Digital Disruption: Lending Trends Turn the Next Leaf!

By: Brahma Mahesh Khaderbad, CEO and co-founder, FinMomenta

“India’s Fintech Industry is at the threshold of becoming the next beacon of revolution and expected to be a huge successful sector in 2017”.

From banking to investments, digital technologies have been modifying the boundaries of finance. With the expansion of technological innovation, it has given rise to a plethora of start-ups and challenging the incumbents in areas like; Peer-to-Peer lending. Moreover, with mass acceptance of mobile-based transactions, the financial services industry is undergoing a massive transformation and spreading its wings into multiple sectors.

Current scenario of P2P loan market in India:

Lending in India is hard as only a fraction of people have access to organized credit. Less than 50% of SMEs get access to bank  finance. The lack of access to credit is forcing people to depend on money lenders at high rates of interest. In India, of the over 1.3 bn population, 600 mn is working class, out of which 150 million has access to credit and 20 million have scores acceptable  to banks.

In the last decade, the banking sector has been catapulted to a different zone and in future, it’s going to change drastically. Today, Indian customers are receptive to innovative ideas and always ready to adopt new products. The Fintech market has certainly embraced companies/innovators from across the globe and the government policies have also been encouraging.

As India is moving towards digitization, peer to peer lending market is attracting the attention of millennials / working population due to its sheer convenience, hassle-free & transparency factors. Why People should invest in Peer to peer loans?

Higher Returns: P2P lending provides investors higher returns than investing in mutual funds/ stock markets, which are linked to the stock market and come with a risk of losing money due to their inherent volatile nature. With the lower interest rates, traditional investment tools like FDs and RDs look less attractive to customers.

P2P lending  is an alternative asset class by providing attractive returns to the investors. Being an investor one can earn returns between 11.5%-30% p.a. based on the platform one has opted for.

Diversification: Investors  can diversify their investments to multiple borrowers enabling them to mitigate the risk associated with the investments.

Convenience: The entire process is smooth and convenient to use as transactions are carried out through online process and without any third party intervention.

The platform connects lenders directly to borrowers. All the KYC documents are required to be submitted online and the verification is also carried out digitally.

Regular Income: Peer-to-Peer loans give regular monthly income to the investors in the form of EMIs.

Investor Empowerment: In the P2P platform, investor is the one who decides where to invest and how much to invest.

Future of Banking Sector: Finance is one of the world’s oldest industries. For decades Banks have played an important role in terms of handling savings of depositors and lending to both individual borrowers & businesses. It is an openly acknowledged fact that serious things have gone wrong with the banking sector as a result of which there is a raging debate on the future of the sector. Increasing penetration of smart phones, Aadhar enabled KYC verification, UPI & Aadhar based payment systems are some of the latest trends being adopted by the banking industry in its quest to reinvent itself and live up to customer expectations in the ever increasing competitive space. In a similar way, on the lending side, a few banks are adopting digital technologies in a big way to outsmart competition. Smartphones will not only make brick-and-mortar banking redundant but also make the ancillary technologies needed for banking  to go out of fashion. It is in this context that we see banks partnering with fintech companies to remain relevant in the future.

The advantage of having a Fintech platform is the convenience to the consumers to apply for a loan right from their homes and get the money credited to the account. The market is very receptive and the response is encouraging. It has opened the door for a new dimension in the financial system and we believe that this will certainly revolutionize financial services industry and benefit the consumer in a strategic manner.