Over the past few years, economic uncertainty has continued to affect global markets. The headwinds related to the pandemic and the Ukraine-Russia war, among other issues, have made matters worse. Given the ongoing turmoil, banks, fintech firms and other new-age lenders have sought to ease existing concerns, providing a measure of stability to the markets.
In context, digital lenders have played an increasingly active role in helping enterprises, especially MSMEs, and individuals either to keep businesses running or to ensure that they can manage household expenses despite loss of income. . It is clear that automation, data and technology can ensure higher productivity, reliability, availability, improved performance and lower operating costs. Automation will contribute to economic growth through its contribution to productivity.
How uncertainty fuels digital offerings
Empirical evidence indicates that as small enterprises face economic uncertainties, their need for funds increases. The growing demand for funds, especially in larger tranches, means that small businesses need to be prudent when managing capital outflows.
Digital lenders realized that to help small businesses move through economic uncertainties and still save money and improve productivity in the process, technology, data analytics and automation could not be ignored.
However, the situation is not as simple as it seems. This is mainly because there are security issues involved in online transactions like phishing and other cyber frauds.
Furthermore, continued volatility and the looming threat of a global recession have triggered favorable winds for digital lenders. This is because both institutions and individuals have felt a greater need to increase their borrowings to meet monthly expenses and repayment obligations.
India’s fintech firms have been huge beneficiaries of these conditions. Not surprisingly, the country ranks third among the fastest growing fintech markets in the world, with the highest fintech adoption rate of 87%. Here, the major focus of domestic fintech firms has been on the lending and payments segments.
As these developments unfold, India’s fintech industry is leveraging technology tools to streamline operations and enhance customer satisfaction.
The primary drivers of fintech growth include e-commerce, growing pan-India internet and smartphone penetration, as well as rising consumer expectations.
Data-driven deals and due diligence
Today, the digital lending landscape is primarily driven by data. The pandemic has played a key role in accelerating India’s digital transformation, transitioning to a remote-first workspace using design thinking to analyze and optimize the customer journey or implement automated customer service.
The fintech market also registered a 40 per cent increase in digital transactions. Be it customer acquisition and underwriting and disbursement initiatives, digital lending protocols remain data-driven.
Customers have also increasingly appreciated the benefits of digital deals. A survey shows that led by millennials, around 40 per cent of borrowers are more inclined to avail loans online rather than through offline channels. But as mentioned earlier, as digital transactions grow, so do the potential for cybercrime.
Keeping in mind the associated threats, digital lenders are deploying data analytics, artificial intelligence (AI) and machine learning (ML) tools to thwart cybercriminals and facilitate secure digital lending. As the focus of digital lenders shifts towards risk-reducing lending, traditional tools fail to meet the benchmarks needed to securely manage the entire loan cycle.
To overcome such hurdles, digital lenders use data analytics to understand borrowers’ needs and repayment capacity. Through analytics, AI and ML tools, it is possible to pinpoint patterns in the data that uncover the risk levels of potential borrowers. Thus, technological tools can create a Credit Risk Model (CRM) that helps differentiate between good and risky borrowers.
CRM aggregates data from various sources to provide more accurate assessments by leveraging the power of AI algorithms. Sources include credit bureaus (inquiries, approved loans, defaults and defaults, etc.), bank details (bank balances, monthly income, recurring debits, etc.) and personal/demographic details (educational qualifications, occupation, marital status, etc.). , Taken together, these details help build a high-quality CRM.
Such scientific, data-driven digital lending models are then used to create a vibrant Early Warning System (EWS) that predicts the borrowers’ ability to make regular monthly repayments of loans without any possibility of default. and desire). Backed by proactive predictive models such as EWS, it becomes easier to focus the work of collection resources on borrowers who are more likely to have intentions of withholding repayment due to a variety of reasons.
benefits for all stakeholders
Thanks to a robust combo of credit risk models and early warning systems, the digital lender is able to serve a broad-based segment of eligible borrowers while controlling credit risk.
What’s more, credit-worthy customers also benefit from healthy due diligence through lower interest rates and a better offer of loans, credit cards and other financial products. Proper understanding of customer eligibility through data analytics helps lenders to provide personalized products and services.
Encouraged by the benefits of technology in promoting easy acquisitions, secure transactions and greater customer satisfaction, banks and other lenders are joining hands with advanced fintech platforms to meet the needs of tech-savvy Millennials and Gen Z consumers.
As digital increasingly becomes a major part of consumer life, lenders must keep pace with the latest technological advancements. Apart from safe and secure digital transactions, it will also facilitate faster turnaround times for greater customer satisfaction. For a service-oriented segment like digital lending, there can’t be a bigger reward than this.
(Author – Vineet Tyagi, Global CTO – Biz2X)
(Disclaimer: The views expressed in this article are the author’s own. They do not reflect the views of India TV)