Everything You Need To Know About The Digital Lending Ecosystem
Digital transformation has been accelerating across the global financial services industry and it has finally reached the Indian lending landscape also. Consumers are getting more and more used to digital platforms for accessing financial services. Service providers such as banks, insurance companies, NBFCs and fintech platforms are rapidly transforming to be competitive. Globally, the Digital Lending Market is expected to grow at a CAGR of approximately 11.9% in the next 5 years. In India, Digital Lending has already seen a steady rise over the last few years and it will scale up significantly and sustainably with proper regulations in place.?
What exactly is Digital Lending?
In simple words, it is a process of availing credit online.?This practice of lending using web or mobile applications for authentication and credit assessment makes it easier for consumers and service providers thereby saving time and improving productivity. Smartphone penetration, demonetization, scaling of Aadhar, and introduction of digital tech stack like UPI have all contributed to the rise of digital lending. The COVID-19 pandemic forced service providers to innovate and offer services remotely and using technology adding on to the growth in usage of digital platforms for lending.
Lenders have been implementing the new digital strategy at a fast pace and the RBI has provided incentives - both these trends in the digital lending space are creating a great future for digital finance in India. RBI has also introduced an Account Aggregator framework as a major catalyst in the Indian financial system.
What exactly are the reasons for this impetus?
How financial lending can be good for the economy?
Digital lending is a powerful tool that can be used for financial inclusion. Financial inclusion is one of the primary goals of the Government of India.?Indian household debt stood at only 11% in 2017-2018 compared to 49% in China and 78% in the USA showing a large potential for digital lending in India. At many place in India, it is hard to find a bank for hundreds of kilometres. Availing?credit cards?or?personal loan?offerings is unthinkable at such places. For small and medium-sized businesses, quick and cheaper access to funds is crucial for survival. Digital lending is playing an important role in plugging these gaps. It reduces the need for any physical visits to a bank. In rural areas, it could mean a saving of many hours to travel to a bank.?
With the new digital processes, the turnaround time is far less compared to traditional loan disbursal which can take weeks for approval. Another important outcome is a big boost in employment which is highly beneficial for the Indian economy. Overall, it opens up a whole new world of opportunities and possibilities for our population, especially for the young generation.
The reasons for it to emerge as a potent force
Fintech companies in India have a massive opportunity to scale up and meet the growing demand of the ever-changing consumer demands. While doing so, they need to be agile and cost-conscious as well and not just implement technology for the sake of using new technology. Many innovative products from new fintech start-ups are surmounting geographical constraints, diminishing transaction costs, and boosting transparency. New-age digital technologies like AI and ML are being used to improve the customer service and reduce time to complete transactions while making the whole experience highly personalized. Government has introduced many measures to stimulate the ‘Digital India’ initiative and the Reserve Bank of India has been endorsing regulations for new technology and processes so as to ensure the growth of the sector remains unhampered.
With fierce competition in this space, let us see what are the distinct trends among Fintech companies, in India:?
Innovation in Payments Ecosystem
UPI has by far been a game-changer in the payment ecosystem in India. ‘Buy Now Pay Later’ and voice-enabled payment methods are some new innovations. There are many apps that make it easier to get EMI-based payment options.
Vernacular Content
English and Hindi are the official languages in India for most content, but the country is home to hundreds of other languages which have a huge reach. Fintech companies are broadening their reach by supporting content in key vernacular languages.
Regulatory Technology (RegTech)
RegTech companies are developing compliance technology to lower risk of fraud, simplify regulatory compliance processes, improve authentication and identity management. Financial institutions can reduce costs related to compliance and improve predictive analytics to manage risk better.
Growing adoption of Artificial Intelligence (AI) & Machine Learning (ML)
Fintech companies have increased investments in AI/ML to decode behavioural patterns, improve customer experience and provide personalized services. Advanced analytics and Natural Language Processing (NLP) has the ability to investigate, scrutinize and evaluate large volumes of unstructured date.
Gamification
With heated competition, fintech companies need to find new ways to engage customers so they keep coming back thereby reducing overall cost of customer acquisition. New strategies like leader boards, in-app purchases, scratch cards, quick rewards, referral bonuses and many other options are being used to keep users excited and connected to the brands.
It is quite evident that digital lending is here to stay and accelerate adoption. Competition will continue to foster innovation but the ultimate winners will be the customers. India is in a unique place where new fintech start-ups, traditional financial institutions and policymakers are all collaborating to chart a new path. The groundwork being placed will serve the needs of Indian consumers for many decades to come and provide sustained growth in the sector.?
To make the most of it, Writer Information provides digital technology for an end-to-end digital experience to enable our Banking and Financial Services (B&FS) clients. Our clients can boost process automation, expand cost to income ratios and offer better scalability and flexibility in banking operations. The digital capability platform (BPaaS) is a modular approach to manage any retail asset process and will have the below modules:
This is a fairly customizable platform and comes in with inbuilt real-time dashboards, MIS and Analytics. To know more about how we can bring in a difference in digital lending, do check out our BPaaS capability on our Writer Information website.