In the last decade, FinTech has become a globally established norm. The strong tailwind that drives the FinTech sector shows how the boundaries between business and technology are constantly blurring, forcing not only startups but well-established financial institutions to utilize technology to build new products and solutions. One such technological innovation that is disrupting the landscape for financial services is FinTech or digital lending.
The recent influx of technological innovations and the consumerization of FinTech lending apps have transformed the way financial services are developed, delivered and consumed. Powered by 1,100 FinTech lending apps, India’s digital lending sector is estimated to grow exponentially from $ 9 billion in 2012 to $ 350 billion in 2023.
By leveraging a combination of business models and championing technological innovations, these FinTech lending apps solve infrastructural, inclusive and risk management challenges that many years of banks and financial institutions have failed to address.
Prevalence of smartphones and internet connections
The number of smartphones in India has increased from 100 million in 2014 to more than 700 million in 2021. Without signs of diminishing, the number is only expected to increase in the years to come. This has meant ubiquitous Internet access for most of the Indian population. Accelerated by the availability of cheap smartphones and the explosion of faster and cheaper internet connections, a large population has turned to FinTech lending apps.
Especially users who need urgent small ticket loans have found joy in the opportunity to download loan apps on their mobile and use loans without a long processing time, countless approvals and multi-way verifications.
Key enables for financial inclusion
For a long time, Indian borrowers’ demand for formal credit has been unmet and overlooked by banks and financial institutions. Low credit penetration into the informal economy and first-time borrowers and banks’ continued reluctance to lend to small borrowers with little or no credit history have widened the credit gap in India.
FinTech’s lending apps challenge the age-old norms and struggle where banks fear to step in. A combination of business models such as peer-to-peer lending and crowdfunding together with innovative credit rating models has made it possible for digital lenders to include a largely credit invisible segment within the framework of financial inclusion.
Supported by government initiatives
As FinTech lending apps chart a path to shrink India’s credit gap, the government continues to increase financial inclusion and digitalisation. The implementation of favorable policies and initiatives such as Jan Dhan Yojana, Aadhaar Enrollment, Digital India, India Stack, Digi Locker and the Unified Payments Interface (UPI) has helped FinTech borrowers leverage the public digital infrastructure and build and distribute lending apps.
Facilities such as Aadhaar authentication, e-KYC and e-Sign have further enabled digital lending apps to authenticate users, assess their creditworthiness, speed up loan disbursement and ensure security and transparency.
Solution for pandemic ailments
The outbreak of the Covid-19 pandemic and subsequent shutdowns and restrictions sequestered a large population from the link between banking and financial services. But the pandemic also forced consumers as well as businesses to take their transactions online. When faced with financial and medical emergencies, these users availed immediate loans from FinTech lending apps.
According to the FinTech Association for Consumer Empowerment (FACE), the FinTech lending volume has doubled to Rs 18,000 crore during FY 2021-22 with 98 per cent of the loans categorized as personal loans. Due to their low fixed costs, technology-driven optimization and minimal manual intervention, FinTech lenders were able to operate efficiently and meet the growing financial needs both during and after the pandemic.
A number of technological advances
With smartphone proliferation comes data dissemination. By leveraging technologies such as data analytics, artificial intelligence, machine language and cloud computing, FinTech lending apps have been able to derive valuable insights from the abundance of data.
This has enabled them to better understand the needs of their customers, speed up the processing and disbursement of loans and improve the detection of fraud. These technologies allow digital lenders to analyze customer behavior, assess risks, detect suspicious behavior, identify repeat defaulters, flag high-risk loans and make objective decisions. There is no doubt that this prudent, yet customer-oriented lending model has driven the growth of FinTech lending apps.
Important takeaways
FinTech lending apps are constantly taking over the lending market, which was once dominated by traditional banks and conventional financial institutions. By offering alternative financing solutions, they reorganize the lending process and revolutionize the lending landscape by using disruptive and new technologies. In this way, the global financial industry is strongly blowing the winds of change that drive the FinTech lending sector.
(Author is Ajay Chaurasia, Product Manager, RupeeRedee)
