Fintech: Leading The Change in Lending

May 01, 2020

With technology being a major disruptor, the banking sector in India has seen a paradigm shift. Right from creating a bank account to applying for loans, digital banking has allowed people to do everything without ever having to step inside a traditional, brick-and-mortar bank.

The rise of e-commerce has influenced more people to opt for digital payment services, with over 2 billion people buying goods and services online. The main reason for this is the ease of transaction and convenience. While COD remains an option, over 40% Indian shoppers prefer paying through digital wallets and credit/debit cards online.

With the ability to make hassle-free transactions at any place and time, users across India can now lend, save and invest over their smartphones or computers. This means a person residing in even the remotest corner of the country is given the opportunity to avail banking services.

Changing Attitude Towards Loans

Traditionally, there was an aversion to debt, but young Indians are not opposed to borrowing, with more than 50% millennials opting for credit cards or loans compared to 14% non-millennials. What’s surprising is that credit card penetration has grown faster in non-metro cities at 12% compared to 4% in metro cities.

This change in attitude has disrupted the business of lending, opening avenues for companies in the domain of credit. Today, a person in need of a loan, can simply apply from a website. The convenience offered by financial technology has accelerated India’s transformation to a cashless society with platforms like Unified Payments Interface (UPI) now allowing billion transactions per month.

This transition is also being witnessed by the INR 3 lakh crore gold jewellery business where earlier gold lending largely stayed away from digital transactions and preferred dealing in cash.

Lending Goes Digital

Demand for small-scale credit has been assessed at INR 150,000 crore per annum, but the credit disbursed till now stands at just INR 8,000 crore. As per World Bank data, less than 10% of Indians have access to formal credit.

However, digital lending stands to disrupt this realm of financial services. Applying for a loan earlier translated to lengthy, time-consuming applications and paperwork along with added stress. The new, digital lending is completely paperless, fast, transparent and provides a lot of affordable borrowing options on the loan.

Quick and easy electronic KYC helps verify the critical information of the application, including details such as financial history, bank accounts, address and more, thus playing a significant role in making e-loans a seamless experience. There is minimum or documentation required, where earlier one needed to submit passbooks, proof of income statements etc. The loan is approved as soon as the details have been verified.
While there has been much effort to alleviate financial exclusion, India still has a long way to go before it achieves its target.

Digital Inclusivity: The Need of The Hour

A large percentage of people in India have little or no access to formal sources of credit.
Even though India has made significant efforts over the last decade to provide basic financial service facilities to select segments, barriers like lack of financial literacy, irregular incomes, and remoteness prevent many sections of the population to participate in the digital finance landscape.

Fintech: The Next Frontier!

Fintech is changing the game for India’s payment landscape, offering interoperability across bank and non-bank providers. In fact, in the last few years, payments made via digital interfaces have already surpassed those made via debit or credit cards. Innovative interfaces are creating a scalable architecture for payments across the organized and unorganized sectors, including some of the most traditional businesses like gold lending. With this kind of digital innovation, it’s not surprising that the world is watching India’s fintech sector closely.