The pandemic changed everything – how we work, meet, shop. So, it’s not surprising that it is radically changing how we borrow money too. As per a report by the Reserve Bank of India, over 6% of all loans given by commercial banks in April-December 2020 were digital, a healthy increase from less than 1.5% in 2016-17. While enforced social distancing galvanized the digital lending sector, even after the pandemic, most experts believe growth will only continue. The market that is predominantly characterized by FinTech startups and non-banking financial companies (NBFCs), is expected to grow anywhere between US $ 350 – 820 billion by 2023 and become the New Normal.
In fact, digital for long has been seen as means to deliver banking services to the unbanked and fulfil India’s unmet credit needs. The past couple of years only heightened this. More than 2,000 FinTech startups1 have spawned innovative practices, agile platforms and winning collaborations with traditional banks to cast the financial net wider. During the pandemic, the demand for a coordinated effort especially gained relevance as the co-lending concept promotes a healthy financial environment by providing high systemic stability and rigorous governance levels. In 2022, this combined effort between FinTechs and traditional financial organizations will only get stronger, with an emphasis on delivering customer-centricity and excellent value, democratizing essential financial services and reaching out to the remotest parts of the country.
There is also an urgent need to drive a wider push for affordable credit. For example, did you know that a sizable section of the adult population – born between 1981-1996 and whom we refer to as millennials – don’t use credit cards regularly. The country's more than 400 million millennials, accounting for a third of India's population and 46% of its workforce2 are new to credit. Since they are just starting out in their careers, their low salaries and poor credit scores don’t make them a very lucrative segment for credit card companies in the first place. This coupled with the rise of the digital economy that has made it very easy to Buy Now, Pay Later has led to low penetration and usage of credit cards within this demographic. As these young Indians get increasingly financially independent, we will see them opting for financial solutions that they are already comfortable with - sachet-sized digital loans that suit their wallet and lifestyle.
Increased focus on digital engagement and the era of Super Apps
Consumers today expect to fulfil all their needs online – so when it comes to borrowing money, online approval and money disbursal processes are the norm. What’s more, the digital application process is completed in minutes, while the loan disbursal is done in a couple of hours. This convenience is one of the foremost reasons digital lending apps/platforms have met with such success. Going forward, consumers will expect digital lenders to know when they last spoke with a customer service representative, made a payment, or inquired about a transaction. Consumers will increasingly expect lenders to utilize this information to predict their subsequent encounters and to assist them in getting the most out of the relationship. Extended use of voice AI and smart assistants will emerge as an important channel for customers.
AI and machine learning technology is also dramatically transforming traditional work practices in the lending space. APIs are available today that help digital lenders automate and speed up the approval process for loans. And we are not only looking at traditional data such as credit scores anymore, but non-traditional data such as spend habits on e-commerce websites, social media activity to name a few. Monitoring consumers’ digital trails will help lenders of tomorrow analyze spending habits and categorize risk in a much more detailed manner.
As digital lending platforms continue to grow in popularity, they will evolve into portals to offer consumers a wider financial services portfolio. Thus, digital lending will act as an enabler in driving availability and accessibility to other financial solutions, contributing to the creation of super apps for financial services. Accenture defines a super-app as an umbrella app that offers a full ecosystem of services shaped around users’ everyday lifestyle needs, using one integrated interface or platform. So rather than consumers needing to go to their standalone banking or insurance apps, they will be able to conduct a majority of their financial transactions on the super app platform offered by the digital lender. In fact, some super apps have already onboarded banks into their ecosystem, offering consumers a single access click through possibility. As one can imagine, the consumer is hardly one to complain since all his/her needs are now conveniently met on one platform.
While digital lending is still in its nascent stage in India, there is no denying the untapped potential as it drives financial inclusion for a majority. Financial inclusion is but a stepping stone to a more widespread financial revolution, but if the digital lenders can help get this right, India may well be on its way to positively impact the underserved and unmet credit needs of millions.
Welcome, the New Normal!