OCEN: Open Credit Enablement Network

You must be wondering what India Stack is by looking at the image. India stack is a stack of open-source protocols that private companies can use to benefit Indian consumers. You can see the image which represents how different layers of protocols are created which can be used by any company to use in their business.

As you know that we are brewing financialization ahead, it all started in 2013 when Nandan Nilekani came out with his brainchild, the Aadhar system. We all at the time of starting didn't know that it would play out to be very big but it turned out to be even better than our expectations.

Nowhere in the world except India, we can do e-signs such as signing a legal document which can be accepted anywhere is possible through the cloud. For example, if you are signing your rental agreement which has been sent to you by your landlord, you can sign it with the help of Aadhar validation and once it is validated the sign is also considered validated.

I don't need to explain the payment method of UPI, we all know it is such a huge success wherein with the help of QR codes we all can make payments.

We all have UPI, IMPS, NEFT and even RTGS. Then where will OCEN come into play?

Over quite a few years banks are trying to find a solution for lending, wherein in the traditional lending scenario, the banks or the NBFCs can give you loans on your collateral or based on credit history. But what about those who have not taken loans or consumers who don't have collateral to provide?

This is where India stack came up with the solution of democratising the whole lending sector economy because what used to happen is that the banks provided loans to safe consumers or businesses while the MSMEs not having collateral or a credit history used to get loans at a higher rate of interest and some MSMEs didn't even get the loans. It is estimated that around 300 bn dollars worth of lending is missed because of all these things.

What OCEN is trying to do is that in a similar fashion to ONDC it will be having multiple layers.

• LSP (loan service providers)
• Account Aggregators
• Lenders
• Consumers

Setting the table

Traditionally lenders used to send their agents who would do all the work and acquire customers, do KYC, and bring different information from the consumers and provide it to the companies.

Here the scenario is going to change, just imagine Zomato or Swiggy which are the 2 largest food delivery and food review platforms, they become a Loan Service Providers. Both Swiggy and Zomato can provide loans to restaurants for the restaurants to expand or function on daily basis.

How can this be possible? Right?

Assume that Zomato ties up with Bajaj Finance or any other NBFC or even a bank, anyone can come into the picture. What the banks use to do it is they needed certain information or collateral to give loans, here the restaurants are already in Zomato and have done KYC, and Zomato also has certain kinds of data such as regular orders dispatched through Zomato and other stuff which might be useful for banks for assessment.

Now the account aggregator comes into the picture wherein his job is to bring information from various sources such as KYC details, UPI transaction details as well as other details provided by Zomato or Swiggy in a format that the bank requires to assess the information whether to give credit or not.

Now lenders will be easily able to provide more lending and come up with customised solutions to provide it to the person taking the loan as well as all this process reduces the cost of customer acquisition.

If you are just sticking to the restaurant business because I gave you an example and are not able to imagine a use case beyond that, you might be thinking about how a normal consumer can benefit.

Just Imagine that Byjus or Vedantu or some edutech company becomes a loan service provider. Byjus would be having the data that how their student is performing, whether it has a good prospect of getting a job or even starting a business, and whether the student is performing well or badly. Byjus will be having all this data and even might predict based on a few metrics.

Let us assume that Byjus ties up with all the banks and NBFC, and enables student loan facilities for its students. Here the account aggregator would again bring all the information needed for the bank and the bank might be able to come up with a customised solution which can be used by the student to take loan and even the student can select, which offer he/she wants to take.

How does it solve the problem as many layers are added? Won't it be more complicated?

First, you need to understand that OCEN is an open API, such as how the companies can use the open API of the UPI system, in the same manner, different companies such as HDFC Bank, Bajaj Finance, Big Basket, Zomato and name any company which you want. All these companies have their own APIs and if OCEN as an open API was not there it would have been very difficult for these companies to integrate as for every integration, they would require different API in some or the other form.

Since it is a single API, anybody can use this protocol and use it to collaborate with lenders or LSPs and provide services.

Now coming to the question as to what is the benefit to the various parties associated with the OCEN Network.

For Lenders

• As the lenders are enrolling on the protocol, they have access to the vast majority of pools of customers of different domains gathered by the LSPs.
• Customised offers can be made according to the consumer which earlier would have been difficult because of higher customer cost acquisition.
• Better monitoring of the consumer, because the consumer is sharing certain more data through the LSPs if any red flags can be monitored easily and steps can be taken to reduce NPAs

For Borrowers

• Easy access to credit based on the past history of their usage of apps, not being relied on past credit score only or collateral to get loans.
• Lower interest rate probably because of reduced customer acquisition cost.
• Tailor-made offers by banks or other lending institutions.
• More transactional data being captured and not just credit card or loan data which might give better access to credit facilities of various products which was not available earlier.

For Loan Sevice Provider apps

• They might be able to have one more revenue stream from what they are currently earning depending on the collaboration by the LSPs.
• More revenue out of the same consumer which would improve their margins.

Just to summarize

Originations - LSP

KYC - eKYC, PAN, Account Aggregator

Underwriting - LSP, Account Aggregator

Documentation - eSIGN

Collections - LSP, eNACH, credit card, UPI e-mandate

Monitoring - Account Aggregator

Disbursals - NEFT, IMPS, RTGS, UPI

Conclusion

I have just imagined the use case right now, I don't know what all better things can come, maybe as time passes even I will be able to understand the use cases better, as this thing is coming up which is new, similarly, we were just speculating during the time of UPI and now we can see the wonders it is making. We might just see the same in OCEN.