Did you know that Non-Banking Financial Companies (NBFCs) can leverage data and digitisation to facilitate lending? It can lead to reduced costs, faster approvals, and increased financial inclusion.
According to BCG, this might enable a 15X growth in this market, reaching INR 7 lakh crore in annual disbursements.
But what drives this growth? It is the India Stack.
In this blog post, let’s learn more about this technology and its impact on digital lending.
Understanding India Stack
India Stack is a technology for 1.2 billion Indians that facilitated an INR 14.05 trillion monthly real-time mobile payment. Key components include the Unified Payments Interface (UPI) for cashless transactions, eKYC to streamline customer onboarding, and Aadhaar for identity verification.
The Stack’s APIs and digital systems allow developers, governments, and businesses to efficiently utilise the digital infrastructure. It’s built on presence-less and cashless layers to offer private and consent-based digital transaction services.
The Economic Times reports that India might become a USD 1 trillion digital economy by 2028. You can owe it all to the following components:
- Aadhaar: Unique biometric identity system that assigns 12-digit identification numbers to citizens.
- e-KYC: The Electronic Know Your Customer process allows businesses to verify consumer identity quickly.
- UPI: Unified Payments Interface for seamless and real-time transactions between mobile wallets and bank accounts.
- Digital Locker: Secure digital document storage and sharing to enhance accessibility.
- eSign: Digital signature for paperless authentication.
With these India Stack components, NBFCs can collectively drive financial inclusion and streamline digital lending processes across India.
Digital Lending: 7 Benefits of India Stack for NBFCs
NBFCs can benefit from the India Fintech Stack as it helps transform digital lending operations and enhances service delivery. They include:
1. Reduced Costs in Operation and Compliance
eKYC processes can cut down onboarding costs by 90%. NBFCs find this economically viable as they can serve low-income clients and explain their customer base.
2. Efficiency Gains by Streamlined Operations
Lenders can automate various lending processes to ensure faster loan approval and demonstrate operational efficiency.
3. Reduced Errors via Automation
The India Stack allows NBFCs to automate verification and data collection processes. They can accurately assess finances, credit, defaults, and more.
4. Enhanced Financial Inclusion
By democratising access to credit, lenders can serve previously unbanked individuals. Over 510 million new bank accounts have been opened since such financial inclusion programs were launched.
5. Enhanced Data-driven Insights for Innovative Financial Products
India Stack allows NBFCs to access real-time data. These companies can now tailor and innovate their products based on consumer needs and behaviour.
6. Support for Digital Transformation
Lending companies can adopt digital operations and modern technologies. This will help increase the potential for digital lending, improve customer experiences, and fortify operational agility.
7. Increased Trust and Security in Transactions
Companies can also integrate secure digital identity verification through Aadhaar. This enhances every consumer’s trust in transactions and makes the lending process secure when sharing sensitive information.
Digital Lending: Aadhaar-based e-KYC for Streamlined Onboarding
In 2022, the Aadhaar-based e-KYC transactions witnessed a 22% rise, reaching INR 28.75 crores. It’s also crucial in the digital lending process because of the following factors:
- Streamlines onboarding and acquisition through instant identity verification.
- NBFCs can reduce the time it takes to approve loans (from days to minutes).
- Simplifies the process of digital payments and lending.
With the India Stack, lenders can also provide efficient and secure services in remote locations. For example, innovative products like the Buy Now, Pay Later model (BNPY), digital insurance, and instant personal loans make financial services accessible.
Digital Lending: Consent-based Data Sharing with Account Aggregators
An Account Aggregator (AA) is a framework that enables users to share financial data with other institutions based on explicit consent. That means AAs are middlemen between FIPs and FIUs.
For example, banks will collect and share the data with digital lending organisations based on user consent.
This private and secure data-sharing mechanism is crucial to enhancing control over your customer’s personal data. In 2024, India crossed 100 million successful consents on an AA framework.
AAs can also help with credit assessment in the following ways:
- Real-time access to various verified information
- Improve accuracy in credit evaluation and risk assessment
- Personalised loan offerings based on customer financial data
The India Stack enabled such end-to-end lending solutions to ease the financial analysis process and provide decision support to NBFCs.
As a lending process management and analytics software for high-growth lending and fintech companies, Finezza can help NBFCs assess an applicant’s creditworthiness by analysing their underlying financial transactions.
Digital Lending: Integrating UPI for Seamless Loan Disbursement and Repayment
In July 2024, the UPI transactions exceeded INR 20 trillion. This revolutionary payment system facilitates real-time transactions between bank accounts. It can support instant transaction types like peer-to-peer transfers and merchant payments using VPAs.
Take a look at the benefits of UPI in the digital lending process:
- Instant Loan Disbursements: Immediate transfer of loan amounts to a borrower’s account, eliminating delays.
- Convenient Repayments: Easy, real-time payments using UPI through various bank accounts help borrowers repay the loan amounts on time.
- Improved Customer Loyalty: Seamless experience of quick transactions and easy access to funds for better loyalty through customer satisfaction.
An example would be the Credit Line on UPI (CLOU). This financial product provides pre-approved credit limits to users that can be accessed through UPI apps without having a traditional credit card.
Leveraging Digital Locker for Paperless Documentation
The DigiLocker app plays a significant role as it facilitates paperless verification and documentation. It enhances the digital lending experience and promotes a secure and faster documentation process.
- The app allows users to store and share important documents in a secure network with lenders. Examples include financial statements and identity proofs.
- NBFCs can also streamline verification since no physical copies are involved.
- Minimising paperwork reduces operational costs and also saves time for lenders and borrowers.
4 Best Practices for Implementing India Stack in Digital Lending
The internet penetration rate stood at 52.4% in 2024, compelling NBFCs to leverage the best practices for digital lending:
1. Develop a Comprehensive Digital Strategy
By establishing a clear roadmap, you can align business goals with the evolving digital environment. For example, NBFCs can leverage verification components like the DigiLocker App and use UPI transactions to optimise the lending process.
2. Partnering with Technology Providers and Fintech Firms
The digital lending disbursement industry might reach INR 47.4 lakh crore by 2026. Therefore, NBFCs must collaborate with Fintech companies and integrate advanced technologies.
That’s where Finezza comes in to ensure seamless access to a digital infrastructure and enhance service delivery. Businesses will benefit from verticals like the Bank Statement Analysis Algorithm and Document Identification Framework. These help with ITR and GST Verification during the lending process.
3. Ensuring Data Security and Privacy Compliance
NBFCs must adhere to regulatory standards for data protection. Utilising the Consent Layer component of the India Stack initiative will allow you to:
- Manage user permissions.
- Safeguard sensitive information.
4. Providing Training and Support to Employees and Customers
Only 34% of change management initiatives succeed due to a lack of proper training and support during digital transformation.
To solve this, you must equip your staff with the necessary skills to streamline the digital lending process. For instance, educate the employees to help customers understand new digital tools and navigate technologies.
Final Note
The future of digital lending in India seems promising, thanks to the India Stack initiative.
Since it’s driven by the rapid adoption of digital technologies, the market is projected to have a CAGR of 40%. Digital lending is supposed to amount to 5% of all retail loans by 2028.
Your NBFC must stay ahead of the curve to meet evolving customer demands and stay competitive.
That’s why platforms like Finezza aim to offer NBFCs a way to improve operational efficiency and enhance customer experiences. Companies can track and manage credit applications, assess lending risks, and process KYC documents faster using their product suite of loan organisation and management.
Are you ready to transform and streamline the lending experience?
Contact Finezza today!
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