Jul 3, 2021 ●12 min read
How has the Digital Lending Market Changed over the Years?
Lending market has always existed in India but digitization has changed it completely. The transformation is such that the complete lending and borrowing process has become paperless. The entry of fintech companies in the lending business has made the whole process digital, quick and easier for both, the lender and the borrower. First of all it was revolutionised by the entry of web portals which used to provide all types of loans such as two-wheeler loan, car loan, home loan, instant personal loan, etc. and then came the mobile apps. You can use these apps to avail small financial assistance to big long term loans. Digitisation of the lending market has left no point untouched from its impact.
Fintech companies are quite optimistic about the potential of long term growth as they have received a large amount of investments in the past few years. They are targeting new segments of the lending market which were unexplored till now. Fintechs are now reaching out to small retailers and Small and Medium Enterprises (SMEs) which are the worst hit by the pandemic and most of them are unbanked.
Demonetization proved to be a turning point for the lending market in India. A large number of NBFCs started playing a pivotal role in the economy. Digital wallets gained popularity which later converted into payment banks and started offering banking services too.
This is an established fact that the loan approval from a bank is a lengthy and stressful procedure which demands a lot of time and heaps of paperwork which gives you sleepless nights and tension.
The picture of loans has changed to the core by the entry of digital lending companies. The process of availing a loan has become so easy and hassle free. Now you can avail a loan within a short duration of time and with minimum paperwork. Fintech companies provide you a loan within 24 hours and that too without standing in the long queues of banks.
With the help of these digital platforms, any loan is just a few clicks away. There is no need to submit any physical documents. You just have to apply online, fill the required details and submit the scanned copies of your ID and Address proofs. After the verification, if found eligible, your loan will be approved and the loan amount will be transferred to your bank account.
The controversial issue of data protection needs to be addressed as early as possible. Once the Personal Data Protection Bill is passed by the Parliament, it will help to resolve the issue remarkably. The fintechs will be able to provide responsible and transparent lending services to the consumers.
The availability of data helps in the prediction of potential customers and these predictions help the lending companies in risk management and in result recovery of loans will become easy. This also enables the lenders to explore the markets which are not served yet or are underserved.
Lending business involves the risk of full or partial loss of loan amount including principal and interest, which in result, may interrupt the cash flow of these fintechs. So, the power of the huge amount of data available with them is being used to identify and decrease the potential risk. Machine learning algorithms help risk analytics to alleviate a perception to evaluate real time risk so that frauds and expensive legal actions could be avoided. Availability of massive amounts of data is helping analytics to devise some parameters to scrutinise the probable risks.
With the help of automated CIBIL verification and Aadhaar linked PAN card and Bank account data, loan approval decisions have become less time consuming. Because of all this, the loans are being sanctioned almost instantly. As all the procedures of loan approval and disbursal are being done online by the fintech companies, the consumer can avail all these services sitting in the comfort of his home or office. All the queries and problems are solved in the least span of time. Artificial intelligence and chatbots are adding to the consumer experience.
Digital lending companies have come as life savers for Small and Medium Enterprises, who were seeing a major downfall during the pandemic and needed a helping hand for the revival. These fintechs are offering affordable customized loans to these small and medium businesses without collaterals and banking history and for this they are analyzing the consumption data of online shopping platforms and market behavior. Low loan default rates and cashless recoveries are helping to boost the financial empowerment of lower income groups.
The digital lending market has seen some revolutionary initiatives and innovations to confront the financial challenges in the country. Its value has increased manifolds in recent years. Digital lenders are playing a vital role in reviving the economy from the impact of COVID. Digital lending is evolving everyday to help the self-employed and salaried individuals to meet their financial needs in times of crisis. It is anticipated that it will further push its boundaries and set new benchmarks for the coming financial years.