By Vineet Tyagi,
Digital lending has revitalized financial institutions, propelling industry growth. Projections anticipate the digital lending sector to reach a market capitalization of nearly 350 billion USD by the close of 2023, building on its 270 billion USD value in the Indian market in 2022, with a steady CAGR of 39.5%.
This upsurge stems from a robust platform facilitating seamless banking practices. Evolving from traditional paperwork, digital lending thrives on data-driven AI, ML technologies, and other essential components, establishing itself as a key beneficiary of technology-backed banking methodologies.
Apart, the Indian government and regulatory authorities have strongly supported the advancement of digital lending. Their efforts in shaping regulations and establishing a robust infrastructure have successfully maintained a secure balance between consumers and lenders. Key initiatives such as implementing UPI and linking with Aadhar showcase the Reserve Bank of India’s commitment to safeguarding the interests of all stakeholders. Presently, the RBI continues to demonstrate its endorsement of digital lending fintech business models by introducing progressive regulations like the Digital Lending Guidelines and Default Loss guarantees.
India’s fintech sector now has gained substantial traction, establishing the country as a prominent player in the Asian fintech landscape. Let us look into the dynamic fintech lending landscape, exploring the growth and transformation it has undergone with changing consumer behaviours.
The Fintech Lending Evolution
Fintech lending platforms in India have witnessed a substantial evolution in recent years, experiencing impressive growth and transformation. These platforms have introduced various innovations in technology, products, and services, challenging the conventional practices of traditional lending institutions.
Digital lending, as we all know, entails using digital platforms and technology to streamline the lending process. Digital lending platforms operate online and leverage advanced technologies such as artificial intelligence, machine learning, and big data analytics to assess the creditworthiness of potential borrowers.
Digital adoption has been a significant driver of this evolution, accelerated by the expanding fintech sector, particularly among the Indian youth. This has led to heightened awareness and increased usage of digital lending platforms. Moreover, fintech lenders in India have primarily focused on the urban individual consumer segment and the MSME (Micro, Small, and Medium Enterprises) sector. These segments were ripe for disruption, as traditional unsecured lending was predominantly controlled by community finance and unregulated private lenders.
Fintech lending platforms have targeted the credit gap in India, particularly for cash-starved MSMEs. By leveraging technology and streamlining processes, these platforms aim to provide faster and more accessible credit solutions to underserved borrowers. They utilize data analytics to gain insights into a borrower’s financial health, creditworthiness, and repayment ability, thereby improving their lending decisions.
Changing Borrower Behaviours
The rise of fintech lending platforms can be attributed, in part, to the changing preferences and expectations of borrowers. Borrower behaviours have shifted significantly, influenced by the digital age and the seamless experiences offered by fintech platforms. Borrowers now prioritize a hassle-free lending experience, expecting swift approvals and disbursement processes.
The demand for personalized and flexible lending solutions is a key aspect of changing borrower behaviours. Borrowers are increasingly seeking loan products and services that are tailored to their unique financial circumstances.
Strategies for Lenders to Adapt
To thrive in the rapidly evolving fintech lending landscape and meet the changing borrower expectations, lenders in India should consider the following strategies:
Tech enabled lending: Fintech lenders have been successful in large part due to their ability to leverage technology and automate processes. Lenders now, should invest in digital infrastructure and automation to streamline their operations and provide a more efficient and convenient borrowing experience.
Data-driven Decision-making and Risk Assessment: Fintech lenders rely on data to gain insights into a borrower’s financial health, creditworthiness, and repayment ability. Traditional lenders should prioritize data analytics and use it to make more informed lending decisions and manage risk effectively.
Customer-centric Approaches and Flexible Lending Options: Fintech platforms have excelled in offering personalized and flexible lending solutions. Traditional lenders should focus on improving their customer experience and offering more tailored loan products and services to meet the evolving needs of borrowers.
Also read: Over 3,000 fintech startups registered with DPIIT in India: MoS Corporate Affairs
As the industry continues to evolve, collaboration between regulators, fintech companies, and traditional financial institutions will be crucial to ensure a balanced and sustainable ecosystem that benefits all stakeholders. The financial services industry is undergoing a major transformation, making their services more accessible, convenient, and affordable.
Therefore, financial institutions must adapt to the rapidly evolving fintech lending landscape and changing borrower behaviors. The convergence of technology and finance has opened up new possibilities, and embracing these changes will not only benefit the lenders but also the borrowers and the overall economy. As the fintech sector continues to progress, a collaborative approach involving regulators, fintech companies, and traditional financial institutions is essential to navigate this dynamic landscape effectively.
Vineet Tyagi is the Global CTO, Biz2x. Views expressed are personal.