Lending or loan origination started in ancient Greece some 3,000 years ago and though a lot has changed over the years, some things are still quite manual. When looking at Indian lenders today, drastic changes seem to be on the way, in part due to the advent and growth of the Fintech industry.
One major push for Fintech in India is as an enabler for traditional lenders through productive technology usage in traditional processes rather than as a disruptor. Here are a few areas throughout the loan process where we see traditional lending institutions ramping up tech usage –
- Customer acquisition – For small ticket size items like personal loans and credit cards, lenders are able to acquire customers through digital marketing and obtain basic filtering criteria through consent-based mechanisms for KYC information and credit scores. Although this is still largely focused on salaried employees of larger employers in metro and tier 1 cities, this has allowed lenders to access to a larger base of potential customers more cheaply and target specific borrower profiles more accurately, so the future of digital acquisition looks promising.
- Documentation – The loan documentation has always been an offline process, but off late this is changing somewhat. From pulling the digital bank statements and filed ITRs to automatic KYC verification through NSDL (PAN) and company data from the Registrar of Companies, technology has been able to make a difference. Though the last mile execution like document signing still happens offline for most lenders, some small-ticket loans have already moved entirely online even through disbursal.
- Underwriting – For small ticket size personal and business loans, individual lenders have been able to create basic and standard scorecards or business rule engines suited to their respective lending policies. Another emerging trend is that legacy banks/NBFCs are increasingly engaging with fintech startups like Namaste Credit to automate the underwriting for an expanded set of more complex products, including GST-based loans, mortgage loans & CC limits. Even certain aspects of traditional underwritings, such as personal discussions and in-person diligence by credit managers are being tech-enabled through video conference capabilities, liveness, and psychometric tests.
- Sanctioning – A robust underwriting process makes loan sanctioning an easy process for lenders, however, the process entails physical documentation which is an unnecessary bottleneck and delays disbursement. Hence a handful of lenders have started accepting digital signatures on sanction letters to complete the documentation.
- Disbursal and Repayment – The days of handing over cheques for disbursing loans are making their way out. More and more legacy lenders and almost all of their new-age counterparts engage NEFT/RTGS platforms for disbursals. Platforms like NACH are already enabling borrowers to create a debit/credit mandate through uploading scans of their cheque leaf. The advent of UPI 2.0 is set to make this process even easier and help extend credit facilities to even the larger customer base.
On the whole, tech usage in traditional lending is still in the early days, but it seems that many large banks and NBFCs have turned a corner and are looking to quickly move to replace many offline processes with online solutions. Also, the innovative startups in lending space like ZestMoney and Faircent are aggressively leveraging technology for customer acquisition, documentation, disbursement and repayment.
They are also going beyond the traditional underwriting practices to establish creditworthiness and cost of credit. This is helping them scale at an exponential rate as compared to their traditional peers and hence increased technology usage is bound to rub off on the larger lending ecosystem. We believe that this will be a boon not just for the lenders, but also potential borrowers across India in the coming years.
(Views expressed in this article are a personal opinion of Lucas Bianchi, Co-Founder and CFA, NamasteCredit.)