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Fintech Lending in India: Changed style of lending

Ashish M. Shaji

| Updated: May 23, 2020 | Category: Digital Lending, Fintech

Fintech lending in India

India is a big consumer market therefore it is fairly complex in regards to geography, cultural inclinations, and consumer behavior. In respect of any product or service, there may be more than one consumer segment where each has a unique way of buying. In all of it a common factor has been the mobile connectivity and swift acceptance of the internet which has influenced the buying decision of a person. Technology is a vital support for the proper function of the business. Full leveraging in the business and digitalization in the lending business began with Fintech lending in India i.e., by fintech companies. Fintech lenders have been primarily focussing on the two aspects i.e., urban individual consumers and the MSME (Micro, Small and Medium Enterprises).

Role of Fintech lending in India (SME and MSME)

The fintech players have understood the different stages of the life cycle of SME (Small and Medium Enterprises) and MSME (Micro, Small and Medium Enterprises) through data analytics. They have also realized their monetary requirements that differ in each phase. Based on this insight the industry of fintech lending in India is also exploring the other form of lending like the Point of Sale based lending, invoice based lending, P2P (peer to peer) lending, and short term lending, etc. 

MSME (Micro, Small and Medium Enterprises) is the backbone of the Indian economy because of its contribution to the country’s GDP (Gross Domestic Product). Despite playing a critical role in the growth of the Indian economy, MSMEs still face a lot of challenges, for instance lack of Capital. This is the place where Fintech plays an essential role as it has the ability to resolve the credit availability issue. MSMEs now don’t require going through the tedious process of documentation and frequent visits to the bank as many startups are offering quicker access to loans.

Digital Lending

With the build-up of the alternative lending space, the digital lending models are providing to the huge unfulfilled demand for credit. As per a 2019 report the Indian digital credit market shall experience a 36% growth in a few years from now. The digital credit markets are now rapidly evolved by the agile processes, digitization, lean organizations, etc. it has the capacity to be a game-changer for Small and Medium Enterprises as fintech working capital loan solution is productive at a lower scale.

Alleviating risks of non-payment

It is fascinating to watch that fintech platform is alleviating the risks that arise with the business opportunities. Retail Point of Sale and payment processors is generally a better option than banks in order to assess the risk of lending to small merchants. The credit providers know about the daily transactions of a merchant. Since the flexible repayment automatically gets processed by the systems the process of collection is facilitated substantially. The merchants also benefit from the tech-driven process due to the presence of the integrated payment systems. The time gap between the loan application and funds payout is few due to many firms of fintech lending in India.

Business models of Fintech lending in India

  • Point of sale transaction lending

It is a type of business model that happy loans work on. Credit is extended using data of electronic transactions at Point of Sale and against future receivables at Point of Sale.

  • Bank fintech partnership model

In certain segments like food, travel, and hospitality banks have tied up with Fintech companies that are involved in sourcing and underwriting potential borrowers for banks. For instance Indifi

  • Invoice discounting exchanges

Some of the fintech companies wherein unpaid invoices may be discounted by Small and Medium Enterprises to a network of financiers, wealth managers, and retail investors. 

  • Marketplaces

Marketplaces connect borrowers with financial institutions. They add to the value of digitizing the whole supply chain management in order to provide a seamless digital experience to the borrowers.

  • Captive models

Companies that have their existence in different businesses are now entering the lending space with a view to lend to their captive consumer base. They do so directly by setting up NBFCs or by partnering with financial institutions.

  • Peer to Peer model (P2P)

Various companies have set up P2P lending platforms with a view to connect borrowers with affluent individuals with excessive liquidity. The individual nature of lenders instead of institutions separates this business model from the model of the marketplace.

Future Evolution

Credit is a vital commodity for successful companies and companies that innovate in customer acquisition and servicing are the companies that shall succeed. Some of the future certainties with respect to fintech lending in India could be that traditional lenders shall form an exclusive tie-up with the fintech companies, the utilization of alternate for credit underwriting will increase and there may be the emergence of third-party data platforms. Fintech lending may gain market share in the beginning in segments progressively thus transforming the traditional lending business model.

Conclusion- Fintech lending in India

Fintech Lending in India is bridging the gap and paving the way for creating innovative solutions that serve the need of a wide customer base effectually at a lower cost. Fintech as a start-up sector is growing and it brings with it benefits that will help India grow among the developed economies.

See Our Recommendation: Growth Aspect of Fintech in India.

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Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on criminal and corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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