India’s Neo-Banks: Lessons to Learn for Traditional Indian Banks and Lending Businesses

Initiatives like ‘Digital India’ and intense focus on the rapid adoption of digital technology propels the Indian banking industry towards a digital-only future. Rapid digital innovation in payments and transformation in systems enabled by digital technologies is widespread around the lending industry. This has given rise to the New-Age Digital Banks…also popularly called the ‘Neo-Banks’.

Neo-Banks mainly operate entirely online and without any branches. Alongwith lending, they also provide a wide array of financial services.

However, many traditional lending and banking businesses still find it challenging and complicated to fully adopt technology and digitize their operations. Digital solutions can help lenders come up with new products more regularly and help them keep up with regulatory compliance from RBI. There’s a lot to learn from the neo-banks.

Learnings from Neo-Banks: How Can Traditional Lending Businesses and Banks Use New-Age Digital Techniques to Create Value?

Promise Enhanced Outreach

The hassle of physically availing loans through traditional banks appear mammoth when weighed against the convenience of instant loans. Borrowers can easily avail loans at the click of their smartphones. There will be 829 million smartphone users in India, accounting for 60% of the total population by 2022, says a report. The numbers indicate massive mobile penetration in the Indian subcontinent. New-age digital banks allow consumers to check their records anytime they wish. The end-to-end process, from onboarding to interactions, transactions to consulting, can be quickly done through digital touchpoints and channels. Since it is easy to access new-age digital loans from digital banks through phone devices, it would not be wrong to claim that new-age digital banks promise an enhanced outreach when compared to traditional banks.

Leverage Data Analytics

New-age digital banks count heavily on big data and analytical tools to automate and excel loan decisioning. Data analytics can be used to improve functions like sales, product design, pricing, and underwriting, and even designing genuinely amazing customer experiences for a lending business. Empowered with analytics, companies can share consumer information at a lightning-fast speed. Studying consumer preferences and behavior patterns through data helps lenders gain competitive advantage. Using data to shortlist more high profile customers, lenders can leverage more opportunities to cross-sell and upsell.

Foresighted businesses can study customer portfolio, unearth behavior patterns, and reach meaningful conclusions with the help of analytics. New age banks can predict defaulters profile and forecast risks to plan solutions ahead of time, all thanks to analytics and borrower’s data.

Lending Process Automation

With an overall increase in the number of credit seekers, traditional lending institutions would need to spend a fortune on hiring the right kind of people and setting up an infrastructure to accommodate the higher volumes of applications. New age Digital bank enjoys streamlined loan processing and faster closing, which presents a vivid opportunity to expand its market share. New age lenders can track the status of loan processing to optimize the timeline of disbursal processes and improved customer service.

The unique value proposition that comes with new age digitization of the lending process is the straight-through processing that results from automation. While traditional loan evaluators spent a lot of time handling routine paperwork, technical manual evaluation, and verification, automation boosts overall productivity and ensures enhanced regulatory compliance. The lender can benefit from saving in terms of manual labor that goes into performing repetitive origination, evaluation processes, and also benefit from minimal need of paperwork.

Omniscient Loan Decisioning

Most traditional banks counted on credit score provided by credit scoring institutions that are seldom wrought with discrepancies. While credit scores form an integral part of the evaluation process for lenders that intend to service loans to the vastly underserved unorganized sector in India, they are not sufficient proof. Thin or invisible credit files, collateral, or bank accounts are inadequate evidence for lenders willing to evaluate the credit potential of prospective borrowers.

However, the use of new-age technology allows lenders to harness applicants’ digital footprints in order to assess whether they can repay a loan or not. Alternative credit scoring is the process of using data gathered from website cookies, online behavior, and the strength of the customer’s social network. Leveraging non-traditional sources of data to streamline the traditional underwriting mechanism of the lending business, new age banks make almost omniscient loan decisions.

Personalization and Savage User Experience

Listening to the customers is a fool-proof way to future-proof a lending business. Acing the learning curve of the customer service helps companies to stay ahead of the game. Lending businesses can employ formal solutions to actively track the feedback that borrowers are sending and formulate an actionable strategy for the future. They can further leverage data from high-level analytics to offer personalized loan solutions and repayment avenues to borrowers. Digitization helps lenders effectively engage with them. Lenders can serve them speed and convenience of instant loans in addition to the personalized recommendation of loan products. Creating a digitized loan disbursement journey can make consumers happy; it can also free up staff for more valuable tasks such as client relationship building.

Conclusion

Most traditional banks in India are only in the early stages of growing the capabilities and knowledge base, and thus find digitization of processes a very complicated procedure. Very often, we see that bank managements are unaware of the change, worst still, they are aware but opt to turn a blind eye to all the advancements in the lending sector. They see it as a challenging step to lead the development efforts in the automation and digitization of lending avenues. Executing a holistic digitization program along with simultaneously addressing the culture, systems, and capabilities required seems like a mammoth goal to achieve.

However, the advantages of embracing automation and digitization of the lending process far outweigh the difficulties that arise when it is first introduced to the system. New age Digital Banks compete effectively and capture an emerging, long-term growth trajectory with complete ease.

Digital lending is witnessing a steep rise in India. Finezza is a multi-faceted lending management software tool that allows traditional lenders to emulate into digital banks disbursing digital loans. It helps lenders shell out credits almost instantly on the basis of budget summaries, bank exchange history, and e-commerce transaction behavior of a prospective borrower. Clever use of technology and techniques like artificial intelligence, machine learning, and big data empowers the loan underwriting process and helps with an instantaneous execution.

To know more about Finezza, get in touch with us!