Financial inclusion expansion is the pillar on which stands a modern, expanding, and robust economy. The Indian government’s wish to create a vibrant cashless and digital system and a new generation of customers has resulted in a significant revolution in how people access banking services today. Digital lending is a simple alternative to a time-consuming bank procedure, ensuring rigorous monitoring and analysis.
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Do digital and paperless loans benefit the consumer? The answer is an unequivocal ‘yes’. Today we live in a marketing economy which squarely places the consumer at the centre of everything. Market forces seek to anticipate and deliver on customers’ needs and desires. Digital and paperless loans do just that with their numerous benefits:
Benefits of digital paperless loans
Digital personal loans and paperless transactions are the future of banking, bolstered by cutting-edge technologies and looser regulations. Borrowers can apply for loans anywhere and at any time using digital loans and alternative lending platforms, regardless of whether or not the bank that lends to them is present in their region.
How paperless loans work
Access to advanced digital tools and efficient technical solutions such as India Stack and open APIs, digital lending platforms are collaborating with top banks and NBFCs to develop successful lending solutions for borrowers. To ensure greater precision in customising loan products for consumers, these platforms employ AI and data analytics algorithms to comprehensively analyse the various loan products offered by lenders such as banks and NBFCs, correlating them to the specific needs of borrowers and selecting the most optimal outcome for them.
Today, anyone with internet access, a computer or smartphone, and a government-approved identity like a PAN card, Aadhaar card, voter ID, etc. can apply for a loan online. They must submit an online application on digital lending platforms by entering their information and uploading supporting papers.
Online scanning and uploading of personal documents such as proof of address, identity, bank statements, and salary information are all required of borrowers. This one-time procedure in which lending platforms securely keep the borrower's data in a centralised database, which they can access when clients request extra credit or other lending services. Simultaneously, automation and advanced analytics have made the verification of borrower information and assessment of their creditworthiness much simpler and quicker than ever before and far more accurate.
Digital lending platforms provide borrowers, particularly paid individuals, with a credit limit that ranges from Rs 25,000 to Rs 5 lakh and is highly flexible. Digital lenders typically consider them small-ticket loans, whereas banks consider personal loans below Rs 1 lakh to be high-risk. In addition, customers can repay their loans with flexible and reasonable EMIs over a period of 2 to 36 months. Consequently, these unsecured personal loans allow individual borrowers and small enterprises to obtain funds whenever necessary.
Getting a loan from traditional lenders like banks and non-banking financial firms (NBFCs) usually means putting up collateral in the form of high-value assets like their own property, a car, or gold. Most first-time borrowers, mainly young, salaried persons, lack significant investments. They thus were unable to get a loan. Digital lending, on the other hand, does not call for the borrower to produce any assets. Different matrixes are used for loan disbursement. This has dramatically increased the chance for people who have never had credit to obtain loans through cutting-edge digital lending platforms. Borrowers do not need to offer a guarantor when applying for a personal loan with collateral-free loans.
The digital signature function enables applicants to e-sign the paperwork; the entire transaction is paperless, saving them the effort of downloading and submitting a physical application to the lender. Also, with paperless digital loans, borrowers do not need to visit the bank because the entire procedure, from credit application to loan disbursement, is performed digitally. Whereas it typically took weeks or even months for banks to accept personal loan applications, credit-seekers can receive immediate loan approvals and the funds in their bank accounts in as little as 24 hours.
Accuracy in Decision Making
In the past, the credit score was used as the benchmark to determine or evaluate a person's creditworthiness. India’s four main credit bureaus are CIBIL, CRIF, Experian, and Equifax. Fintechs operate differently; they typically base their judgments on their own internal, proprietary algorithms that evaluate applicants. They take into account a variety of other characteristics in addition to credit score, such as job stability, income stability, etc. Thus, the introduction of online lenders has made it simple for first-time borrowers to acquire loans when they need them most.
In the future, with the focus centred on providing a better end-to-end customer experience, technology will continue to alter the digital lending ecosystem in the years to come. According to a Boston Consulting Group (BCG) report, digital lending in India is expected to grow to a $1 trillion market by 2023.
Finally, the consumer is getting to be heard. Financial Institutions are looking to provide BNPL solutions and a broader range of credit choices. This, in turn, forces traditional financial institutions to look at ways to improve backend processes that delay digital credit. Otherwise, they will be unable to compete with fintech and large technology companies.
The author, Edwin Daniel, is Global Head of Marketing - Branch Personal Finance App
First Published: Sept 17, 2022 12:47 AM IST