India is now one of the largest and successful fintech markets in the world. After the digital payments revolution, now digital lending is taking the centrestage, backed by a massive opportunity and well-developed digital infrastructure.
In fact, digital lenders may capture nearly half of the total lending market and disburse loans worth $350 billion by 2023, according to a report by Research & Markets. This blitzkrieg could result in lending becoming the sector with the highest digital penetration in India.
Digital lending platforms meet a critical need of providing access to credit at a time when customers need it the most. They also offer smaller ticket size loans, which are usually not offered by traditional lenders such as banks and mostly serve customers whom traditional banks typically ignore - the small and micro businesses are among them.
India is home to 63 million MSMEs - a massive opportunity for innovative startups to disrupt the status quo in financial services and serve a consumer with little access to formal credit. The lack of access to finance remains a major bottleneck in the growth of these enterprises. The Reserve Bank of India estimates the total addressable credit demand by the country's MSMEs at $490 billion.
On the consumer finance side, 'Buy Now, Pay Later' is now emerging as the leading segment for alternate lenders, especially after the heightened digitisation of the economy, post COVID-19 and the e-commerce boom.
From Amazon to Paytm, Pine Labs to Flipkart and from Bharat Pay to MakeMyTrip, the Buy Now Pay Later bug has caught one and all.
In an interview to Shereen Bhan, Alok Mittal, co-founder of Indifi Technologies, said digitisation impetus during the COVID period has accelerated the adoption of digital lending at least by a couple of years if not more.
"Many of the technologies that we use for digital lending like electronic signatures, electronic bank debit mandates, KYC have been available for a while but we saw a surge in customer adoption over the last 12 months or so. On Indifi's platform electronic signature have gone from about 50 percent pre-COVID to close to 90 percent now."
"Similarly, electronic debit mandates have gone from low teens to more than 50 percent. All of this is allowing us to serve a larger set of customers because each of these electronic interventions makes services more accessible and affordable to a larger set of MSMEs. So, digitisation impetus during the COVID period has accelerated the adoption of digital lending at least by a couple of years if not more."
Sanjay Sharma, MD of Aye Finance, said, "There has been a big change in the last year and COVID has accelerated the adoption of digital channels. It is not that everything has become digital in the inclusion space, especially for micro enterprises and considering that these are unorganised businesses, even a little movement is a big movement in the digital direction."
"We have over the last 7 years given loans to more than 3,00,000 micro enterprises and hardly anyone used to pay through electronic wallets, but now in last one year we have close to 10 percent people using electronic wallets to make a payment. So last year we saw people beginning to adopt digital payments and that is getting accelerated."
Also Read: The evolving fintech landscape in India
Sashank Rishyasringa, co-founder & MD of Capital Float, said, "Financing follows commerce. The change in the structure of commerce through COVID has been tectonic. We have a personal finance app that has over 10 million users, last Diwali in the midst of COVID we saw online spends being 200 percent of the previous year and offline spends at only 60 percent of the previous Diwali."
That trend has persisted right through first wave, second wave and everything in between.
"What we are now seeing in India is a dramatic shift from offline retail to online retail and financing will and has to follow that. We operate a 'Buy Now Pay Later' product in partnership with several companies like Amazon, MakeMyTrip etc. in the last year alone we saw growth from about 0.5 million customers pre-COVID to about 2.5 million customers using our product in the last year alone."
"So, it has been dramatic. Customers who are now moving to online commerce are demanding digital-first financial products as well and that is a trend that we expect to continue and accelerate over the next few years."
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