Fintech lending apps and their viability

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Over the past decade, FinTech has become an established global standard. The tailwinds blowing through the FinTech sector show how the lines between business and technology are increasingly blurred, forcing not only startups but also established financial institutions to harness technology to create new products and solutions. One such technological innovation disrupting the financial services landscape is FinTech or digital lending.

The recent stream of technological innovations and the consumerization of FinTech lending applications have reshaped the way financial services are developed, delivered and consumed. Powered by 1,100 FinTech lending apps, India’s digital lending industry is set 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 infrastructure, inclusivity and risk management issues that long-standing banks and financial institutions have failed to address. failed to resolve.

Proliferation of smartphones and internet connections

The number of smartphones in India has grown from 100 million in 2014 to over 700 million in 2021. With no signs of slowing down, the number is only expected to increase in the coming years. This means ubiquitous internet access for most of the Indian population. Accelerated by the availability of cheap smartphones and the explosion of faster and more affordable internet connections, a large population has turned to FinTech lending apps.

In particular, users who need urgent small loans have found happiness in being able to download loan apps on their mobiles and get loans without long processing times, numerous approvals and multi-way checks.

Key enabler of financial inclusion

For a long time, Indian borrowers’ demand for formal credit has been unmet and ignored by banks and financial institutions. Low credit penetration in the informal economy and new borrowers and the continued reluctance of banks to lend to small borrowers with little or no credit history have widened the credit gap in India.

Defying centuries-old norms, FinTech lending apps are foraying where banks fear to tread. A combination of business models such as peer-to-peer lending and crowdfunding along with innovative credit scoring models have enabled digital credit players to include a largely invisible segment of credit as part of financial inclusion.

Supported by government initiatives

As FinTech lending apps are leading the way to narrow the credit gap in India, the government is pushing ahead with increasing financial inclusion and digitalization. Implementation of enabling policies and initiatives such as Jan Dhan Yojana, Aadhaar Enrollment, Digital India, India Stack, Digi Locker and Unified Payments Interface (UPI) has helped FinTech lenders to capitalize on public digital infrastructure and create and deploy lending applications.

Facilities like Aadhaar, e-KYC and e-Sign authentication have further enabled digital lending apps to authenticate users, assess their creditworthiness, expedite loan disbursement and ensure security and transparency.

Remedy for the ills of the pandemic

The outbreak of the Covid-19 pandemic and subsequent lockdowns and restrictions separated a large population from the nexus between banking and financial services. But the pandemic has also forced consumers as well as businesses to conduct their transactions online. In the face of financial and medical emergencies, these same users have taken advantage of instant loans from FinTech lending apps.

According to the FinTech Association for Consumer Empowerment (FACE), the volume of FinTech loans doubled to Rs 18,000 crore in the financial year 2021-22, with 98% of loans classified as personal loans. Due to their low overhead, technology-driven optimization, and minimal manual intervention, FinTech lenders have been able to operate efficiently and meet emerging economic needs during and after the pandemic.

A multitude of technological advances

With the proliferation of smartphones comes the proliferation of data. By leveraging technologies such as data analytics, artificial intelligence, machine language, and cloud computing, FinTech lending applications have been able to extract valuable insights from the abundance of data.

This has allowed them to better understand their clients’ needs, speed up loan processing and disbursement, and improve fraud detection. These technologies enable digital lenders to analyze customer behavior, assess risk, detect suspicious behavior, identify repeat offenders, flag high-risk loans, and make unbiased decisions. There is no denying that this cautious yet customer-oriented lending model has driven the growth of FinTech lending applications.

Key points to remember

FinTech lending apps are gradually taking over the lending market which was once dominated by traditional banks and conventional financial institutions. By providing alternative financing solutions, they are reshaping the lending process and revolutionizing the lending landscape using innovative and disruptive technologies. So sweeping the global financial services industry is blowing strong winds of change that are energizing the FinTech lending industry.

(The author is Ajay Chaurasia, Product Manager, RupeeRedee)