India is hailed as the third largest fintech ecosystem in the world with over 10000 FinTech firms in the country. The fintech adoption rate in India is 87% which is way above the global average of 64%. On top of that, the value of India’s Financial Inclusion Index is 60.1 as against 56.4 in the previous year. Yet, India is severely credit underpenetrated. The credit card penetration is estimated at around merely 5.5% of the population and even India’s domestic credit to the private sector at 55% of GDP in 2020 is remarkably below the world average (148%), and lowest among its Asian peers — China (182%), South Korea (165%), and Vietnam (148%).

A period when finance has become digital and plugs in very well within the overall architecture of Digital India, financial transactions are increasingly being conducted online which is evident from the fact that over 10 billion-plus UPI transactions were made in September 2023. While payment is an anchor product, digital credit is equally on the rise, as per industry data, the Indian fintech market is poised to grow to $1.5 trillion by 2030 and the size of Digital lending is expected to be over $500 billion by the same period, contributing 13 per cent of the global fintech revenue.

The obvious question is, how would it happen, what are the drivers and risks?

With the proliferation of Digital Public Infrastructure like UPI, BBPS, Account Aggregator framework and the Identity stack in place, Digital Lending Applications (DLAs) play a critical role in offering a seamless user experience and connecting them to the global fintech highway.

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Like all good things, of late we have witnessed the emergence of the menace of unauthorized lending apps in India, which dwells on our vast majority of credit-underpenetrated yet digitally connected young population. In a country with the highest percentage of young population (65%), with over 800 million mobile phone users who consume an average monthly internet data of 20 GB provides a fertile ground for cyber thugs and criminals who disguising themselves as lenders exploit the needy and gullible and tarnish the image of legitimate digital lenders.

Unfortunately, alongside legitimate lending platforms, unauthorized lending apps (ULAs) have emerged, preying on unsuspecting individuals. These unscrupulous entities often operate under the guise of legitimate businesses, exploiting loopholes like weak state laws, low awareness among the masses, and prevalent slow coordination among law enforcement agencies to deceive borrowers. As a responsible consumer, it is crucial to be vigilant and able to identify these unauthorized lending apps to safeguard your financial well-being. Here are some key indicators to watch out for:

Check and Verify: As an informed customer, one must verify the veracity and authenticity of any doubtful firm by visiting the RBI website and downloading a list of RBI-licensed NBFCs/FIs. Alternatively, they can also visit the websites of prominent fintech industry associations and find out details of their members which is readily available on the website. This could be used as the first level of screening. Secondly, one must ask for the issuance of RBI mandated Key Fact Statement (KFS) containing the most important information about the loan and its pricing. These two criteria may act as useful filters in identifying the veracity of a digital lender.

Lack of Physical Address: Legitimate businesses typically have a physical office address for correspondence and inquiries. ULAs, on the other hand, often operate in the shadows, lacking a proper physical address. If an app fails to provide clear information regarding its office location, it should raise a red flag.

Absence of Website Information: Ordinarily, every legitimate business maintains an official website to provide information about its services, terms, and contact details. ULAs may lack a credible online presence or fail to mention their official website, altogether. Be cautious of apps that do not provide website information, as they may be attempting to conceal their true intentions.

User Reviews: Before downloading any lending app, it’s essential to conduct thorough research and read user reviews. Genuine user feedback can offer valuable insights into the app’s reliability, customer service, and overall user experience. If an app has limited or suspicious user reviews, exercise caution before proceeding.

Unclear or Suspicious Terms and Conditions: Legitimate lending apps have transparent terms and conditions outlining the borrowing process, interest rates, and repayment terms. Conversely, ULAs may have vague or misleading terms and conditions, making it difficult for borrowers to understand their obligations fully. If the terms and conditions seem unclear or suspicious, it could indicate an unauthorised lending app.

Lack of Information about Governance and Management: Legitimate businesses typically disclose information about their management team, board members, and grievance officers to foster transparency and accountability. ULAs, however, may operate clandestinely, omitting crucial details about their governance structure. A lack of information regarding the management team should prompt caution when dealing with a lending app.

Download via Unofficial Sources: ULAs may distribute their apps through unofficial channels, such as direct APK links, to evade scrutiny from official app stores. While legitimate lending apps are readily available on reputable app stores, downloading from unknown sources poses significant security risks. Exercise caution and avoid downloading apps from unofficial sources.

Promotion through Shady Influencers: ULAs often resort to unconventional marketing tactics, including collaborating with shady influencers to promote their app. These influencers may lack credibility and promote the app without disclosing its risks adequately. Be wary of apps promoted through suspicious social media channels or influencers with questionable reputations.

Minimal Documentation Requirements: Legitimate lenders have documentation requirements to verify borrowers’ identities and assess their repayment history (if available). In contrast, ULAs may have minimal or nonexistent document requirements, opting instead for intrusive demands such as access to personal photos and mobile phone galleries. If an app requests excessive personal information without legitimate justification, it could be an unauthorized lending app.

As digital financial transactions become ubiquitous, the risk of cyber fraud looms larger than ever with fraudsters continually devising new tactics to exploit vulnerabilities in the digital ecosystem. Hence, structured consumer awareness programs are essential to equip individuals with the knowledge and tools needed to navigate this landscape safely. Fintech Suraksha, for instance, emerges as a critical initiative in this regard, offering comprehensive education and training to empower consumers in recognizing and thwarting cyber threats. An initiative by DLAI and its members aimed at raising awareness and enhancing capabilities in fraud prevention across Law Enforcement Agencies, the program educates users on fraud detection, prevention techniques, and reporting protocols in Fintech services like lending and payments. It also offers customized training for officers to combat cyber threats effectively. Targeting states with high fraud rates, the initiative conducts workshops involving key stakeholders to release a comprehensive report, aiding public understanding and policymaking in cybersecurity for Digital Financial Services. By fostering a culture of vigilance and proactive prevention, such programs aim to fortify the resilience of individuals and communities against the pervasive menace of cyber fraud.

In conclusion, identifying unauthorized lending apps requires vigilance and common sense. By paying attention to warning signs as listed above, borrowers can protect themselves from falling victim to fraudulent lending practices. Remember to conduct thorough research, read user reviews, and verify the legitimacy of any lending app before proceeding with borrowing. In case if one falls victim to financial fraud, the same must be reported to cyber police station or the nearest police station and also by making a phone call to the national cybercrime reporting helpline number 1930.

(By Jatinder Handoo, CEO, Digital Lenders Association of India (DLAI). Views are personal)