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The lending sector in India has always had two distinct segments in operation. The standard lending segment is run by banks that offer loans for your business or for your personal needs like buying a house, a car etc. Then there is the alternative lending sector which has historically relied on securing credit from members in the community or self-professed lenders in the area that lend with almost credit-checks but who charge much more than the bank rates. A strong third player is also emerging (which actually belongs to the alternative lending sector) in the form of Non-Banking Financial Companies. These firms are sort of taking the best from both worlds and giving banks a run for their money (pun intended). But even then, the lending sector in India still needs to address a credit supply gap worth USD 200 billion¹!

The FinTech industry in India is growing at a steady pace that even beats the numbers worldwide. The expected (ROI) on FinTech investments in India is 29% against Asia’s 25%¹. This growth in FinTech has had an impact on the lending sector for the better. The financial pundits at Prest Loans (www.prestloans.com) have analyzed why FinTech will have the biggest impact on lending and here are their reasons.

Reasons for FinTech’s impact on lending

1)      There is strong government support for FinTech- The Indian government has been very clear on its stand on digitization and digital currency. It is little surprise then the government has launched the ‘Startup India Program’ to nurture and help young start-ups to grow (there were 158 start-ups in the alternative lending space in 2016 alone²). Start-ups can quickly build the technology that can then be used by traditional financial institutions who themselves may not have the agility to build new technological capabilities. The government has also announced the ‘Jan Dhan Yojana’ which aims at reducing the population that is unbanked or underbanked. The National Payments Council of India (NPCI) has also introduced a number of moves to facilitate payments (like the RuPay cards, UPI, BHIM) which sets a good example for the other sectors to adopt technology.

2)      The regulations coming in can be best addressed by FinTech- The introduction of Aadhar and the ubiquitous linking of it to almost every asset one has, brings greater scrutiny into the financial sector. The growing regulations will stifle out unregulated players who operated as per their own will. But this push for regularization will only help the lending sector, if it adopts FinTech to    automate identity verification, KYC and AML checks and fetch credit scores to disburse a loan, thoughtfully. The days of ‘loan sharks’ are coming to a slow end.

3)      Emergence of technology as the all-pervasive medium- It is not just the government but technology in general that has become all pervasive. The functioning of ANY sector today, and not just lending have to take note of the growing digital penetration in India. The number of smartphone users in India is projected to grow to 500 million users by 2020 compared to 150 million in 2016. This makes it obvious that any new service, lending or otherwise needs to be technologically enabled. The establishment of ‘India Stack’- the largest open API in the world that is aimed at creating presence-less, paperless, cashless service delivery ran a pilot by attempting to solve the problems of loan disbursement. This is testimony to the fact that India’s financial sector is truly going digital, with capabilities like the India Stack which weren’t there before.

4)      Banking technology is gearing for its next revolution- The primary lending sector could also see quick adoption of FinTech if current banking technology is anything to go by. Ever since banks underwent their digital transformation in 1991 due to legislations pushing for MICR, e-Transfer  etc. the industry has been technologically stagnant but the current players have started taking technology seriously, which is why we have HDFC Bank and the Fintech startup, ‘Tone Tag’

partnering to provide phone-based proximity services and Yes Bank teamed up with

Ultracash Technologies to design sound-based proximity payments. These trends by the big players will push everyone (including lenders) in the sector to take up FinTech more seriously than ever.

5)      Growing interest by investors- Goldman Sachs had announced potential investments of up to USD 10 million in the FinTech start-up scene back in 2016. Barclays and Citi and much closer to home, SBI, ICICI Bank, RBL, Axis and many other large banks have set up innovation hubs or accelerator programs to attract FinTech startups. Other VC firms like Sequoia, SAIF, Matrix Partners, IDG have also expressed interest in the FinTech sector and the investments continue to grow which will sustain the FinTech sector to revolutionize lending.

Conclusion

The lending sector in India will see impressive growth in the times to come and FinTech will play a big part in that growth. New age NBFCs like Prest Loans (www.prestloans.com) are already using FinTech to execute better credit scoring, faster approval processes to build a more memorable customer experience. Their efforts in adopting FinTech will be key in propelling the lending sector in India to heights, never seen before.

Sources:

1: https://www.pwc.in/assets/pdfs/publications/2017/fintech-india-report-2017.pdf) 

2: https://www.swissnexindia.org/wp-content/uploads/sites/5/2016/10/Fintech-Report-2016.pdf