By Karthikeyan Krishnaswamy, CTO, KreditBee
India’s lending industry is transforming rapidly due to digitization, the complex and tedious loan application processes of yesteryear being upgraded to deliver a faster, safer and more seamless borrowing experience to meet expectations changing customers. Traditional financial institutions like banks and new-age fintech players are riding the wave of digitalization to deliver attractive, low-cost digital lending solutions.
The digitalization of traditional lending predates the Covid-19 pandemic, which increased the preference for digital lending over in-person interactions among borrowers due to hygiene, convenience and peace of mind . The post-pandemic world will see greater demand for credit online.
At the heart of this digital lending boom is technology, which is playing a central role in revolutionizing the Indian credit ecosystem by creating alternative lending channels that offer significant benefits to both lenders and borrowers. Lenders enjoy the benefits of lower operating costs, better risk assessment, access to new markets, revenue growth, better customer experience and increased customer loyalty. customer base. Borrowers can enjoy near instant credit with reduced paperwork.
But the most important benefit of digital lending is to help traditionally unserved and underserved customer segments access affordable credit.
The digital loan: Promoter of financial inclusion
Individuals in the formal financial ecosystem benefit from existing credit histories, but those without adequate credit history find it difficult to obtain low-cost credit. From first-time borrowers like millennials and millennials to borrowers from low-income backgrounds and / or unbanked / underbanked areas, accessing finance is a major challenge. For MSMEs and entrepreneurs with insufficient collateral and a lack of documentation, obtaining formal loans becomes a painful experience and a hindrance to their growth. Conventional lending channels require formal documents such as credit score, bank statements, tax returns for credit risk assessment and loan disbursement. In the absence of documentation, they either offer loans at very high interest rates or require adequate collateral, putting start-ups at a disadvantage. To serve these clients, lenders must go beyond standard documentation and consider their digital footprints.
Technology: a game-changer in digital lending
Technology can help overcome these challenges and level the playing field for micro-borrowers – individuals and MSMEs. Digital lending creates seamless customer onboarding and credit disbursement processes with technology-enabled platforms and mobile devices that can replace physical interactions with remote loan applications.
With AI / ML models, big data analysis, lenders can study online behavior patterns and other digital data of potential borrowers for a more comprehensive risk assessment. This helps lenders reduce the risk of their loan portfolio and reduce APNs. Even traditionally risk-averse lenders have either started building their own digital lending platforms or partnering with fintech players to roll out the best services.
While embracing digitization, lenders need to understand that digital lending is more than just the credit application process. This involves digitizing the entire end-to-end process – from loan application to subscription, disbursement and repayment.
Various technological services help automate the processes, making them safer and more efficient. Video KYC facilitates a low-cost, paperless solution for remote customer onboarding – essential for a future where more and more customers prefer contactless services. e-Sign can further assist lenders in acquiring clients’ signatures on critical documents in a completely contactless manner via digital platforms / applications.
Mature technologies such as face matching, liveliness detection, and more, are helping to improve fraud detection and borrower authentication, making digital KYC verification processes more robust. Optical Character Recognition (OCR) technology helps APIs to scan and read identity documents like Aadhar, PAN card and extract data digitally, reducing the likelihood of human error and saving time. Continued attention is needed to improve these technologies with improved models to increase the accuracy and speed of the processes. Additionally, smart investments in emerging voice technologies such as call center automation can help lenders reap dividends down the road by ensuring greater customer satisfaction and retention.
eNACH (Electronic National Automated Clearing House), a system introduced by the NPCI, helps lenders automatically receive recurring payments from borrowers, faster and without the need for paperwork or manual intervention. This digitizes loan repayment processes and further reduces operational costs. New Era Digitap.ai entities are leveraging AI and ML technologies to deliver these services and create better lending infrastructure.
Geography is becoming less of a barrier, as borrowers can have capital at their fingertips, from the comfort of their own homes, without arduous paperwork, long waiting hours and uncertainties.
While loan digitization is unfolding at an unprecedented rate, we’ve barely scratched the surface. Technologies like Blockchain, better AI / ML models, and cloud infrastructure can help FIs unlock limitless possibilities. For example, lenders can harness the power of blockchain to create a decentralized P2P lending ecosystem where they can interact directly with borrowers without the need for an intermediary. Blockchain can help create a more robust borrower risk profile and fraud detection mechanism, and reduce reliance on physical documentation by effectively digitizing record keeping. By embracing blockchain marketing, lenders can reduce ad fraud and deliver better targeted ads to the right customers. Result? More trust and transparency, better loan compliance, better risk management, lower APM risk, reduced marketing spend, and improved customer experience.
With the adoption of technology, legacy financial institutions and fintech players can create a truly future-ready lending model that strengthens India’s digital economy and promotes financial inclusion.
If you have an interesting article / experience / case study to share, please contact us at [email protected]