In India, over the past few years, there has been a paradigm shift in consumer behaviour, with regards to financial transactions and the rise of fintech companies that have allowed this change. That is in particular with lending. In general, lending has five phases – customer onboarding, underwriting, disbursement, repayment and collection. The digitisation of these processes has had mixed results around the world, and what we have seen evolving is the hybrid model, where the combination of technology and feet on street offers a very practical and scalable proposition.
Digital customer onboarding process varies depending on Personal or SME loan. Industry focus on CX (customer experience) and UX (user experience) has made the process of applying for a Salaried Personal Loan seamless. SMEs, on the other hand, have mixed experiences, most of which continue to depend on Direct Sales Agents or e-referral partners. However, SMEs seeking small ticket loans have been able to benefit from this digitization of personal loan applications.
With availability of alternate data like social behaviour, transactional SMS information fetched from mobile, etc are enabling systems to underwrite customers eliminating the need of manual underwriting in Salaried Personal Loan application. The introduction of GST has allowed lenders to underwrite MSME loan better using a variety of models.
However, every model relies on basic data availability to predict customer’s repayment capabilities. The pandemic, however, has shaken the system due to several factors – delays in GST data, unavailability of moratorium information. As under-writing is a challenge in the short term to -medium, we will move to a world where more checks and additional information is required of borrowers to deal with risk concerns. Most lenders, it is believed, will use a mix of manual and automated underwriting model until they are confident that the macroeconomic condition has improved.
The introduction of Open Credit Enablement Network and the use of Account Aggregation infrastructure are the ongoing efforts to simplify, automate underwriting and reduce TAT for the borrowers. There is a long way to go to see how this unfolds but efforts made are surely in the right direction.
Disbursement, Repayment and Collection
Disbursement and repayment are the two aspects of borrowing where technology has played an important role in instant credit and debits. Borrowers can get loans in just seconds. Lenders know, on a given date, how many borrowers have paid and how many have failed so they set up accounting strategies for quick collection.
Collection from default customers will continue to be through the hybrid model. Lenders will need models to predict and identify high-risk customers but will also need to reach out to customers through the feet on street approach and understand the actual customer issues. The key to building a strong digital borrowing process is finding the right balance between technology and feet on street. Industry experts are now convinced that there is a need for a close collaboration between banks and FinTechs-NBFCs.
Partnership with Fintech-NBFCs
Cooperation between Lenders and FinTech-NBFCs is about to last. As FinTechs continue to develop technologies that will allow SMEs and individuals to work effectively using Personal Finance Management platforms like Money Manager on Finserv MARKETS, financial institutions will be able to access alternate data and evaluate income, spends and repayment behaviours. Indian Fintechs have had to deal with challenging macro events since its inception: demonetization, GST, and now pandemic. Learning has made the process more robust and financial institutions will now have greater confidence to collaborate with Fintechs.
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