Fintech gives wings to lending space in India

Fintech is revolutionizing the financial industry with the ideal integration of technology and innovation. The seamless process and service in fintech has made India latch onto it, resulting in a FinTech adoption rate of 87%. Of many financial services that have caught the momentum of this fintech wave, the lending space is witnessing significant traction. The fast-growing area is estimated to reach $179 billion in 2022. And is predicted to reach $213 billion by 2024. But what exactly were the problems with traditional bank lending that Fintech has successfully solved? Here are some challenges that traditional loan models face:

• Lack of formal data to access creditworthiness
• A product that fits all approaches that does not adapt to the risk profiles of different borrower segments
• Requirements for securities/guarantees
• Heavy onboarding and complex application procedures

Fintech has used innovative strategies to overcome these barriers and make credit access hassle-free. Let’s take a deep dive into a few waves of change that fintech financing solutions have brought to the lending sector.

Financial inclusion

Fintech, or financial technology, improves financial inclusion by making financial services and products more accessible and affordable to millions of unbanked and underbanked Indians. This is particularly true in developing countries where traditional banking infrastructure may be limited. Fintech includes individuals and businesses that have remained largely ignored by traditional banks due to the high cost of providing financial services to the customer – making them an unprofitable customer segment.

Faster approval and processing

Traditional bank loans operate on a conventional documentation process that takes months before a loan is approved. In fintech, the process is fast and flexible with the intervention of technology. Digitization has made the approval and payment process fast and efficient. The customer does not have to go through a heavy documentation process or a huge waiting time to get credit.

Alternative data-driven underwriting

A key feature of fintech is the substitution of algorithms and alternative data for personal interaction between lenders and borrowers. A traditional credit score is no longer the only way to evaluate creditworthiness, which naturally makes credit access inclusive for a large number of people who may not have much of a credit history to consider. This alternative underwriting method has particularly been a boon in education finance where fintechs need to take an alternative approach to assessing borrowers’ ability to repay. Here, the guarantee is not based on the type of loan, but they consider the student’s academic performance and the potential result of the job. This makes education funding available to financially disadvantaged students who are otherwise considered ineligible for loans.

What are the upcoming challenges for fintech in lending?

The fintech journey continues and has become ready to solve the next challenges in the lending sector. Here are some challenges fintech is getting ready to solve in the coming year.

– Innovations in technology

Technology is the cornerstone of the growth of the fintech industry, and it is important for technological innovations to be agile to keep the industry moving. When it comes to increasing user experience and user retention and ensuring insurance for high-risk profiles, the interaction between big data and AI is inevitable. According to a recent survey by Deloitte, 86% of AI users in financial services say that adopting this technology will be critical to their business’ success in the next two years.

– Borrowing partners to raise capital

Lending partners are the pillars that drive fintech. As fintech grows and flourishes, it is inevitable for lending partners or financial institutions to be agile in their innovations to act as a financial partner. Technological integration is the first major step that lending partners must take to enable their smooth partnership. The technology of the lending partners is also increasing to match the rapid technology innovations in fintech companies. Another conflict in the way if the difference in risk analysis of fintech and lending financial institutions that the integration of the right technology will solve.

In a nutshell, Fintech bridges the gap between financial services and a large number of people who are excluded from accessing it due to various reasons. A recent Ernst and Young report says this financial inclusion will generate significant economic benefits – increasing gross domestic product (GDP) by up to 14% in major developing economies such as India. It will also increase FinTech revenues by providing microfinance to financially excluded individuals and MSMEs. Hence, it is quite expected that fintech will be the way forward for India’s lending sector with its innovative technology integration.

END OF ARTICLE