Banking and financial service industries are witnessing a transformation with the implementation of digitalization. Alternative modes of lending such as crowdfunding, investment management services, and digital marketplaces are on the rise.
With the collaboration between banks, financial institutions, and FinTech organizations, India is moving towards being a more technologically innovative country. Digital marketplaces are a primary example of this. These online portals bridge the gap between consumers and financial institutions by bringing them together on a single platform.
Within the lending industry, personal loans and credit cards are two forms of credit that have seen vast changes. In comparison to the process that existed five years ago, it is now far easier to obtain loans and credit cards in India. FinTech has made the lending quicker and more convenient by taking it online. As per a recent survey, digital payments in India are expected to grow from the existing $50 billion to a whopping $500 billion by the year 2020.
The Concept of Personal Loans and Credit Cards
Personal loans are a type of unsecured credit provided by banks and financial institutions to borrowers who meet certain eligibility criteria. These loans are often difficult to obtain as they lack collateral and therefore present a high degree of risk to the lenders. Personal loan eligibility is dependent on a borrower’s fixed income, good credit history, and a reasonably assured repayment capacity.
Credit cards are a short-term form of revolving credit that follow the principle of buy now and pay later. They provide the flexibility of making purchases and paying bills for which the repayment can be done at a later date. Nowadays, more and more Indians are turning towards credit cards to help them meet their emergency expenses.
Effect of FinTech on Credit
Over the last few years, FinTech has revolutionized four main aspects of obtaining credit such as personal loans and credit cards in India.
One of the most difficult parts of the process is to find the best credit card or personal loan. But FinTech companies have made this process extremely easy. With technology, it is possible to match lenders and borrowers. Digital marketplaces are collaborating with banks and financial institutions to do just this. This digitalized match is made through data analysis such as a borrower’s credit history, fund requirement, and repayment capability, as well as a lender’s terms and conditions.
The first step is to apply for a credit card or a personal loan. The advent of digitalization has simplified this process tremendously. Now, borrowers no longer need to spend a lot of time and effort in going to banks in order to avail credit. The application form is available on the websites of banks and financial institutions. KYC documents can be scanned and attached to the form. The digital signature feature allows you to sign the form online directly. Further, credit can be applied for through mobile phone applications too.
After the application form is submitted online, banks no longer need to verify the documents manually. With FinTech, this process has become completely computerized. Using multiple online data points, it is now easy to collect details about a borrower’s creditworthiness and repayment capacity within minutes. Further, every individual’s CIBIL score can also be generated online with just a few basic details. This innovative use of technology has sped up the verification process tremendously.
The last step is the disbursement. With quick application and processing, disbursement of your credit card is possible on the same day of the application. This means that you no longer have to wait for weeks to get your credit card delivered. For personal loans, the fund disbursement takes just 24 hours to reflect into your bank account.
Opportunities and Challenges
There are four primary areas where the FinTech industry has a wide opportunity for growth in the current scenario.
FinTech companies are providing enhanced security measures to ensure that private and confidential data is not vulnerable to cybercrime. Through SSL certification for data protection, technology is promoting enhanced methods of safety. However, building loyalty among Indian consumers is one challenge that the industry will face. It will be up to FinTech startups to prove that digital lending is more secure than traditional lending.
Human intervention will be minimized as FinTech launches itself deeper into the financial industry. Because computers are not limited by speed and thought constraints like human beings, regular processes can be completed with greater effectiveness and precision.
The ability to provide quick disbursements means that time is saved at every step of the lending process. This allows for bankers and financial institutions to use that time elsewhere and more effectively. Further, consumers no longer need to wait to get access to their credit. The structure within the system will promote a healthy long-term relationship between lenders and borrowers by building loyalty.
Enhanced Consumer Experience
The ultimate goal of digitalization is to improve the existing consumer expectations by upgrading the services provided to them. FinTech companies can achieve this by modernizing the financial industry through the infusion of technology. However, it will be tricky to prove to consumers that technology can actually create a positive impact.
FinTech companies will need to build trust and gradually make Indian consumers understand the value of digital finance. Studies show that the unmet debt requirement by SMEs amounts to over INR 26.5 trillion and presents a huge opportunity for FinTech organizations to utilize. Tapping this potential is expected to contribute towards FinTech’s growth.
The Future of FinTech in Lending
India is moving towards a cashless and paperless economy. FinTech lending is shaping the banking landscape. As personal loans and credit cards become easier to avail, more consumers will begin to convert from traditional to more technological methods of lending.
Banks and financial institutions are now leaning towards forming a strategic alliance with FinTech startups. This will promote sustainable growth, enhance consumer experiences, and lead to operational cost-effectiveness. Eventually, tech dependency will become the future.