Strong growth has been observed in the consumer credit sector since the onset of the pandemic. With robust growth in demand across the country and in all income segments, we have seen demand increase in all geographies and demographics. While the Fintech ecosystem has also experienced meteoric rise in the recent past, both have enabled digital lending services to flourish, revolutionizing the way loans are obtained and disbursed. Its growing popularity can also be attributed to, among other things, increased smartphone penetration, flexible credit range and speed of online transactions.
According to a recent Research & Markets report, digital lenders could capture nearly half of the total loan market and disburse $ 350 billion in loans by 2023. This blitzkrieg could make lending the sector with the highest digital penetration in India. Thus, digital lenders are poised to take full advantage of the strong and positive global sentiment investors and consumers have towards fintech.
The rise of digitization in credit
The pandemic has accelerated digital lending adoption by at least a few years, if not more. This has enabled the loan to change the perception of consumers by providing convenient service and improving operational efficiency. Streamlined processes, paperless operations, automated decision-making based on workflows, and credit scoring optimized by in-depth analysis can all be used to deliver what customers want. Banks and financial institutions also need to be able to launch new products quickly, in all the channels customers expect, at prices they are willing to pay and where the bank can get the returns they want. need.
Disruption and innovation in trade payments
Real-time payments, already commonplace in many geographies, are gaining ground in India. Point-of-sale credit options and buy-now and late-payment solutions are reinventing lending and improving the point-of-sale experience. Solutions such as Google Pay and QR codes that offer tap or scan to pay options continue to develop. As e-commerce accounts for a larger share of spending (a long-standing trend towards contactless payment has also accelerated), cash is more displaced. Fintech innovations brought BNPL to many companies, which were very dependent on card and cash payments. This means they can improve cash flow, sales, and business growth. Therefore, with the increasing demand for contactless payments, financing or credit at checkout has further increased in India.
Access to untapped audience segments
Today, digital lending offers full financial inclusion by making finance accessible in all walks of life and all geographies. It gave banks the potential to reach the hinterland of the country, through internet penetration and the adoption of smartphones. Banks can rely on intelligent automated tools and analytical data to determine the creditworthiness of the person without a credit score or payment history, etc. This has been one of the greatest benefits of the digitization of financial services, providing accessibility to the underserved population.
Millennial behavior change
2020 saw borrowing for health emergencies and refinancing credit as opposed to older behavior of borrowing to buy durable consumer goods. According to the Experian-Invest India Credit Ecosystem Review, domestic credit growth in India averaged 15.1% from March 2000 to March 2021, mainly driven by retail lending and increasing credit card penetration. The study also finds that the consumer credit market continues to grow at a faster rate than most other major economies around the world, with around 22 million Indians requesting new credit each month. This boom in retail lending in India and its new group of borrowers presents a great opportunity for digital lending players. This has been recognized by banks and fintechs connecting seamlessly with the consumer (e.g. using the vernacular) and using the data to personalize offers for each individual customer. On the other hand, millennials have taken to digital loans in 2020 to meet their emergency fund needs such as medical bills and credit refinancing. This is a trend that we had not seen in previous years. There has also been an increase in demand for home improvement loans after the foreclosure, according to a report from CASHe, a digital lending platform.
Look to the future!
There is no doubt that COVID-19 has had an unprecedented impact on the retail lending industry – across geographies, sectors, customer segments and product categories. While it is still early to assess the large-scale economic impact of the pandemic, its repercussions should be felt in the years to come. Procurement, as well as a collection of loans, were significantly affected, with drawdowns at record levels and asset quality at severely degraded levels. Lenders find themselves in a particularly difficult situation as they face multiple problems such as shrinking profit margins, bad debts and write-offs, and a shortage of cash. After a major collapse in the first two quarters of FY21, the final quarters should bring hope to lenders as the economy slowly shows signs of recovery.
But how can the rapidly evolving digital adoption make a difference? Lenders such as banks, NBFCs and other financial institutions should view this event as a turning point for retail lending in India. They must act quickly to become the lenders of the future. As more customers embrace digital banking and payments, these institutions must embrace digital to be relevant in a changing market. It is extremely important for financial institutions to go back to the drawing board and redefine their strategy and rethink what their organization stands for. They need to innovate at all levels, including their service offerings, channels, operating model and customer service. They must also optimize their spending and invest in the most profitable projects while propelling the organization towards its strategic objectives. Credit organizations now have the opportunity to transform their business models and become modern, resilient and lean organizations, ready to adapt and meet the challenges of the future.
The author, Murali Nair, is president of banking at Zeta. Opinions expressed are personal