Digitisation of the lending sector: Decoding the disruption and the impact

The Indian FinTech market has seen rapid growth in the past few years, and today comprises $31 billion, according to a report by BLinC Insights, making it the third largest FinTech ecosystem in the world behind the US and China. Today, most legacy systems and traditional practices in BFSI, especially the lending segment, are being replaced with digital processes that are powered by data and AI. It is not a surprise then, that instant credit scores and 2 min pre-approved loans, which were unheard of about a decade ago, have now become a common phenomenon. 

The demonetisation in 2016 and the global pandemic of 2020 were both effective accelerators of digitisation in the BFSI segment. Also, owing to the COVID pandemic, a lot of physical bank branches were not operational, leading to decreased footfalls. This created a need for an increase in digital access due to which banks and other financial institutions were able to lend via a digital platform, to a large population across India, who were looking for credit during the tough times. These events have also been exploited by a realignment of players in the overall lending landscape. 

Further, tech adoption in lending space can be broadly categorised based on these three key stakeholders: 

• Data providers: Big Data and data driven smart insights are shaping the innovations in the lending sector, drive facilitating intelligent data collection and analysis need to make informed decisions on the credit worthiness of the borrowers. Big Data is also helping drive the ‘digital lending’ process more cost effective and easier, while enhancing customer experience, agility in offering solutions and brand loyalty.Thanks to focused government initiatives, under the ‘digital India’ campaign, the conventional and digital divide is slowly being bridged. Initiatives that interact at the grass root level with citizens, are also acting as effective catalysts for building trust and digital literacy and awareness of digital lending among customers. 

• Core platform providers: Traditionally, the BFSI and especially the lending segment has been known for its tough regulatory framework, meticulous documentation and lengthy and often cumbersome processes. However, with digitisation, core platforms like loan management systems and loan origination systems are becoming API driven and easy to integrate allowing more Banks and NBFCs to adopt them side by side with their legacy systems. This has been steadily disrupting the lending processes, making it more reliable, prompt, and data driven. Further, with initiatives like one digital identity through linking of ADHAAR, Digilocker, eSampark, and adoption of UPI among other tech solutions, has allowed companies like Perfios, Karza and Digio to provide APIs to complete the KYC, and KYB journeys. Leveraging Big Data and emerging tech like AI and ML, these platforms are helping create value drive customer experiences, backed by credible, data driven insights.

• End to end Fintech solution providers: Finally, while FinTech start-ups are bringing about a significant change in the lending services segment through collaborative effort, the future lies in integration of these services. Fintech service providers that are effectively integrating the foundations created by the data providers and core platform providers to build fully digital lending journeys, with disruptive innovation, so as to make credit available and accessible to the masses. When leveraged efficiently, data analytics and emerging tech can create a seamless and integrated Omni channel service approach which further opens newer revenue models. 

While the above offers a broad outline of the digital developments that have transformed the lending segment, it is vital to understand that the impact of this has kickstarted a series of positive events, benefiting a large section of people and ultimately giving momentum to the Indian economy. Some key benefits include: 

• Faster access to capital for start-ups, women entrepreneurs, cottage industry, MSME’s and first generation entrepreneurs.
• Digital lending has also reduced scope for errors and organised the credit access system, and
• Digitisation has also opened the market to allow multiple players, thereby making it competitive, transparent, and accountable. 

In line with the above, there is also growing need for systems integrators to create more meaningful cross cutting journeys using services provided by the core platforms and data providers. These journeys can translate into products for Fintech and can help unlock more value for the overall ecosystem. As India progresses towards becoming a 5 trillion economy, in the coming years, these innovations in fintech and the focus on creating a digital economy, will be the cornerstones of success and play an important role in helping businesses, large and small, to grow. 

The article has been written by Harish Patel, Co-Founder, Logicloop