How the technological influx of fintech is changing the game of credit in India
“I wish it could be possible to see all potential applicants somehow”, wondered Ashutosh Kumar, an Allahabad Bank executive seeking to meet his loan target for the quarter. The thought, though quite unreasonable a decade ago, was pretty brilliant if we consider it right now. Imagine the potential that we could unlock if we are able to increase the visibility of the credit demand and then directly connect it with the supply without any bottleneck. Wouldn’t it be magnificent?
If you look at the fintech sector, alternative lending sector driven by fintech lenders to be more specific, it is precisely what it is doing at present. The sector came to the picture just a few years ago and has already achieved a transactional value of $112 million. Its true potential, however, is massive if you further compare the penetration of institutional credit in India and the underlying demand. India, an economy worth $2.61 trillion has $1.2 trillion flowing as institutional credit at present, and yet, 70% of its population is still underserved by the institutional lenders.
But will fintech lenders be able to bring about the paradigm change that is needed? Perhaps, technology will come to their assistance.
How modern technology is enabling Fintech Lenders to better profile their customers?
Technology, if you look at it that way, has a very fundamental nature. It transforms the very structure through which things are done traditionally. Earlier, technological influx led by industrial revolution increased the production rate via assembly lines. Today, digital revolution is doing exactly the same by replacing human-driven processes through advanced approaches and automation.
Here are some of the ways in which technology is enhancing the effectiveness of modern credit profiling:
Data Abundancy: The digital technology has unleashed substantial volume of consumer data and increased the visibility of a conventional credit applicant. Its adoption can be witnessed across all walks of life and for the across-the-board processes. Globally, internet adoption has now crossed the 4-billion mark and it wouldn’t be taking long to connect the next billion (given increased focus of global technology giants). This is directly improving the digital footprint of individuals, regions, enterprises, and industries which can be easily tapped.
Deeper Insights: The growing proliferation of data is helping us extract deeper insights from the same. It is giving us better clarity of both macroscopic and microscopic developments. For instance, the digital footprint of credit applicants including digital transactions done by them can point towards their typical cash inflow, spending behavior, liabilities, and thereby, creditworthiness. Similarly, say if an applicant is associated with a particular industry, the broader dynamics (made visible by data) can indicate the future creditworthiness of the applicant. For a conventional customer, such insights can be drawn from bank statements, alternative remittance data, basic profiling, and additional data repositories (vis-à-vis macroscopic indicators) with limited to negligible paperwork and zero collateral.
State-of-the-Art Technologies: Although it is now clear that the burgeoning data is simultaneously increasing the effectiveness of credit profiling, it needs to be noted that the sheer velocity and volume of this data cannot be handled using a human-driven approach. Cutting-edge technologies such as Big Data and Artificial Intelligence, here, are enabling the modern fintech lenders to tap this data with a relative ease. Wherever digital data isn’t available, character and text recognition technologies are helping them to extract it from physical documents. As yet another benefit of this approach, it is also developing better credit profiling methodologies (via Machine Learning) and bringing greater precision within credit assessment.
Faster Turnaround Time: The entire process (from credit application to loan disbursement) can further be concluded more rapidly as compared to the conventional lending process. So, instead of multiple weeks and months that traditional banks usually take to process a loan, tech-based fintech lenders are able to disburse credit in merely a few hours from the initial credit application.
Today, as our dependency on technology grows, it has become easier for us to intercept demand without all the bottlenecks of yesteryears. This demand can then be easily diverted to the supply and thereby, can unlock the true growth potential of the market. So, it is only a matter of time that the tech-driven fintech platforms completely transform credit profiling process and with it, the game of credit altogether.
A guest post by Manish Khera- Founder & CEO, Happy.
