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While traditional banks are on their way to become digitally-driven, there is an entire segment of non-traditional financial services to have emanated from the womb of technology, now popularly known as fin-techs. They are riding way ahead on the digital life-cycle and bringing in rapid innovative solutions whilst changing the face of the banking industry through seamless digital credit lending. Digital lending is a process to offer loans online and it has an edge over the traditional lending process for many reasons. Given its digital nature, online credit can be obtained remotely, without the need to visit a physical branch, as in the case of traditional lending.

Secondly, the documentation needed is minimal, the verification process is quick and the loan amount is credited into the bank account within minutes, while in the case of traditional process, one has a myriad of paperwork and formalities to comply, and then wait for the processing of the papers for receiving the loan. Digital lending players can offer customized features, innovative solutions to ease the burden of repayment for the consumers.

Road to success: Digital lending in India

During the Covid induced lockdown, ‘Kissht’, consumer fin-tech company that offers instant credit and personal loans within minutes without a credit card, observed many of its customers had financial challenges and they leveraged the tech platform for quick-fix solutions.

“Digital lending has access to the last mile. There is a huge population which is economically backward and does not have the requisite paperwork for traditional banks to serve them. So digital lending players with the needed tech-support to analyse the credit worthiness and risk factor for even individuals who do not have a credit score or any credit history, and helping this under-severed segment. Today, even traditional players are adapting to technology and evolving themselves to stay relevant in the fast-digitizing world,” an official spokesperson at Kissht stated.

Digital lenders require less paperwork. Why?

A traditional lending procedure requires you to submit a myriad of paperwork and documentation which will include, identity proofs, address proofs, employment documents, property documents and so on. If any of these documents are misplaced, the entire process turns even more cumbersome, not to mention the hassle of carrying so many documents around.

“However, in case of digital lenders, they need very basic documents like PAN/ Aadhar and couple of other formalities, all of which can be completed online. Even the documents can be scanned and uploaded, which is so easy and hassle-free. Digital lenders largely rely on data sources such as digital footprint which include to study their check ins, travel history, etc. All this helps to create a picture of the proxy income and proxy repayment capacity of the borrower and thus decide his creditworthiness,” Kishht spokesperson asserted.

In fact, digital lenders use tools like AI and data analytics to create their own algorithm score to verify the credit capability of an individual who does not have a CIBIL score or even a credit history.

Digital lending: Safety and credibility?

Unlike traditional lending players who are still adapting themselves in the digital world, the fintech players are intrinsic to technology innovation. Owing to their online nature, they are well aware of the perils of cybercrime and thus invest heavily in building a robust and state of the art security system. They have customized security features for each business operations and regularly monitor and upgrade their systems.

Most companies, according to the Kissht spokesperson, run regular mock drills to find out any lapses in security and have a team of experienced IT professionals monitoring the security network. They also have a ‘crisis responses strategy’in place, so that no time is lost in responding to a breach of security. In the same way, there are also robust security parameters in place to avoid any data leaks, or event detect fraudulent behaviour of customers or employees.

Access to vital information or critical operations is restricted to select authorized personnel, so that the integrity of the system is maintained. In addition, the RBI is also putting up a framework architecture that will focus on 3 elements- pricing, privacy and transparency. Organizations like FACE are working with the government to curate a robust policy framework and regulatory guidelines for the sector.

Google app store also has issued guidelines for lending apps to submit their registered license before getting on board. So the digital lending players, regulatory bodies and the government are all working together to ensure a safer and credible digital ecosystem for customers.

Loan flexibility: How digital lending outperforms?

Traditional lending players are rigid in their process and cannot take quick turnaround decisions when it comes to offering instant financial solutions. While digital players can leverage their technology platform and quickly introduce customized solutions or new credit line features, that will ease the burden of loan repayment, for their customers.

“Case in point, during the lockdown we observed many customers faced financial crunch and so we quickly introduced some innovative features to help their plight. We introduced a credit line product, which allows small entrepreneurs to choose the repayment schedule as per their working capital cycle, as against fixed schedule payment. Second, we activated a shorter-term loan of 90 days as against the usual longer tenure of one year which we were offering before the pandemic. Third, we offered a delayed repayment option which allowed the customer to request for extension of the repayment date by 30 to 90 days, without having to pay any late fee penalty. We also offered loan moratoriums during the pandemic time, which over 40% of our customers availed,” Kishht spokesperson pointed.

In addition, tools like AI, ML, and data analytics helping in analysing the credit repayment history and fraud risk triggers, thus secure loan extension, flexibility decisions can be made in an instant. Traditional lenders lack this agility and quick response to serve the evolving customer demands.

How’s the future?

New-age fintech players are innovative and customer-centric, thus paving the way to the new phase of banking. With newer and smarter technology like blockchain on the horizon, the digital financial ecosystem is getting stronger, faster and most importantly accessible to the last mile customer. Today, there are numerous digital lending frameworks and with technology adoption, they are ushering into an evolving new financial ecosystem.