- By Prashanth Ranganathan
Credit and Finance for MSMEs: We live in a world where Covid-19 has become a major part of our lives. It has not only disrupted our lifestyle and how we do businesses but brought unprecedented challenges to the economy. While the world gradually finds a viable path to normalcy, it is interesting to see how the crisis has also ensued opportunity for innovation, learnings and behavioural shifts. Digital transformation has accelerated, businesses have amplified their technology investments on cloud-based products and services, and digital sales has gained momentum with traditional retail stores going online for the first time. Covid-19 lockdown has expedited the digital-first approach helping the country’s Digital India vision move a step closer to reality.
Among other sectors, digital payments have experienced a significant boost during the crisis. Areas such as online grocery stores, online pharmacies, OTT players, edtechs, online gaming, recharges and utility payments have seen an uptick in digital payments due to a growth in their adoption. Having said that, once lockdown measures are further eased and markets get back to their routine, cashless transactions are poised to gain more prevalence. This is because Covid-19 has incited people to follow various safety measures like ‘social distancing’ and made them more cognizant about transmission through human touch and cash exchange.
Many industry reports cite that the pandemic has acted as a catalyst in the growth of digital payment platforms. In countries like the US, digital payments is expected to reach $4,769,370m in the year 2020 that shows a YoY increase of over 15 per cent. In India, the Finance Ministry, NPCI as well as the RBI have pushed for digital payments in order to make payments contactless, urging banks and financial institutions to promote digital transactions. However, the adverse effects of the pandemic are trickling down to major sectors of the Indian economy, with auto, retail, manufacturing, hospitality and aviation bearing the brunt of the lockdown – thus affecting payments linked to the aforementioned sectors.
In such a scenario, consumers will become more mindful of large spending, and digital lending will gain momentum with people’s disposable incomes impacted. As consumers cope to maintain their lifestyles, there will be a surge in micro-credit. Microfinance lenders must be equipped to address the credit requirement while offering affordable and convenient repayment solutions to ease the impact of the crisis. Digital disbursement of buy-now-pay-later solutions will gain propulsion as micro-credits help in providing relief during cash-crunch. With a minimal burden on interest, if repaid within a specific timeframe, digitization of short-term credit processes such as eKYC and V-CIP will only aid the upsurge in the trend.
Being seamless and digital in nature, it will offer people the convenience to continue life amid salary or reimbursement delays. Using micro credits, customers can clear their utility bills and even use the solution during medical emergencies. Leveraging technologies such as AI, ML and Big Data Analytics, automated loan offerings and contactless lending services will act as enablers of timely digital disbursements. These micro-credits can be accessed by consumers in less than an hour of virtual e-KYC completion.
Apart from maintaining the current lifestyle, micro-credits will be crucial for low-income groups employed in the informal sector, as they are one of the worst affected by the pandemic. This has put an impetus on financial inclusion now more than ever and made financial institutions rethink their operations. Many customers cannot access traditional credit because the unit economics necessary to serve them, are not accepted by banks. With the economy on a slowdown and credit slated to rise post-Covid-19, it will become more difficult for small merchants and consumers to garner loans. However, digital lending platforms with the principles of financial inclusivity will emerge as the heroes of the financial crisis. By leveraging the right technology such as AI/ML, they will be able to verify creditworthiness and drive financial inclusion – underwriting the risk of providing credit services to people that banks will not.
Lastly, technology will act as an enabler for innovation and risk mitigation as it will be a key priority for digital lending companies. Focus on data science and analytics will remove the risk of fraud and delinquencies. It will also be a driver to navigate consumers through credit complexities created by Covid-19. Once the pandemic is over, it will become extremely important to ensure that fintechs can provide the services the consumers need. Hence, the implementation of automated processes to gain insights into customer’s eligibility and enable rapid origination and processing will become key to their success.
Prashanth Ranganathan is the CEO of PayU Finance. Views expressed are the author’s own.