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How technology is transforming the NBFC and MSME Landscape?

The financial services industry has undergone a significant transformation in recent years, driven by technological advancements and changing consumer behaviour. Non-Banking Financial Companies (NBFCs) have emerged as key players in addressing the financial needs of people and businesses historically underserved by traditional banks. The digital revolution has brought innovative solutions and unprecedented growth opportunities to the NBFC and micro, small, and medium-sized business (MSME) sectors.

One of the most significant impacts of the digital revolution on NBFCs and MSMEs is the rise of digital lending platforms. These platforms have democratized financing, making it easier for borrowers to access funds and for NBFCs to reach a wider audience and offer their services. Artificial intelligence (AI) and machine learning (ML) have enabled these sectors to make data-driven decisions and automate processes. The use of data analytics and machine learning has also allowed lenders to develop customized products and services that are tailored to individual customer needs.

The government has been proactive in promoting technology adoption within the NBFC sector. Regulatory sandboxes for innovation, digital payments infrastructure, open banking, and account aggregators, e-KYC, digital onboarding, AI and ML usage, cybersecurity frameworks, and financial inclusion programs are some of the initiatives that the government has implemented to enhance operational efficiency, risk management, and customer outreach. By fostering an environment that supports digital transformation, the government is enabling NBFCs to better serve the diverse financial needs of individuals and businesses across the country.

One of the technologies that NBFCs are leveraging for their digital transformation is chatbots. Chatbots are proving to be an invaluable technological asset, helping in lead generation and providing valuable customer insights through data analysis. They also provide round-the-clock customer service, efficiently handling common queries and reducing the workload on customer service agents, leading to significant cost savings.

Fintech partnerships can also be a crucial factor in enhancing the capabilities of NBFCs. Collaborations between fintech companies and traditional financial institutions can lead to the development of new products and services, expanding the reach of NBFCs, and improving the overall customer experience. For example, multiple NBFCs have now collaborated with fintech platforms to provide Supply Chain Financing to their customers.

The widespread adoption of smartphones and mobile applications has also enabled the development of innovative financial products and services tailored to the specific needs of users. Mobile wallets, payment gateways, and mobile-based lending platforms are just a few examples of how mobile technology has facilitated access to financial services, even for those in remote and underserved areas. By leveraging the ubiquity of mobile devices, NBFCs can expand their reach, improve customer experience, and foster financial inclusion, further driving growth and innovation in the sector.

While the benefits of adopting digital technologies outweigh the risks, there are still challenges to adopting digital technologies. One of the most significant challenges is cybersecurity, as financial institutions are increasingly becoming the target of cyberattacks. To mitigate these risks, NBFCs need to have a robust cybersecurity framework in place that can detect and prevent cyber threats. Data privacy is another challenge that NBFCs need to address. With the increasing use of AI and ML, there is a need to ensure that customer data is used ethically and transparently.

In conclusion, the adoption of digital technologies in the NBFC and MSME sectors has brought new opportunities and growth. Digital lending, AI and ML, and digital payment systems have revolutionized the way business credit decisions are made, transactions are carried out, and data is analyzed. The future of the NBFC and MSME sectors is bright, and the adoption of digital technologies will continue to bring new opportunities and growth. However, it is essential to recognize that the adoption of digital technologies requires a comprehensive approach that addresses the challenges associated with their use. With the right policies, regulations, and framework

(The author is Mr. Parry Singh, Founder & CEO, Red Fort Capital, and the views expressed in this article are his own)

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