Over the years, digital lending has grown in popularity. This rise is being fuelled by a combination of factors ranging from technology to functional efficiency to usability and accessibility.
With approximately 500 million internet users in the country, digital lending has enabled a significant part of the population to gain access to affordable lending in ways never possible in the past. Let’s look at some of the important characteristics of digital lending that make it an excellent source of credit:
Online access
Customers don’t have to take time off work to queue for digital lending. The entire procedure can be completed online, which saves time and effort. They can register on an online lending platform using their computers or smartphones, fill out a loan application, and upload the required papers in just a few minutes.Customers can get a loan in as little as four minutes using digital credit lending apps. Online lending platforms have significantly cheaper operational expenses than banks and NBFCs, and can expand their reach across geographies and segments at a fraction of the cost of brick-and-mortar businesses, thanks to their mainly automated procedures. As a result, companies may direct these costs toward increased technological expenditures, allowing borrowers to benefit from cheaper interest rates and processing fees.
Documentation
Based on the information provided by the consumer, digital lending platforms can assess a borrower’s creditworthiness in minutes. These platforms leverage a variety of data inputs and predictive models and algorithms to gain relevant insights about the borrower’s creditworthiness and ability to repay the loan. Furthermore, the advent of Aadhaar-based e-KYC has aided digital lending platforms in significantly reducing the time it takes to process loan applications by eliminating the need for paper verification.
Processing and disbursal time
The introduction of Aadhaar-based e-KYC has aided digital lending platforms in significantly reducing the time it takes to process loan applications by eliminating the need for paper verification. Additionally, while applying for collateral-free loans, borrowers typically only need to supply their Aadhaar number, PAN number, and proof of income, as opposed to a bank, which may require a guarantor or collateral, not to mention a mountain of paperwork, to grant a loan.
Eligibility
Bank loan eligibility is evaluated by a number of factors, including one’s employment history, current income, assets and housing etc.
While income and credit scores are important, digital lenders also analyse other indicators such as education levels, professional background, and anticipated future earnings when determining an individual’s trustworthiness.
Flexibility
A flexible credit line ranging from Rs. 25,000 to Rs. 10 lakh is available through digital lending platforms. Digital lenders typically consider these to be small-ticket loans. Furthermore, customers can repay these loans over a period of 2 to 36 months with flexible and cheap EMIs.
Banks, on the other hand, typically view loans of less than Rs. 1 lakh as high-risk.
Lenders
Customers who use digital lending will have access to multiple lenders at the same time and will be able to evaluate offers before deciding on the best loan from the comfort of their own homes.
This is not the situation with traditional financing, where customers must visit many institutions to obtain the necessary information.
Technology
Due to cumbersome, outdated methods and technology, traditional lending might be difficult. Most banks are constrained by legacy infrastructure, making it difficult to deliver products and services quickly and efficiently. The efficiency and efficacy of banking operations are harmed by factors such as a complex user interface, difficult user processes, and poor customer technical assistance for queries.
In case of digital lending, technology helps to improve customer interaction at every stage of the customer journey, where every customer interaction is improved.Interfaces are fluid, intuitive, and simple to use while still providing a lot of functionality.
Summing up
Digital lending improves the consumer or member experience in a number of ways, including speeding up the process and increasing transparency. It also increases the financial institution’s efficiency, which can lead to increased revenues or more resources for improving customer service or cutting fees and charges. Furthermore, digital lending allows financial institutions to continue to grow their portfolios without having to hire a significant number of staff or take on additional risk.
According to a report by Boston Consulting Group (BCG), digital lending will reach a $1-trillion opportunity in the next five years, and given the country’s current rate of online loan disbursals, the prospect might be far greater in a decade.
(The author is Mr. Rohit Arora, CEO & Co-Founder, Biz2Credit & Biz2Xp and the views expressed in this article are his own)
