The FinTech innovations in the recent times have contributed a lot to refine the banking and financial services. They’ve greatly contributed to delivering a more personalised and intuitive banking experience. With such innovations and technological advances uniting with the financial services like digital lending, it is certain that countries like India will be benefited and will sustain a healthy digital economy.
FinTechs are emerging to challenge the traditional means of banking having their futuristic capabilities like Business Intelligence and analytics. Globally, FinTechs are being heavily funded since past few years and the Indian FinTech market was listed in the top 5, gaining a funding of over $270 million in the year 2016.
On the other hand, as the provision to promote SMEs in India, the government has been supporting the start-up and entrepreneurship culture. As a result, more and more business loans are being demanded and disbursed. However, with this also comes the demand for more flexibility in lending and borrowing loans. To address this trend, the FinTechs have discovered ‘Digital Lending’ that is popularly known as Peer-to-Peer (P2P) lending. This type of lending makes procuring loans easier – lesser paperwork, lower rate of interests, flexible repayment options and more.
With digital lending in place, SME lending and micro-financing have become simple and prompt. They can be procured based on the online shopping behaviour, account statements, deposit and withdrawal patterns etc. It has aided entrepreneurs in seamlessly materialising their business plans.
Why has digital lending commercialised amongst SMEs?
Lending processes have always been tiring for SMEs considering the difficulty associated with their credit underwriting. The traditional practices of lending still involve obsolete methods of identifying the borrower’s creditworthiness, unlike the digital lending means wherein loans are disbursed using technologies like data analytics, psychometric tests, social media habits and more. The quick approval (or denial) of loans through digital lending saves borrowers plenty of time, paperwork etc., thereby improving the overall customer experience.
The Need for Digital Lending
Post the 2008 economic crisis, the increase in regulatory policies left financial institutions limit themselves to stringent lending practices. FinTechs identified the scope of digital innovation in how lending process works and thus digital lending came into being.
Digital lending services started filling in the gaps between borrowers and lenders – credit underwriting times reduced significantly, loan amounts, interest rates and repayment tenure varied. Of course, digital lending must consider the guidelines drafted by RBI and ensure transparency at all the phases of loan disbursement process. Also, digital lending is flexible in mapping any new changes smoothly and timely as compared to the conventional banking system.
Digital lending has been invariably assisting aspiring entrepreneurs to have access to funds in order to get their operations going. It has received a green flag from the government of India as it is already promoting Digital India initiatives. Financial institutions can also embrace digital or P2P lending by partnering with FinTechs and exploiting technologies like Big Data and BI to the core.