By Ajay Chaurasia, Head of Product, RupeeRedee
In recent years, the lending business in India has been disrupted by rapid digitalisation. The advent of FinTech startups in India has reshaped the country’s lending landscape and ushered in a new era of digital lending. With over 2000 FinTech startups bolstering the digital infrastructure of the country, digital lending has emerged as a popular and reliable lending alternative. Owing to its frictionless experience, customer convenience, efficiency and transparency, the digital lending process is gaining currency each day.
According to the reports, the digital lending market is projected to grow over $350 billion by 2023 and chart a CAGR of 36%. Discontent with the time-consuming and cumbersome traditional lending system, Indian customers have quickly embraced digital lending as an alternative. People who were once underserved by the financial system now find themselves under the ambit of financial inclusion. Let us understand the key drivers responsible for India’s digital lending boom.
Shifting customer expectations
As a result of increasing smartphone and internet penetration even in the remote and rural areas of the country, customer behaviour and expectations have evolved. In a digital-first world, customers are becoming tech-savvy in everything, from ordering food to shopping online to acquiring loans. Indian populace led by millennials and Gen Z refuses to wait in lines or visit banks repeatedly in their quest for a loan. According to a survey, around 40% of borrowers are willing to move online for securing loans instead of offline channels. Consequently, the digital lending landscape has witnessed a surge in customers and is currently booming.
Ubiquitous technological advancements
Ever since the outbreak of the Covid-19 pandemic, businesses throughout the country, even those operating in non-metro cities, have embraced technology. With innovative technologies like artificial intelligence (AI), automation and data analytics, among others, the lending process has been significantly simplified. Technology has optimised time-consuming processes like document verification, background checks and loan disbursals, thereby allowing lenders to finetune customer engagement and retention processes. By leveraging these advanced technologies, digital lenders are foraying into remote and rural areas, where the majority of the populace is underserved.
Cost and time reduction
One of the key factors affecting the adoption of digital lending in India is the significant reduction in cost and time. Digital lenders operate through innovative technologies, allowing them to cut down on infrastructural and customer acquisition costs. As a result, they are able to pass on these cost-saving benefits to their customers in form of lower interest rates and service charges. Additionally, since most of their process is online and paperless, the loan disbursal process is quicker and more seamless. Considering customers can get loans at cheaper interest rates and within a few hours, the digital lending boom is unsurprising.
Frictionless loan process
An elevated customer experience has become a precursor to business success nowadays. The traditional lending process was full of hassles and challenges to the borrower and was bound to become obsolete sooner or later. Digital lending platforms have upended the loan process with their unique offerings, quicker processing times and minimal paperwork. Borrowers no longer have to wait in queues or knock on the bank door again and again instead, they can get loans from the comfort of their homes. As a result, digital lending has paved the way for a frictionless customer experience.
Robust digital infrastructure
India’s robust digital infrastructure has been a key enabler for the digital lending boom. India’s FinTech adoption rate of 87% is the highest in the world and has accelerated digital lending. With video-based KYC verifications, lenders can verify customer credentials and e-stamp and e-sign have enabled digitised loan agreements. Consequently, lending has emerged as an end-to-end service. Furthermore, access to digitised land records, bank and GST statements has simplified authentication and verification for digital lenders. As a result, customers can share their financial history, prove creditworthiness and acquire loans quickly.
Over the coming years, the digital lending landscape in India will continue to advance at an exponential growth trajectory. It is forecasted that the digital lending market may host up to 48% of all lending transactions by 2023. Given India’s rising FinTech ecosystem, a rigorous yet nurturing regulatory framework and evolving partnerships between FinTech startups and banks, the digital lending market will further grow. With loans processes becoming more optimised than ever, reduction in loan disbursal time and robust security systems, digital lending can allow companies to bring more people under the financial inclusion umbrella. The majority of the urban populace is reaping the benefits of digital lending and with continued and consistent efforts the rural population too can come into the ambit of formal credit.