Digital Lending - Rewriting Digital Credit Models During COVID -19
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Digital Lending - Rewriting Digital Credit Models During COVID -19

Digital Lending - Rewriting Digital Credit Models During COVID -19

posted on 2020-05-28 05:42:34 by Admin

Digital Lending - Rewriting Digital Credit Models During COVID -19

In India, financial services are the largest adopter of digital technology to fill the gap created by traditional lending. With alternative credit writing models, FinTechs have successfully been able to tap the uncatered lending market.

It is a testing time for Digital Lenders to manage Non-Performing Assets and liquidity crunch as NBFCs don’t have auto moratorium from Banks. They’ve to keep their game up by innovating their credit models. Loans to SMEs are based on cash flows which are currently affected due to the low demand however that will be helped by the Govt’s 20% working capital enhancement proposal.

Only in the first week of May, many digital lenders raised funds for investments. Among them was Loanadda, to expand online acceptance and to build product capabilities.

Innovation in Digital Lending

In the new normal, companies leveraging digital platforms can continuously bring value to their customers. To tap the opportunity, digital lenders are consistently working on their credit assessment technology platforms. Also, diversifying their portfolios to reach customers in Tier-2 and Tier 3 cities without being limited to lack of online services knowledge.

Innovation in the credit model is helping them to reduce the operation cost while lending to quality leads. This model will help customers who could not borrow from traditional lending. The rating model is mapped to various points sourced from credit-debit history, trading & brokerage accounts to even social media accounts.

  • Personalization- Now, digital lenders are getting more personalized and flexible to suit customer needs. Lenders are tweaking their service to meet the customer-specific requirements. COVID-19 loans are one of the examples. Also, with people opting for small-ticket loans, the digital lenders are revising their products for the right fit.
  • Data Analytics - With customers going online for financial services, companies sitting on data piles are leveraging the data to offer better services. Data analytics redefines the aspect of loan opportunities. As it helps to locate the right people with the right financial product by looking at their behavior, spending patterns, and even passive data. With a variety of financial products available, a borrower can apply for a loan 24 X 7.
  • Instant Loans- The adoption of technology is helping digital lenders to offer faster and reliable services. Such as instant loans that get approved in less than 4 minutes with a minimum 24 hours disbursal time. Such timely service is helping the digital lenders up their game for the long term.
  • Integrating AI- Digital Lenders adopting Artificial Intelligence can make smarter decisions by mapping customer behavior and lending patterns. Without human intervention, artificial intelligence is transforming the way digital lending takes place. Along with that, the interaction of customers with chatbots is helping to solve customer queries and improve financial services.



Outlook for Digital Lenders During the Crisis

Digital lenders may face difficulty in the short term due to consumers or businesses missing EMIs or default. While in the long term, their advanced credit risk algorithms will help to limit the loss. With such technology, it will have the opportunity to serve more consumers and businesses to whom traditional banks don't serve.

The end to end digitization of loan disbursal process solves the problem of credit needs and no-physical contact services. The low cost of onboarding and less turnaround time make the process easier for the borrowers. Now with digital document verification, Video KYC, and online assistance makes the whole process digitized. Hence, easy for borrowers & lenders and required financial stimulus in the ecosystem.

Opportunity for Digital Leaders

  • The right combination of consumer behavior and economics of financial services will help the Fintech to weather the COVID 2019 crisis.
  • The use of AI & ML and low operation cost will add a competitive advantage to the companies that are ready for the digital future.
  • With the improved funding, the companies can take advantage of a large scale by partnering with financial institutions.

Digital Lenders and MSMEs

Currently, small and medium-sized companies are facing the biggest challenge of cash flow. With technology and experience, digital lenders can address the financial needs of small businesses in the days to come. It requires a deep understanding of the MSMEs' working model and needs designing of customized financial products.

  • The smart tools and algorithms in new credit models will help to boost the process of quick loans to SMEs.
  • Use of technology helping the lenders to ensure the client security with all the private and sensitive data encrypted.
  • The unconventional way to calculate credit score by measuring raw data points helps the digital lenders to issue loans with minimal documentation and no collateral. The online automated process is also helping SMEs to get loans quickly.

With the regulatory intervention to ease the norms for NPA recognition and stage 1 & 2 accounts, digital lenders can play a big role in incentivizing and supporting the MSME Sector.