How fintechs are redefining lending

India is among the fastest-growing fintech (financial and technical) markets in the world; in fact, it’s the third-largest growing fintech economy. A rising number of fintech firms are now making significant strides in disbursing small-ticket loans, making financial services easier to access. Gone are the days of lengthy paperwork and waiting at the bank. Now, fintech companies allow you to apply for a personal loan entirely online. With a few clicks, you can fill out an application form, submit the required documents and receive a decision within minutes.

Fintech companies are playing a pivotal role in microfinance by meeting the low-income households’ credit needs with affordable doorstep services. With the deployment of technology, they are revolutionising the lending landscape.

In the past few years, fintech platforms in the lending landscape have emerged as major players, especially when it comes to personal loans. According to global data and technology company Experian, fintech companies have facilitated over Rs 2,48,006 crore in personal loans and Rs 28,607 crore in business loans as of March 2024. These loans, often under Rs 50,000, have primarily reached New-to-Credit (NTC) individuals — those with thin credit files, and sub-prime borrowers, many of whom were previously excluded from the formal financial system.

What is a Fintech Platform

A fintech platform leverages technology to expand access to banking services, typically through mobile apps or websites. These platforms make banking more accessible, allowing users to manage finances without visiting a physical branch. Recently, several fintech

platforms have emerged, offering personal loans with focus on ease and accessibility.

Merits of Borrowing

Although fintech platforms often charge higher interest rates than commercial banks, they offer various advantages:

• They typically provide smaller loans, with amounts as low as Rs 10,000.
• These platforms cater to borrowers who may not meet the bank criteria. The entire loan process is conducted online, making it convenient and time-efficient for borrowers.

Driving Financial Inclusion

As there are many unbanked villages in India, bringing people under the ambit of banking is next to impossible. In such situations, the vision of financial inclusion, which aims to ensure access for all to financial services such as payments, savings, credit and insurance, cannot be achieved. However, financial inclusion has improved rapidly as fintech firms have developed and spread. The fundamental driver of the improvement in financial inclusion has been the growth of digital payments, which surged during the Covid-19 pandemic.

Fintech companies are playing an important role in promoting financial inclusion in India. They are reaching marginalised and underserved populations to provide access to financial services like banking, credit and insurance. According to a report by BCG, India’s fintech market is predicted to touch $200 billion by 2030. As per the Experian report, fintech companies have expanded their reach with a market share of 52 per cent in personal loans, providing critical financial access to those who have historically been underserved.

The penetration of fintech into rural and semi-urban areas has grown significantly. When it comes to business loans, too, they have achieved remarkable growth.

using Technology to Enable Growth

Traditional KYC (Know Your Customer) processes can slow down financial inclusion efforts. Fintech firms are solving this issue with real-time KYC solutions. Using AI and biometric data, they provide instant verification, reducing the onboarding time from days to minutes. This allows underserved populations to quickly access financial services.

The adoption of the latest technology and tools has enabled fintechs to significantly reduce the loan approval time. Blockchain technology is also highlighted as a game-changer, particularly in enhancing transparency and reducing fraud in loan disbursement.

Besides personal loans, fintech companies have made significant inroads into the agri-finance sector, helping to support millions of small farmers.

a Word of Caution

While fintech platforms offer accessible and convenient loan options, borrowers should carefully consider the rate of interest, the terms and compare offers to ensure they are getting the best deal. It is crucial for borrowers to compare interest rates and fees across different fintech platforms to avoid paying excessive charges. The key factors to consider include interest rates, processing fees and pre-payment penalties. Though access to loans through the fintech platforms is easy, the recovery process is still a cause for concern.

In September this year, the Deputy Governor of the Reserve Bank of India, Swaminathan J, stated during a media briefing that while loan sanctioning and disbursement have become increasingly digital, effective collection and recovery still require ‘feet on the street’ and an empathetic approach. Many fintech platforms operate on a business model that involves extending small-value loans to customers often with poor credit profiles.

The Way Forward

The fintech revolution in India is just beginning, and experts are of the view that there’s enormous potential for growth. Fintech companies have already made a big impact by providing credit to those who need it most, but there’s still more to be done. According to Experian, fintech companies could potentially double their customer base to 20 crore within the next three years if they continue to innovate and address the current challenges. Experts point out that while the use of technologies like AI and machine learning allow for greater reach and efficiency, it also requires a strong framework for risk management. To sustain this momentum, collaboration will be key — between fintechs, traditional financial institutions and regulators.

Key players in india

Some of the fintech platforms in India are Paytm, which facilitates personal loans from lenders such as Hero FinCorp, Aditya Birla Finance and Tata Capital; Satya Microcapital; KreditBee; DMI Finance; MoneyTap; Upwards by Lendingkart; Paysense; Groww Credit and Finzy.