3 ways technology is helping the lending business scale rapidly

By Joy Dumasia

The rise of FinTech has resulted in a new and improved lending system with reduced processing time and minimum to no paperwork. The digitization of the lending business predates the COVID-19 pandemic; its demand will continue to grow at an increasing rate. While the target audience remains the digital and tech-savvy generation, it is also moving beyond the conventional evaluation systems and parameters.

One of the advantages of digital lending is the speedier approval of credit. Credit evaluations and loan disbursals on digital platforms have significant quicker turnaround times than traditional loans. Another key advantage associated with digital alternative lending models is the operating cost efficiency. Digital lending models, conversely, have technology-enabled functional and business models which require minimal human intervention, thus reducing manual operating costs.

Back in 2008-09, when technology-enabled lending had started gaining momentum, there was a general disenchantment with the traditional sources of credit. With technology and digitization, credit application processes of yesteryear are upgraded with a faster, more secure, and seamless borrowing model offering low-cost solutions.

Ankit Mehra, CEO & Founder of GyanDhan, said: “Indiastack has increased access to credit, allowing lenders to originate loans that would have been tougher or significantly costlier to the end consumer. When we started GyanDhan in 2015, we had started a pilot to enable loans for coaching classes. However, we had to abort the initiative because of the high cost of origination of a physical loan application and the inherent challenges in scaling and risk concerns when we did not have the physical infrastructure across the country. We re-launched the domestic vertical last year amidst huge demand from the domestic market. Adopting elements of the Indiastack has allowed us to do smaller loans and also brought down the overall cost of origination significantly. More importantly, we don’t need physical infrastructure across the country to originate and manage loans. With the account aggregator framework going live, we expect a further acceleration in the reach of loans in general. Enabling our customer interaction in the study abroad loan journey through basic tech changes has also allowed us to increase conversions at our partner banks by a factor of 2.5 times.”

The following are 3 ways technology is helping lending businesses scale rapidly and efficiently:

• Reduced operational costs

FinTech changed the game by gradually moving the entire lending business online. Now, many lenders offer pre-approved loans to individuals and easy credit options to SMEs. This change is helping in reducing the cost and time incurred during the process, benefiting both the lender and the borrower.

The online process requires minimal documentation, which can be uploaded directly with no need for collection physically. Further, online processing, verification, and evaluation streamline the lending process’s operational aspect, making it more efficient. With surplus capital and time, lenders look to expand their customer base and offer better deals. Geography being another hindrance is easily overcome when you can get credit just with your fingertips.

• New-age evaluation models

Technology has made it simpler to evaluate credit applications. Traditional sources of lending primarily relied on manual evaluation, which runs the risk of subjective decision-making. A good credit application could slip right through as personal biases creep in. However, automation and the online process have made it possible to make an objective decision, precisely calculating the risk and default factor.

AI scoring is an excellent solution for credit scoring using more data to an individualized credit score based on factors including current income, employment opportunity, recent credit history, and ability to earn in addition to older credit history.

• Inclusion across the spectrum

Before, every lender was more or less chasing the same set of customers. Those without any credit history or collateral were largely ignored. In the education sector, short-term and vocational course financing was not given any due importance. Traditional lenders and banks hesitated to offer credit to SMEs due to various reasons. But technology has helped put these issues to rest or has started addressing these largely ignored customer bases.

While collateral is still required for high-ticket loans, especially from a public lender, many FinTechs offer low-ticket and high-ticket loans without collateral and credit history, diversifying their profile of borrowers.

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