Developing the personal loan market through technology
Technology is definitely changing the personal loan market, on a scale and at a pace that would have been hard to imagine a few years ago. Narrowing it down, the two basic premises that affect it are Ubiquity and Equity.
Ubiquity: The ubiquity of personal loans across all customer segments is driven by the 3 Ds of digital infrastructure, device penetration, and digital loan journey experience.
India has come a laudable journey in bridging the digital divide in terms of basic infrastructure (i.e. connectivity) and enabling ecosystems (i.e. payments/UPI). Traveling through this journey has therefore created the right foundation to bridge the credit gap in the country, deliver credit assets and value-added services through these digital pipelines.
As an integral part of consumer credit, the commercial scope of personal loans and the transparent point of contact are essential aspects of market creation and the way of doing business. These are addressed by two dimensions; accessibility or the level of digital penetration (mobile phones, digital literacy, adoption) and availablity that is, the multiplicity of digital channels, devices, platforms, be it mobile phones, the web or even ubiquitous channels or physical models. Technology has made credit available at the fingertips of borrowers 24X7.
Digital Lending Journey Experience:
Technology has also been a game changer in the ability of borrowers to experience and execute the entire loan journey, from origination to repayment, at their fingertips. The digital lending platforms authorized by the Reserve Bank of India are a great example in this direction. The explosive growth of computing power and the democratization of AI/ML technology has made essential credit underwriting, risk management and execution functions faster and more efficient. Also at the same time, critical first-mile augmentation functions such as digital onboarding (e-KYC), reference information checks, including digital verification and validation of structure and semi-structured information such as OCR/ICR on bank statements, and open API architecture such as Aadhaar identity verification, PAN with documentation, and finally digital payments (UPI or wallets) for disbursements, refunds are supported by digital technology. For an eligible borrower, getting a personal loan in India is now perhaps faster than preparing a snack of instant noodles.
The second critical premise that is changing the personal loan landscape is Equitywhich massively solves the problem of the credit divide.
With the democratization of technology, we can now access big data on both the traditional and alternative domain, coupled with the reduction in IT costs, has created an unprecedented opportunity to execute targeted marketing strategies on borrowers potential individuals based on demographics, personality, psychographic analysis and behavior. funding models through democratized AI/ML technologies and alternative modeling. Until recent years, this was something that was limited to exclusive sell-side offerings and product space such as HNI/UHNI WealthTech products. Along the same lines, the proprietary alternative risk strategies often adopted by the hedge fund industries are now seeing a reflection and presence even in the retail lending market, greatly opening up the target segments for new loans and filings. restricted credit for personal loan borrowers through lower loan cost, lower average ticket size and implementation of a
Non-binary / risk-based approach
Digital reach and robust digital underwriting systems have shifted the paradigm from a binary qualification mechanism for borrowers and a fixed price approach to a wider range of eligible borrowers and manageable collection scenarios and capacity. to create first-degree pricing based on a risk-based approach.
‘Personal’ about personal loans
Through the power of data and analytics, the technology also activates products and delivers personalization, unique product placements, and personalization of offers at scale. Digital loan products, terms are evolving into a spectrum of personalized consumer services, breaking down the barriers of strict product structures.
The future is here – safer, faster, cheaper and more cognitive
Distributed ledger technology, commonly referred to as blockchain or cryptographic origins, additionally presents disruptive opportunities in the areas of fraud detection and, more importantly, with the advent of digital currency as a legitimate legal tender, it has the possibility of accelerating and reducing the cost of the loan. and even improve multi-pronged transparency. The evolution of the financial services ecosystem such as account aggregation will make the onboarding and verification process seamless and ultimately cost effective. With established banks and traditional NBFC lenders adopting a more open banking architecture, the overall cost of debt and integration is also expected to trend south. Additionally, the advancement and proliferation of natural language processing (NLP) means that personal loan offerings on digital apps are breaking down the barriers of lack of digital workflow affinity, languages and skill levels in technical and financial literacy through vernacular voice experiences, data and cognitive chatbot solutions. . It is anticipated that customers will be presented with multifaceted and multiple opportunities from direct digital lenders, peer to peer lenders and platform offering a variety of personal loan options and products and advancing business forces to make it one borrower market.
Therefore, it’s no surprise that the small personal loan segment has seen 23x growth over the past 4 years and the overall digital loan market is pegged at $350 billion by 2023.*
* Data Source: BCG Digital Lending Report, TransUnion CIBIL Googler Report
The opinions expressed above are those of the author.
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