The Future Of Credit Is Here
In sharp contrast, there has been hardly any innovation in the traditional banking scenario in the last 30 years, except perhaps for ATMs
The quieter and, in some ways, more profound effect of fintech has been in the rise of fintech companies who provide credit to its consumers, using technology as a differentiator. They speed up the approval time by accessing, not only information provided by consumers, but by connecting to multiple data sources like credit bureaus, PAN, etc., to assess credit and underwrite loans. Typically, these are all unsecured products, meaning there is no collateral or guarantee involved.
Fintech companies have netted the lower-middle income consumers who have, until now, been ill-served by banks as far as credit is concerned and have had to resort to gold loans or source other types of collateral. The lending landscape has transformed in the recent times with a host of startups that provide direct and simple credit for consumers. These companies broadly offer two types of products: Cash credit from companies such as Walnut & PaySense, that can be used for any purpose.
EMI loans to purchase electronics or white goods from companies like Zest Money or Kissht competing against industry giants such as Bajaj Finance. Then there are companies like MoneyTap that provide a flexible hybrid product that is an app-based credit line.
Fintech startups that provide credit to SMEs include CapitalFloat, KredX, LendingKart, NeoGrowth, Indifi and others. They have been in the market for more than three years now, and the tangible demand has ensured steady growth. SMEs are traditionally extremely credit-starved, and access to capital is the lifeline for survival.
Recently, with the introduction of GSTN, access to information of the business transactions has ushered efficiencies in lending and suddenly enabled a much larger segment now qualified to get credit.
Since lending is regulated in India, many of these companies either work with banks to lend their money or have registered NBFCs under their name, which is regulated by the RBI. The lending capital is either provided in some form of a co-lending model with banks, peer-to-peer lending networks or their own balance sheet. Registered fintech firms employ advanced technology to ensure the privacy of consumer data that they access. The next five years will witness three seismic revolutions that will radically change the face of credit in the country.
UPI and the payment revolution: With giants like WhatsApp, Facebook, Google Tez, Flipkart PhonePe and Amazon in the fray, watch this space for exciting credit products on UPI. This will be a first in the world from India as there are no other countries who can offer anything close to the open payment network such as UPI.
Big Data and AI: Using algorithms instead of people to evaluate credit is not in the realm of science fiction anymore. Alibaba already does it in China, and Google and Amazon AWS have made their platforms ubiquitous and cheap for developers to build their models.
Regulatory steering: Be it RBI or UIDAI, or the quasi-private agencies such as NPCI have been driving innovation while preventing credit bubbles that happened in China and Southeast Asia. The P2P lending regulation, NBFCaa, IndiaStack’s Consent Architecture, etc., are among the most forward-thinking policy regulations in the world.
In sharp contrast, there has been hardly any innovation in the traditional banking scenario in the last 30 years, except perhaps for ATMs.
In the last 10 years, fintech firms have harnessed the power of emerging technologies to shake up the way business is conducted. The future of credit is here, and Fintech is the driver!
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