Innovation In Fintech Holds the Key To a Financially Inclusive India The lending sector has seen a dramatic rise in technology adoption during the pandemic

By Ankit Satsangi

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Financial technology services or the more widely used nomenclature, "fintech' started as a buzzword not too long ago and today India is home to more than 1,500 fintech startups. The government of India's push towards a more digitized economy, the unique nature of the market and the regulatory approach has helped in providing impetus to the fintech ecosystem in India.

The lending sector has seen a dramatic rise in technology adoption during the pandemic. The aim of many digital lenders now is to cater to the traditionally underserved market by formal finance which includes, but is not limited to, rural merchants, women entrepreneurs and gig economy workers. Financial services from banks have not been easily accessible to these groups as traditional monetary products do not match their needs or are just not made available to them.

Challenges and opportunities

Digital lenders are well-positioned to tackle the various challenges faced by customers by offering credit products based on the needs of borrowers from the underserved segment as opposed to the traditional offerings which are complex and involve time-consuming documentation processes.

Financial inclusion driven by underwriting: The technology-first approach of new-age lenders is overturning the traditional lending system by steering innovation in both product and processes. The use of data analytics and decision sciences has enabled digital lenders to go beyond the traditional method of using "credit score' to assess the borrowing capacity of their customers. These technologies along with the ability to evaluate unconventional data points have helped serve "new to credit' segment hitherto underserved by the formal credit system.

Effectiveness of new-age tech: In a country like India where a majority of the population does not have a credit record, it becomes imperative for new-age lenders to embrace non-traditional methods to assess the credit risk of their customers. It may be applied to helping customers build credit profiles with small ticket loans. Use of alternate data (digital transactions, purchase patterns on e-commerce) have helped in streamlining various processes to further reduce costs, provide greater access to credit while embracing sophisticated risk management solutions. These innovations have tremendously improved downstream lending exercises such as collections management and loan resolution, among others.

Co-origination and partnerships

Co-origination models have become more prominent for fintech companies to facilitate easy and instant access to finance to borrowers. This model allows digital lenders and traditional banks to combine their strengths and share the risk associated with providing credit to their customers. It helps them serve priority lending segments and add new borrower profiles to the customer base without increasing risk.

By collaborating with traditional financial institutions, fintech players can provide instant, collateral-free loans using their data-led underwriting models that help cater to the individualistic needs of a borrower. Addressing specific customer needs requires data-based analysis of customer economics and personas with a focus on tracking credit utilization to develop hyper-personalized service and product offerings. An example of such offerings is the "buy now pay later' option on e-commerce sites that provide instant zero cost/low-cost EMI options during checkout along with features such as auto-repayments, tracking EMI history and pending dues. The "buy now pay later' option has become very popular among salaried and self-employed individuals and provides customers alternate ways to access credit with a greater level of control.

In-app comprehensive services that go beyond credit may be integrated, like personal finance management to budget, save, track expenses, buying insurance. Features linked to essential services consumption may also be added.

The way forward

The fintech sector has demonstrated the ability to adapt to economic challenges and innovate at the same time. It can evolve quickly and diversify as needed. Fintech companies have helped launch digital products that can reach the last mile and are responsible for creating an alternate credit ecosystem in the country by facilitating loans to deserving individuals who are otherwise overlooked. Fintech companies will play a pivotal role in reducing the impact of the pandemic on the already marginalized and underserved section of the market while aiding the country's pursuit of holistic financial inclusion in the coming years.

Ankit Satsangi

CRO, Capital Float

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