The population in India is booming year on year. With more than 800 million mobile phone users spread across the country, the scope for digitalization is simply immense. With an SMS ‘plonk’ you get the intimation of your salary being credited, your bank statement can be easily updated via netbanking, money transfer is now possible via UPI through BHIM. The security aspect is taken care of by Aadhaar, NACH, e-KYC and OTP (sounds familiar? check out Loan Singh’s FAQ).
Financial technology turns into an umbrella for all finance related activities including unsecured credit, digital payments and P2P lending. Digital and not P2P is what we will be discussing in this week’s Loan Singh special. We will also later in the post see what’s in store for digital lending in 2018.
What is Digital Lending?
Digital lending is a lending solution which enables salaried individuals to apply for a personal loan with quick loan approval and fast disbursement; leveraging technology. Through traditional lending institutions dossiers of paperwork, no clarity on approval status, delays with regards to documentation, etc. make it a herculean task to get funds in times of emergency. On a digital lending platform, eligible individuals are provided funds based on their creditworthiness.
A digital lending platform combines the technology with credit lending principles. Borrower profiles are evaluated by credit underwriting algorithms to assess his/her creditworthiness based on multiple factors. The borrower then pays EMIs which the digital lending platform keeps track of. Borrowers can apply for a personal loan towards a number of purposes such as health, second hand car, festival spending, travel, marriage, home improvement, etc.
Digital lending is growing rapidly and recent reports indicate that India is the third largest alternate lending sector in the world – after USA and China. Digital lending, although existent in India for close to a decade now, is an online process of lending money to salaried individuals; done mostly via an app or platform.
A digital lending platform, such as Loan Singh, relies exclusively on technology to perform processes in the loan lifecycle. Digital lending provides a superb opportunity for underserved & credit starved salaried individuals to apply for online personal loans. This is only a small percentage of those in need of credit. Majority of us still approach a friend or borrow money from family. For some, digital lending is viewed with much skepticism. You might worry as to how reliable can a digital lending platform be, with your personal and salary information being fed into the system. Loan Singh exercises precaution when dealing with your sensitive data by adding a secure socket layer (SSL) which establishes an encrypted link between the platform and your browser, ensuring the data that passes through remains private.
Features of Digital Lending
The ‘Digital India’ project swooped in at the right time to provide a lift to digital lending in India. With the combination of borrower data, algorithms and technology, the question arose as to what could be done with this trident to actually solve daily financial problems that was affecting India’s millennial generation. Financial services are the largest contributor to the GDP. The idea is to have a simple platform that provides quick yet effective financial services with good value. There are more and more millennials ready to accept a digital platform to solve their financial problems. The need for digital lending arises mainly due to the shortcomings in traditional lending solutions. Some factors that govern its rise are:
Making use of technology certainly puts a digital lending platform in the driver’s seat. For loan processing, there is a system required to check the documents, process the loan and disburse the approved loan amount. All these are done with the help of credit models that make use of borrower data. Digital lending allows for continuous upgrade of tools that are needed to make the loan experience faster and better.
Imagine not needing to travel from bank-to-bank with documents, photocopies and application forms. With digital lending, the documents can be retrieved from the borrower’s internet banking account or uploaded from the computer. The borrower’s credit report is fetched online, and helps a digital lending platform to provide collateral free personal loans. So, without actually seeing the borrower, the loan is approved and disbursed.
There is least human intervention involved in digital lending. There are no executives to physically accept your application form or your physical documents. Therefore, there is no chance of partial tampering of documents or unbiased loan decisions via the route of digital lending. Digital lending also shortens the credit assessment time.
The use a simple online application form, replaces the pile of exhaustive paperwork that could take-up an hour to fill; along with references and signatures.
With traditional lending solutions taking up to 2-3 days to get the loan from approved to disbursal stage, a digital lending platform will do the same within 36 hours; if all the eligibility criteria are met.
Lending money is an activity that involves handling of sensitive borrower information – including the financials. This makes it paramount to protect the data. There are occurrences reported of identity theft and website hacks that make us skeptical to depend solely on digital lending. But, the hallmark of a good digital lending platform is making use of SSL layers for encryption.
What’s in store for 2018?
Banks and credit institutions have by now comprehended the extent and scalability of digital lending. Developing an app is not enough to appease salaried millennials. Umpteen steps in getting personal loan approved are no more acceptable. Who has the time to stand in never ending queues? Banks need to reinvent themselves or might be left far behind by emerging startups and Fintechs.
The emphasis on banks and offline lending services would be to focus on building a seamless and digital application process. Everyone is already smartphone dependent and nobody has the time to visit the bank to wait in long queues. Faster credit underwriting is one more area which needs improvement by offline lending services. Time and research has to be spent to understand what millennials are looking for. There has to be a well-structured strategy, keeping in mind competencies. Two areas to keep in mind this year are
Flexibility – Architectures and systems for digital lending must be flexible to configuration. Real time requirements such as addition of external APIs are to be allowed on the go.
Design – The design should be focused on the end user. Understanding borrower profiles, their demographics, social media presence etc. needs to be taken into consideration.
Eliminating paper and cutting time delays has to be the priority for offline lending services. The friction that is caused due to unending paperwork and approval time has to be addressed. Digital analytics are needed to better understand borrower needs and that too in real time. Alerts, notifications and intimations need to be sent out in real time as and when the loan application is submitted, approved and amount disbursed.
So which is the best digital lending platform in India?
Despite India’s digital lending sector still in growth phase, one Fin-tech player has managed to tread farther than others in the segment. The name of this Fintech is Seynse Technologies. Seynse Technologies has also been a proud partner in launch of the Airtel Online Store.
Features of Loan Singh
Being a digital lending platform, Loan Singh embeds almost all of digital lending features. Some facets of Loan Singh are
- Automated underwriting using proprietary data modeling
- Non-existent time delay in decision process
- Quick disbursement due to automated processes of assessment and lending
Innovation is ensured thanks to better quality of customer service with online chats, etc.
The risks taken by Loan Singh are tremendous compared to banks. Here borrowers don’t have to physically apply for the loan. PAN details and Bank statement PDF is enough.
Credit Risk (unsure of repayment), Market risk (unpredictability) and Operational risk (cyber-attack, technology outlay, etc.) are 3 risks that Loan Singh faces head-on & tackles while serving the under-served.
The traditional finance sector has always been a slow moving one. Digital lending uses “Speed” as a word for all its operations.
Loan Singh prides itself on its technology, which automates processes and hence traditional lending solutions such as banks will need to take more time to shift from years of standard tedious practices like lengthy paperwork and long list of documents.
What are Loan Singh’s advantages?
Loan Singh presents a number of advantages over other online platforms. Some of these advantages are
- Minimal documentation
- Fixed monthly installments
- No hidden fees
- Easy online loan application process
- No prepayment penalty
- Social authorization – a secondary identifier
- Transparent process