How Digital Lending is Revolutionising the Borrowing Experience

Ritessh R Agarwal

Like myriad industries that have benefited from digital technologies, India’s lending industry has also seen a paradigm transformation. As a result, it is anticipated that from its present market value of $270 billion, the digital lending segment will record fivefold growth to reach $1.3 trillion by 2030.

The biggest benefits of digital lending are its speed, transparency, simplified operations, convenience, accessibility and more. Today, procuring a digital loan is possible within a few clicks and a few minutes, if an applicant’s papers are in order.

Speed, Convenience and More

In other words, a prospective borrower only needs to submit his/her personal information along with the requisite documents. Once the process begins, a loan could be approved within minutes or a day, depending on the basic documents given. After the application is cleared, the sanctioned amount is transferred online into the applicant’s bank account.

Thanks to this fast process, fintechs and NBFCs that specialise in digital lending are acquiring new customers efficiently. This is because fintechs use data procured online to process loan approvals speedily unlike conventional banks that need hard copies of KYC and other documents to process loans, which can take weeks or months.

By accessing and analysing digital data within minutes via AI (Artificial Intelligence) and ML (Machine Learning) algorithms, fintechs are well placed to provide credit-linked payment products such as BNPL (buy now, pay later) or EMI-based (equated monthly installments) loans.

Also Read | The Digital Lending Landscape: Unlocking Opportunities for MSMEs and Bridging the Financing Gap

Not surprisingly, the ease, convenience, and accessibility of digital loans are attracting more customers each day. The online process substantially crunches the time needed to underwrite loans by accessing the prospective borrower’s financial and transactional data.

Customers can then enjoy an entirely seamless, friction-free borrowing experience compared to the laborious processes of conventional loans. Consequently, digital lending is promoting cross-country financial inclusion by democratising lending among diverse customer cohorts, including MSMEs.

Some Salient Features

Nonetheless, it is important to understand the key features of digital lending such as:

Swift approvals: By digitalising and consolidating consumer information in a central database, fintech firms and other financial institutions boost borrowers’ loan experience. This drives real-time decision-making alongside more transparency, increasing customer satisfaction levels. Best of all, borrowers can apply for loans from the safe confines of their homes or offices. This is unlike traditional lenders, where visits to brick-and-mortar branches may be mandatory. Or where bank representatives could visit the office and/or home of applicants to gain a first-hand assessment of their repayment capacity.

Democratised lending practices: Banks and other legacy lenders don’t provide loans to people without any credit history/score because these details are used to evaluate prospective applicants’ borrowing behaviour. Therefore, first-time borrowers without credit history cannot obtain loans from them. Fortunately, digital lenders understand these genuine constraints and process loans with credit scores being only one of the parameters.. Instead, online details of borrowers’ spending habits together with bill-paying history (mobile, utility and other bills) are viewed to ascertain their creditworthiness.

Alternate assessment criteria make it easy to advance loans to those turned down by old-world lenders, which helps in driving more financial inclusion and democratising lending practices in India. Even marginalised sections of society can now apply for an online loan. Also, freelancers, gig workers and other professionals all have an opportunity to apply for digital loans by providing basic details.

Loans to the unserved: Small entrepreneurs and other MSMEs struggle to procure loans as they are perceived to have a higher risk profile. However, digital lenders use AI/ML algorithms to evaluate the risk profile and creditworthiness of small enterprises within minutes. This comes as a major relief for small enterprises, ensuring their BCP (business continuity plans) do not suffer and they can continue with their operations or expansion plans. Needless to say, digital lending is helping MSMs maintain market competitiveness by providing a more level playing field through the provision of quick funds.

Bespoke offers: By using the power of big data analytics to analyse spending patterns and transaction histories, digital lenders can comprehend the choices and financial habits of borrowers. Thereafter, fintech firms provide customised loan offers as per borrowers’ specific needs or financial goals. The high degree of personalisation generates a greater comfort level among borrowers since interest rates, loan tenures and repayment schedules are modified as per individual requirements.

Minimal expenses: As verification of details and approval processes need no physical documentation or human intervention, online decision-making is faster as well as frictionless. Besides saving time, it eliminates or limits human error, leading to lower administrative costs, in turn reducing the burden on borrowers and digital lenders. Given the low admin expenses, lenders are well-placed to pass on these benefits to borrowers through lower fees and more competitive interest rates.

Also Read | Refreshing the Fair Practices Requirements Under Digital Lending

Round-the-clock services: While traditional lenders operate only during normal working hours, digital lending services are always available day and night. Thereby, applicants can garner information, apply for loans and check their loan status at any convenient moment, which isn’t possible with conventional lenders. Access to loans at any time from anywhere can be most valuable in crisis scenarios when funds are needed urgently or at short notice. Be it a medical emergency, an overnight business opportunity or another urgent expense, borrowers have the option of procuring funds at short notice.

Finally, chatbots and allied AI-enabled virtual assistants allow fintechs to provide prompt customer service. Considering the plethora of benefits for borrowers and lenders, there is no doubt that digital lending will keep advancing pan-India penetration of loans among unserved/underserved sections, contributing to the mission of inclusive development.

Views expressed by Ritessh R Agarwal, Head of Finance, mPokket

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