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How Technology In Lending Has Made People More Secure In 2021 Today, all you need to do is install an app, and start transacting on your smartphone, be it a fund transfer, bill payment, shopping, or opting for a personal loan

By Bala Parathasarathy

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Digital innovations seem to be replacing the traditional banking setup in a storm. A few years ago, one had to take time off from the office to manage banking tasks such as passbook updating, money deposits or withdrawal, cheque encashment, and more. What was more challenging back then was the wait in long queues in reaching the counter and finally initiating the formalities, starting with long forms.

Fast-forward to today, and all you need to do is install an app, and start transacting on your smartphone, be it a fund transfer, bill payment, shopping, or opting for a personal loan; everything can be done at your fingertips without having to enter a bank.

The power of digital

Over the years, technological interventions have been powered by a rapid digitalization wave across various banking verticals. This has given birth to an all-new domain called financial technology, also known as fintech. Players in this space intended to transform the traditional lending processes, which for ages has remained extensive, time-consuming and complicated.

Thanks to tech innovators and experts who have significantly simplified the banking process, by making it paperless and much faster than what it was a few years ago. For instance, digital lending has emerged as one of the best ways for consumers to get access to small- to mid-sized loans and meet their day-to-day aspirations as well as any emergency expenses that might crop up. Let's see how.

Seamless access

Today, a consumer can simply register on an online lending platform using a smartphone, fill the loan application and upload all the relevant documents, within a few minutes. Whereas traditional banks take a minimum of four to eight business days for the same. Depending on the type of loan, the amount they are borrowing, especially if it's a large size loan, the chances are that the wait times can be longer. For example: house loans fall under this category.

Moreover, digital lending platforms incur lower operating costs compared to conventional financial players, mainly because their operations are largely driven by automated technologies, remote teams and digital processes. These advancements also help digital lenders expand their reach to wider geography, thus catering to people hailing from even smaller tier II and tier III cities as well, and driving financial inclusion across India in a more seamless manner.

Digital paperwork

Traditional players take a lot of time to assess the creditworthiness of a borrower. This is primarily because a printed file has to be transferred from one table to another. However, digital lenders perform this function in a few minutes, using predictive algorithms. These tools help them obtain useful insights about the borrower and identify whether or not they will be able to repay the loan.

What has added more efficiency to the system is the introduction of the e-KYC, which has dramatically reduced the turnaround time for processing loan applications by digitalizing the entire verification process. If you remember, previously bank representatives had to manually visit your location for completing the KYC requirements. Today, if you seek a collateral-free loan, all you need to do is submit your Aadhaar, PAN information, and income proof to the lender, instead of making a friend or family member your guarantor for loan approval.

Flexibility like never before

Today's digital lenders offer a credit line of up to INR 5 lakh, which can be repaid in a flexible tenure of up to 36 months. The best part about this credit solution is that one can get the loan approved in advance, and use it later as per the need, unlike traditional loans that need to be consumed and paid back, once approved. Besides, you don't have to use the entire loan amount once taken and pay interest only on the used amount. For instance, if you take a small-ticket loan of INR 50,000 and use only INR 30,000 then you have to pay interest on INR 30,000, not on the entire INR 50,000, unlike traditional lenders who charge interest on the full amount.

When speaking of repayment, digital lending platforms send reminder notifications to help ensure timely payments and prevent late fee charges or penalties. Additionally, borrowers can also choose to pay through multiple payment routes according to their convenience, be it UPI, net banking, or any other method. Traditional banks, on the other hand, have limited repayment options.

Technology has enabled easier repayment models to be set up. The only mechanism earlier was when the person had to go to the branches to pay or pay to the branch agents when the bank sent agents to collect. Collection agents today can send you links on messages instead of coming to your house to get you to pay with the click of a button. Now they can pay on the app, or on bill-paying utility payment platforms associated with Bharat Pay. Earlier customers had to set up a mandate by filling in a NACH form which the bank would process to set up an automatic flow of cash. Now e-mandates do the job - with two clicks, customers can set up the mechanism directly where the auto-debit happens from their bank account instantly.

Robust security

Privacy is quickly becoming an important issue for the middle-income Indian consumers. Even a year ago, the notion of privacy was an esoteric preoccupation for a few people who were techno savvy, and who were already very comfortable in using apps for all their needs, but there are a lot of people out there, who are still getting used to this wave of digital and have a lot to lose if their data was compromised. Leading digital lenders only work with reputed banks and NBFCs, and invest in advanced technologies to ensure strong security to customers. They make sure that a borrower undergoes a lot of bureau checks before the loan is approved. This helps the lender make quick decisions on whether to approve the loan or not and prevent fraud in the process. Digital lenders store customer records using cloud technology and leverage these insights with customers' permission only. They strictly follow government guidelines and keep customer safety and privacy at the forefront of their operations.

Final word

As we move towards greater digitalization, digital lenders will continue to experiment with new technologies to make lending easier and seamless for consumers and keep rolling out more innovative solutions to transform the lending ecosystem. Buy-now-pay-later (BNPL) is a great example of such innovations introduced by the fintech players, enabling consumers to shop without worrying about whether they have money in their pockets, and quickly converting their bills into easily-repayable EMIs to keep their financial burden at bay. Although the adoption of these solutions will take a while, the future is going to be digital, slowly but surely.

Bala Parathasarathy

CEO and Co-Founder, MoneyTap


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