trading, cryptocurrency exchange and peer-to-peer payments. Its mobile app supports ATM withdrawals in 120 currencies and spending in 29 currencies directly from the app.

Use of Cryptocurrency to boost SME financing

The crypto industry is growing at a rate of 100 per cent and as indicated by recent reports, the market is worth $2 trillion. By leveraging this sector, India can bridge the gap between banking credit and SME financing. To improve the access to low-cost, risk-controlled global capital, crypto inflows via KYC certified investors—who have been approved by Indian or global exchanges—can be allowed in a controlled manner. Further, GIFT city, a controlled conduit, is one of India's preferred bridges to international markets and can be used to further the cause. For example, companies with GST-registrations can obtain funds against their issued e-invoices and other information collateral available in special accounts opened on this platform.

Peer to Peer financing

P2P lending enables loan acquisition between pool of slightly risk-averse individuals/institutions and small businesses through a seamless marketplace. The UK and the US have been pioneers in this space since 2005. In fact, the UK's industry revenue is expected to grow at a compound annual rate of 26.6 per cent to reach £305.1 million over the five years through 2020-21. On the other hand there are very few P2P lenders operating in the Indian market due to the restrictions that the central government has put in place to prevent creating any risk to the economy, profile of the borrower, bullish investor approach towards the segment etc. Considering the need of capital inflows in SMEs, India should focus on business P2P lending through regulated intermediaries.

Incorporate blockchain and smart contracts

To the online transactions ecosystem, blockchain has been lauded as a technology that will revolutionise the space. Maximising efficiency with exceptional features that include transparency, traceability and enhanced accessibility. Blockchain will be able to provide a high level of security when it comes to the exchange of money and sensitive information, allowing users to draw off its transparency while lowering operational costs and creating an environment for safe real-time transfers. India is the biggest market for remittances, with over $62 Bn sent to India from abroad in 2016. Yet, according to Foreign Exchange Management Act of 1999 (FEMA) only an authorized person/entity under the legislation may deal in foreign exchange. However, with incorporation of blockchain and smart contracts the use case of international remittance for blockchain technology will prove to be a promising proposition for the Indian market. India is the biggest market for remittances, with over $62 Bn sent to India from abroad in 2016. Blockchain currencies such as XRP, Ethereum, Bitcoin etc. can transform India's cross border payments business and offer real benefits to customers, banks and regulators. However this will all be subject to adequate trust, credibility and regulatory acceptance. More importantly, these transactions will also have to meet the AML and KYC standards, to ensure genuine transactions.
Krishnan Vishwanathan

CEO & Founder, Kissht

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