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What is the future of digital lending in India?

Mr Raghuvir Gakhar, CFO of PC Financial Services Limited talks about the Digital lending Scenario of the present as well as future.

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CIOL Bureau
New Update
Traditional to Digital: The Changing Dynamics of India’s Lending Pattern

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Information technology has revolutionized our lives to a great extent. Today the internet has become one of the most reliable sources of information for consumers and a marketplace for sellers. As per the latest figures, India is the second-largest online market with over 560 million internet users in 2020. And it is expected to grow 35% every year.

The youth today is spending more time than ever on digital devices for gathering information, staying abreast with the latest updates, shopping online, availing services like travel and dining, networking on social media platforms and even for making digital transactions.

Technology to pay

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In 2020, the total transaction value in the digital payment segment is more than the US $69 billion and it is expected to grow 24% year on year. Monetary transactions like money transfer, bill payments, insurance and investment of funds are all happening digitally through options like net banking, payment wallets, UPI and credit cards. More and more people are switching to online services now as these are not only convenient and user friendly but also available at our disposal round-the-clock.

With internet technology reaching the financial world, fintech businesses have made this journey more inclusive by promoting eCommerce by providing digital wallets and mobile payments to transact easily on various platforms.

With the growth of the fintech industry and rise in tech-savvy customers, banks are feeling the pinch. There is an upsurge of fintech in diverse areas of the financial system providing the best possible digital experience to consumers.

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Lending from banks

The banking industry is the backbone of the financial system for providing deposit and lending services. While banks have well-structured processes, they involve huge compliance requirements due to which they have not gone beyond a level in terms of innovations in customer products and services. Banks are risk-averse by nature as they are inherited custodians of public money and one must deal with a lot of manual processes while transacting through banks. Financial inclusion and penetration of banking services to marginalized sections of the society has not been achieved till date.

There are certain limitations when it comes to lending from banks. When a person approaches a bank for a loan, it still requires a lot of paperwork, is not available for small consumers and is only for specific purposes and time lag. In today’s fast-paced world, customers want smooth functionality with the click of a button and lending apps are doing just that.

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Fintech instead of banks

App-based loans are preferred because of seamless customer experience. While consumers might have to pay a little extra convenience fee, such apps are ultimately meeting people’s immediate demands of funds in a quick and hassle-free manner. Fintech and new-age NBFCs spend heavily on customer experiences, technology, and partnerships for a completely digital supply chain.

As per a joint study by Omidyar Network and Boston Consulting Group (BCG), digital lending in India is set to grow to $100 billion by 2023. Both the government and the Reserve Bank of India (RBI) are encouraging digital payment to boost digital lending in India. It is not only the end-users who are enjoying the fruits of technology. Artificial intelligence-based lending evaluates the creditworthiness of applicants by compiling information from social media activities and consumer behaviour on other platforms, making the process smoother for lenders as well.

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All conventional methods are currently affected due to the current global health crisis. However, there is no such limitation when it comes to new-age technology and services. With digital lending, every step of the lending-borrowing process has been simplified and paperless. Due to technology advancement, data security and quick loan disbursal, digital lending have a huge scope and market in India to grow leaps and bounds. But at the same time, it is important to promote digital literacy for consumers to not fall prey to online fraudsters and scams.

Digital Literacy

With internet users looking for options beyond Google search and social networking, India is leading the digital revolution. Ever since the country witnessed a rapid rise in the number of internet users, people using internet banking services have also spiked. Lenders and online loan providing platforms must initiate campaigns/awareness sessions to educate consumers – especially those from rural areas - about cyber frauds. Consumers trust the money lenders with their personal/bank details and in turn, it is the responsibility of these lenders and platforms to keep such confidential data secure.

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Many incidents of online frauds and violation of company’s rules & regulations have come to light. It is to avert such cases that digital lenders should take precautionary measures and make their consumers as well as staff aware of the guidelines in a transparent manner. The Reserve Bank of India (RBI) recently issued a notification to banks and NBFCs over harsh recovery methods and unauthorized use of personal data. The central bank also issued a set of guidelines for digital lending platforms. As a finance & treasury executive, I firmly believe that digital lenders must give a clear picture of the products and services they offer while also mentioning the consequences of not adhering to the code of conduct. This not only makes consumers aware of their rights but also helps in trust-building.

With a fair and proactive approach by digital lenders, the online lending space will become a safer medium for availing services. Given the current trend of online transactions and the global scenario, digital lending will certainly be the space to look out for.

About the author:

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Raghuvir Gakhar CFO PC Financials Mr. Raghuvir Gakhar

Raghuvir Gakhar is a finance & treasury executive with 16 years of experience and Director & Chief Financial Officer (CFO) of PC Financial Services Private Limited. He is leading the finance function, pricing and other policies of CashBean, owned by PC Financial Services Private Limited.

Established in January 2019, CashBean follows all rules and regulations and with strong code of conduct to be followed by all its employees.

As the company’s CFO, Raghuvir primarily focuses on financial reporting, treasury, taxation, internal controls, RBI reporting and compliances, credit ratings, ALM management as well as audits. In addition to these, he also makes key financial decisions and manages the core team.