Digital lending is bringing a new generation to financial institutions

In India, the traditional c holds a dominant position when it comes to the financial service sector. The advent of FinTech industry and especially the digital lending segment, though in its nascent stage, still, it has been competitive enough against the traditional banking. According to the BCG Report, the digital lending market is forecasted to mark US$ 1 trillion in the next five years.

Over a period of time, even the banking sector has changed its approach towards digital lending, which was once viewed as a serious threat now has become a collaboration strategy. The banking sector understood the profits that they might reap due to the alliance with digital lending companies which are high tech in nature. The alliance with these companies has helped the banks to reduce their transactional cost as the online processing of the advances has substituted the physical documentation process. The authorisation is being carried out by the intermediate digital platform through the channels of e-KYC etc. The cost of digital lending technologies implementation for banks is comparatively less as to developing the whole technological base in-house which needs employing more staff, infrastructure etc to carry out the needful. This collaboration ultimately reduces their cost per loan.

Another benefit of collaboration is that it helps banks to track those segments of society which are still not under the purview of financial inclusion. According to the government of India, almost 40% of the financial services market in India is primarily untapped, as they lack the association with any bank. Thus, due to the technology they can reach those unbanked or underbanked sections effectively. This has not only helped to diversify the bank’s lending operations geographically but also by the type of loan. The customer not only avails the credit facilities online but can customize the plans to some extent and also it offers various products that suit customer’s needs.

The cardinal aspect of any successful business entity is measured by its customer satisfaction. The banking sector has a large volume of a customer base that they have earned over the years and has succeeded in gaining their trust and loyalty. The technology has empowered the banks to address the needs, grievances, enquiries etc of the customers effectively and has reduced the resolution time. This has helped to increase their brand value.

The synergy has not only proved beneficial for traditional banking sector alone but also for the digital lending segment. The digital lending companies had a limited customer base as compared to traditional banking earlier, now, due to collaboration, the customer base is now being shared. Another benefit is that digital lending segment does not have to invest in whole banking infrastructure rather can focus alone on their own core technological innovations and infrastructure. Thus, both have comparative advantages, as banking sector has to carry out the core banking operations and digital lending company can solely focus on technological innovations and upgradations thus, the synthesis keeps their respective core operations intact and thereby increase their revenues. Many leading financial institutions are charting their forays in the digital lending space by FY2019. These entities are will target the housing, consumer and SME’s.

Digital age and millennials

The introduction of Digital India movement, Aadhaar Enabled Payment System (AEPS),
e-KYC etc has triggered the digital banking -lending-payments future prospects. As per Ministry for Electronics and IT, India’s digitised economy is expected to grow three-fold to US$ 1 trillion by 2024 from its current US$ 270 billion.

The onset of digitalisation in India has been complemented by increasing trend of millennials population. According to UN database and Morgan Stanley, the millennials as a percentage of the total workforce is expected to be 69 percent by 2027. Millennials have more exposure to digital technology as compared to their prior generation.

According to BCG and Google report, India had 1.18 billion mobile subscribers at the end of 2017. On yearly basis, Indians did 340 billion searches, viewed 810 billion web pages, made 300 million e-commerce transactions and 8 billion digital banking transactions. The preference for digital platforms has increased substantially in recent years due to
tech-savvy millennials.

As the participation of millennials in the labour force is increasing, it has empowered their propensity to consume as they have means at their disposal. According to Deloitte, India’s online consumption level by millennials is expected to grow at a compound annual growth rate (CAGR) of more than 30% till 2021. Today’s generation relies on different modes of finances to achieve their goals whether it be shopping, education, travelling etc, unlike their predecessors who’ve always relied on savings to fulfil their objectives.

After observing the financing pattern of the today’s generation, it has been seen that they prefer that mode of commerce, which are less time to consuming, fast results-oriented, quick solutions etc in short which are at a tip of the fingers. Thus, millennials are preferring digital lending over the traditional ways of financing their dreams. This is because, the digital lending is technologically well advanced, offers diverse portfolios and products, the time consumed for authorisation of loans is very less, transparent and most importantly the authentication does not involve the physical documentation rather it happens in a blink-of-eye with e-KYC etc.

Few other vital phenomena that will boost digital lending amongst millennials is gaining preferences for paperless finance, its ability to offer tailor-made offerings and rapid credit facilitation. Thus, millennials are more likely opt for digital solutions over the traditional as it offers different financial products to support all financial requirements. For instance, it is observed that millennials are comfortably resorting to digital lending to finance their education and even the trend for financing the international travelling is surging.

India will soon boast the highest number of working millennials that will bring a paradigm shift in lending and credit facilitation. This is a great opportunity for the Digital Lenders. It has a potential to become a blue-eyed industry for millennials. Thus, it will be critical for traditional lenders to form a symbiotic associations digital lenders and ride on the band wagon to chart next phase of growth by tapping the millennials.

By Mr Manav Jeet, MD & CEO, Rubique