OCEN Archives - Finezza Blog

9 Benefits of OCEN for Small Business

The financial industry has hailed OCEN as a “magician’s wand” to solve the Indian MSME sector’s liquidity crunch. It will facilitate the connection between lenders, markets, and borrowers online. And thus, allow the needy to get small-ticket loans.

OCEN is also expected to result in the financial inclusion of the unbanked and boost the number of small enterprises registered in India.

Furthermore, it will build a robust ecosystem that all stakeholders can use to develop innovative products and services for the customers. Apart from that, it will also provide a slew of advantages to small businesses. We’ll go through each one individually.

What is OCEN?

In July 2020, Infosys CEO Nanan Nilekeni introduced the concept of OCEN at the Global Fintech festival. He cited the Open Credit Enablement Network (OCEN), which will digitally connect borrowers and lenders through marketplaces, and make micro-credit available to a hitherto underserved MSME sector.

In short, OCEN is a software infrastructure protocol that links all stakeholders, including lenders, loan service providers (LSPs), and borrowers. The LSPs are usually eCommerce platforms or marketplaces which make this interaction possible.

There is an exchange of verified public and private data between those involved. Based on this information, the lenders provide quick, affordable, and low-cost loans to the customer.

9 Reasons Why OCEN is Good for Small Businesses

The MSME sector in India accounts for 30% of the country’s GDP. In 2018-2019, 48% of India’s exports included MSME-related products (investindia.gov.in).

However, only 11% of them can obtain loans from the formal credit market.

But OCEN will change this reality by providing immediate liquidity to the cash-strapped MSMEs.

The following are some of OCEN’s benefits for small enterprises:

1. Financial inclusion

India has 63 million MSMEs (middle and small-sized companies). But 11% of them are eligible for loans from conventional lenders.

The others rely on non-banking financial companies (NBFCs) and loan sharks, who demand exorbitant interest rates. With OCEN, the remaining 89 % of borrowers will be able to get credit at a cheaper interest rate. This will also promote the goal of financial inclusion of the unbanked population.

2. Data equals loan

Lending institutions overlook small businesses because they lack a credit history. The widespread digitisation has helped eCommerce platforms, and marketplaces access vast amounts of customer data.

Lenders can utilise this information to design solutions tailored to the needs of small enterprises. For example, an LSP may now examine a merchant’s GST data to determine their reliability and grant them a loan.

3. Customised credit

Small businesses have their specific credit needs. They need a small loan for a shorter duration and a quick repayment facility. This was deemed unprofitable by the conventional lenders who preferred high-value clients. This, however, will change with the arrival of OCEN.

MSMEs would be able to obtain modest and large-ticket loans with low-interest rates. Furthermore, LSPs and lenders will offer these loans based on the borrower’s cash flow rather than their balance sheet. Hence, it will welcome change for the hitherto neglected MSME sector.

4. Daily credit availability

Along with the small-sized loan, intraday credit with OCEN cannot be ruled out. For instance, a Kirana store owner and a person in need of a one-day loan will be able to get it soon with OCEN. It implies that everyone who can pay back a loan at the end of the day will be able to get one the same morning.

5. Low-interest rates

Lenders will be able to save money on loan processing and operational costs, thanks to OCEN. In addition, LSPs and lenders will save time and money because the entire financing cycle will be conducted online. As a result, they will be able to offer credit to a more significant number of consumers at cheaper interest rates.

6. Growth for everyone

All stakeholders—LSPs, lenders, and borrowers—will work in tandem to help themselves and the economy flourish. LSPs will encourage lenders to provide tailored credit solutions to their customers.

Borrowers will be able to take advantage of these customised loans to expand their businesses. In the long term, everyone will gain from this cash inflow.

7. Quick loan disbursement

Today banks and NBFCs take about seven days to process any loan application. The whole loan cycle will be managed online using OCEN, from loan origination through verification and approval.

Furthermore, the stakeholders will share the borrower’s consent-based data. Because this data has already been verified, it will reduce the turnaround time. As a result, the loan will also be issued to the borrower swiftly.

8. Security

OCEN is based on the smooth interchange of data between all parties involved. The consumer has given their full permission for this transaction. Stakeholders will keep the information secure. As a result, there are fewer chances of data leakage.

9. Anytime a credit

MSMEs will be able to apply for a loan in the morning and receive credit at the end of the day once OCEN is in place. Their loan application will not be delayed due to a holiday or weekend. They may request a loan at any time, on any day, and get the funds as soon as possible.

As a result, OCEN will open up an ocean of possibilities for MSMEs, LSPs, and lenders. It will help the Indian economy by fostering growth for all stakeholders. It will also help MSMEs expand without concern about running out of or after finance.

If you’re an LSP or a lender wanting to improve your loan cycle management stack, get in touch with Finezza. We can help you manage your loan cycle systems with our effective solutions.

10 Reasons Why OCEN is India’s Future of Financial Transactions

Lending Lifecycle Management

OCEN sparked much interest in the financial world after the global economy was put on a ventilator during the pandemic.

It was first introduced as a part of IndiaStack by Infosys CEO Nandan Nilekani in 2020 and is still a hot topic today. Simply defined, OCEN (open credit enabled network) is an application that intends to bring together loan service providers and lenders to provide MSMEs with easy finance.

All stakeholders anticipate its launch with bated breath, as it intends to bring profitability, ease, and comfort to the digital lending industry. This post will look at why OCEN is being lauded as the future of financial transactions.

What Exactly is OCEN?

Only 11% of India’s 63 million MSMEs (Micro Small and Medium Enterprises) have access to formal credit. The rest must turn to non-banking financial companies (NBFCs) or money lenders to obtain money at a hefty interest rate. OCEN will be a digital platform that will solve this problem.

It will provide MSMEs with inexpensive credit and that too quickly. It will also provide lenders with the borrower’s consent-based verified public and private information.

Lenders will give the borrower a customised loan based on this data. OCEN is an infrastructure protocol that will connect borrowers and lenders via legitimate data exchange, which will be consent-based, safe, and secure.

Factors that Make OCEN an Integral Part of Future Financial Transactions

OCEN will change the way India’s digital lending industry operates. At the touch of a button, it will make customer data and loans available to lenders and borrowers, respectively.

The factors that make OCEN the future of financial transactions are as follows:

1. Huge market

India’s economy is now worth $5 trillion, and MSMEs account for 30% of the country’s GDP. However, the latter has a credit deficit of Rs. 20-25 trillion, despite demand of Rs 37 trillion.

OCEN strives to bridge this gap by leveraging technology to bring in the necessary funds for cash-strapped MSMEs. Its goal is to bring together lenders, loan service providers, and account aggregators to provide MSMEs with easily accessible finance.

2. Cost-effective

OCEN will reduce operational costs for lenders and loan service providers. For example, the cost of obtaining a bank loan is 6.30 per cent of the amount borrowed.

This cost includes documentation, shipping, and processing fees, among other things. In addition, thanks to OCEN, the entire lending cycle, from verification and loan approval to disbursement, will be done online.

As a result, lenders will save money on administrative costs and will be able to extend loans to a wider range of borrowers.

3. Low-cost client acquisition

Identifying new borrowers will be simple because the loan service providers (LSPs) will also be marketplace and eCommerce platforms. LSPs will connect lenders with customers in this case and vice versa. This will cut down on time and money lenders spend on client acquisition.

4. Tailored solutions

MSMEs have distinct financing demands than high-ticket customers. Lenders would be able to offer borrowers personalised loans thanks to the seamless flow of consent-based data between LSPs and lenders.

Amazon Pay is an excellent example of how this can be done. Amazon is an eCommerce behemoth with access to its consumers’ transaction histories.

Customers can now get a loan for their purchases through the company’s bank partnerships. Once OCEN is fully operational, you can expect even meal delivery businesses to enter this market.

5. It is fast

The entire OCEN ecosystem is based on speed, with everyone being quick but not furious. Previously, MSMEs found it challenging to obtain a loan from the conventional credit market; today, various lenders on the LSPs platform will compete for their attention.

Moreover, because the entire credit process will be computerised, they will be able to obtain funds more quickly.

6. It is convenient

Digital lenders currently process loan applications in 5 to 7 days. They will be able to do it faster with OCEN. The loan applications would be authorised in real-time due to the seamless flow of information between all stakeholders. It will make things easier for both lenders and borrowers.

7. Increased revenue

By 2023, India’s digital lending business will be worth $350 million. Its market share is predicted to increase to 48% in 2023, up from 23% in 2018.

OCEN is meant to address current loan processing issues like verification, data interchange, and other aspects of the lending cycle; lenders should anticipate seeing a fivefold increase in revenue.

8. 24×7 availability

In addition to lenders, OCEN will assist the unbanked population, which the formal credit market has overlooked. Borrowers no longer need to wait several days for loan or credit approvals.

Instead, they will be able to request a loan from their mobile phone at any time of day and receive fast approval.

9. Financial inclusion

OCEN will provide new opportunities for lenders and borrowers in India. It will make tailored loans easily accessible to a significant unbanked population.

This will also lead to the financial inclusion of the unbanked, bringing a total of 1 billion people into the credit market. As a result, the Indian economy will benefit, which is still recovering from the pandemic.

10. It is secure

Most importantly, customer data will only be shared with stakeholders with the approval of the former. The consumer will determine how much data to disclose and, if necessary, revoke consent.

It is no surprise that OCEN is the most eagerly awaited application among lenders and lending service providers. It will allow them to analyse customer data quickly and offer unique credit solutions to lenders. It is an app that will benefit all stakeholders, including MSMEs.

Contact Finezza today if you are a lender or a loan service provider looking to enhance your current loan management software. We, at Finezza, provide world-class loan cycle management technologies to assist you in providing the best possible service to your consumers.

Towards a New Digital Empowerment: An OCEN of Possibilities

Lending Lifecycle Management

With the potential to disrupt the traditional lending landscape, OCEN is an ocean of possibilities. OCEN is what we would call – financial inclusion in an absolute sense. It aims to render the objective of delivering credit to small businesses.

MSMEs of India are credit deprived, which poses a challenge for the growth-led economy we envision. On the other hand, this sector fuels the growth of our economy with potent ideas and 29% of India’s GDP.

However, given RBI’s efforts to change the face of the lending ecosystem, MSMEs in India are still in the shadows of financial inclusion. As per reports, MSMEs suffer a credit gap of Rs 20-25 trillion, with addressable credit demand of Rs 37 trillion and an existing mainstream supply of Rs 14.5 trillion.

Let us see how OCEN promises to overturn India’s credit depravity.

Is OCEN the Next Digital Public Good?

Yes, there are expectations OCEN is the next big public good in the lending landscape, but not in a literal sense. First things first: OCEN is not a product or a service. It is a protocol infrastructure of APIs for transactions between a lending firm and lenders.

OCEN, aka Open Credit Enablement Network, was introduced at the Global Fintech Festival 2020. But, for the idea to bloom into a success, a bar of effective implementation is required.

Digital lending platforms can now create their bespoke products in line with the standards of OCEN. In addition, it lays down the standard language for collaboration and partnerships between both parties.

Through OCEN, lender firms can underwrite norms with access to fresh data and information. In addition, OCEN sets some new standards of monitoring credit downright.

It all started with IndiaStack, the set of open APIs. IndiaStack lays down the open specification as the digital infrastructure driver for governments, businesses, startups, and developers.

IndiaStack kickstarted with the release of UIDAI. Some of the open APIs it offers are UPI, BharatPay, BBPS, Aadhar, AEPS, eKYC, eSign, DigiLocker, FASTag, and the GSTN platform. The next ultimate addition to IndiaStack is OCEN.

OCEN is set to change the regular lending norms by leveraging digital infrastructures. In addition, it would change how credit is disbursed by introducing new lending standards. All such standards will build a reliable, convenient, paperless, and inclusive credit ecosystem.

OCEN is the Growth Stack for Small Businesses

Big companies get to play their cards right with access to credit. MSMEs, on the other hand, though deserving, are left in a hunch of credit approvals. So OCEN builds a standard screening process of lending between lenders and digital platforms.

Loan service providers would not have to massively invest in technology development to include a credit product into their pipeline. Instead, OCEN’s open API standards would do the job.

Better yet, loan service providers themselves would be able to become leaders shortly. It would be possible to do business at low-cost customer acquisition and streamlined payments.

Also, soon, small business owners selling through eCommerce platforms can avail of a daily credit settlement. This means they would be able to borrow along the day and possibly pay it by EOD.

The loan disbursal process for such credit options would depend upon cash flow instead of income and assets. In addition, borrowers would have multiple lending platforms to choose from, and the entire process would be digital.

There is more: the simple and automated process will bring down turnaround time and application costs. However, merchants need to set up a mandatory payment process through UPI’s autopay feature. A win for the small business owners indeed.

Solutions that OCEN Offers

Let us walk through the problems and concerns that OCEN addresses:

It identifies borrowers worthy of credit
OCEN brings down the cost of borrower acquisitions which is increasingly problematic for the lending firms.
The technology part aims to automate the manual process of integration that cuts time and costs.
The time interval of actually disbursing the loan into the borrowers’ account is cut too.
Fintech firms that aim to launch a bespoke credit product into the pipeline will now find it easier to do so.
Any MSME deprived of legal credit access will have a gateway to credit.
Firms can establish a self-sufficient chain of lending. This could include underwriting, disbursement, capital arrangement, dispute management, payment, recollection, and more.

Here are the Gaps that OCEN Aims to Fill

With the solutions that OCEN offers, here is what would change if it does get implemented:

Open credit access

This means OCEN would be more accessible for new players to enter the credit market by offering unique products. Firms would have better access to credit data which would help them create unique offerings.

With OCEN, any digital platform can position itself as delivery of credit. Likewise, technology partners can offer their unique tech solutions to fill the gaps in OCEN. This would help create a safe space for transactions between a lending service provider and a lender.

Financial inclusion

The credit flow typically breaks down for MSME as a lender. The reason for the breakdown is no formal data to facilitate underwriting MSME. This is how spotting a worthy borrower gets expensive for a traditional lending source. Also, the loan requirements of such MSMEs are different compared to established organisations.

OCEN barges past this significant issue by creating a new way of doing things. Lending firms can use open data for underwriting needs and quickly disburse the loan amount.

OCEN aims to make the process automated, instant, paperless, and solution-oriented. This would open the doors of credit for small-scale borrowers—the credit-deprived section of the society.

Innovative products

There is no denying, with the open protocols in place, we would see some ground-breaking credit products in the market. In addition, we would see new players who are well informed of the market’s shortcomings and a likewise solution.

We would see some major tailored credit products in action that would fit the diverse credit needs of borrowers. The terms and conditions of the transaction would also be drawn in favour of both parties.

Implementing OCEN may not accelerate as fast as UPI since a lot of frameworks and parties need to be jolted down. But, when implemented, OCEN would ultimately disrupt how we view credit disbursement in India. It would be a game-changer for the MSMEs especially, and ultimately our economy.

Keep an eye on Finezza’s blog for more insightful stories on what is happening in India’s leading landscape.

Can Fintech Innovations Bridge India’s Financial Inclusion Divide?

Updates

In the past decade, India has witnessed a quantum leap in the fintech industry. Fintech funding grew exponentially in the last few years, and after the COVID-19 pandemic, the industry became the blue-eyed boy of economies.

Of the total 2,100 fintech entrees in operation, 67 per cent of them started operations in the last five years. Amid COVID-19, India saw a 60% growth in fintech investments, and a Boston Consulting Group report released March 2021 says Indian fintech companies will reach a valuation of US$150-160 billion by 2025, becoming three times more valuable in the next five years.

So what the reports suggest is a skyrocketing rise in the valuation of financial technology in India. But the question still lingers: are these Fintech innovations enough to bridge the country’s financial inclusion divide?

Not everything is rosy in the fintech landscape, it turns out. While the sector is on the edge of a landmark journey towards unparalleled growth, financial inclusion of all and the last mile connectivity remains a challenge.

India’s Digital and Financial Inclusion Divide

India has 1.3 billion (and counting) people spread across the length and breadth of the subcontinent, a significant part of which lives in semi-urban and rural areas.

That population accounts for over 70 per cent of the nation’s population. Yet, according to the IAMAI research, just 20.26 per cent of rural Indians and 64.84% of urban Indians have access to the internet (despite the fact ‘mobile-first’ rural generation exists).

The digital financial gap exacerbates in the rural areas, where 80 per cent of inhabitants (and 64.84% of urban inhabitants) are yet to adapt to fintech as per ET stats.

These rural and semi-urban sections of the population do not have access to the traditional banking system. The World Bank estimates, about half of India’s population may be financially excluded, out of the formal financial net.

Even if they have a bank account, most of them are unable to get benefits due to several factors, including the distance of their village or home to the nearest bank branch, limited financial literacy, disinterest on the part of the bank, traditional mindset, trust issues, and others.

So, how can the challenges be overcome?

Fintech – A Beacon of Hope

Looking at the robust growth of sectors like health, education, and others, it can be safely said that technological innovations can bring technology hesitant people within the financial loop and help break the barriers of the digital divide.

According to NASSCOM, financial inclusion can help reshape the economy. Companies such as Udaan, Meesho are assisting people in making money despite living in far-flung areas. Fintech innovations can keep the momentum going on.

As per ET reports, India can grow into a $1 trillion digital payments market which is already the fastest-growing. In the fiscal year 2019-20, the country received 3,435 crores in digital payments which points out the popularity.

While the government is making strenuous efforts to promote digital India, the Reserve Bank facilitates the sector’s growth through regulatory initiatives. For instance, there will be a specific division at the central bank dedicated to fintech companies.

Fintech Innovations is the Way Forward

The fintech innovations can help accelerate financial inclusion, and technologies like AI and ML will further bridge the financial divide in India.

Despite the explosive growth of the fintech industry, lending in rural and semi-urban regions remains a challenge. Only 10 per cent in rural areas are estimated to have access to formal credit.

Also, India’s MSME sector contributing nearly 40 per cent of India’s 2.87 lakh crore GDP, is chronically credit-starved, even as India makes strides in financial inclusion. As a result, an estimated $600 billion credit gap exists in the sector.

But fintech coupled with digital push has the potential to turn the game of financial inclusion around. For example, Statista expects India’s digital lending market will contribute around 350 billion dollars by 2023.

The current pandemic has changed the scenario of the financial landscape. It has pushed digital payments where almost every segment of the population engages in e-commerce and online transactions.

However, this can be true for urban areas, but hinterland and rural areas may still be out of reach of the final inclusion. Fintech has the potential to help financial lending institutions become efficient and serve customised financial products at affordable pricing.

Banking the Underbanked

The legacy banking system with long drawn time-consuming processes and stringent requirements is not conducive to low-income households.

Fintech innovations like mobile money can minimise constraints by financial services available to this section of the population. For example, Kenya has shown the way with the success story of its mobile currency. Called M-Pesa, this e-currency offers a vast distribution network and user-friendly tech to provide bank access to more than one lakh Kenyans, thus lifting them out of poverty by improving their savings.

As another example, a digital ID card can help ease access and banking operations. For example, Aadhar is already being used for e-KYC for bank account opening.

Customers can obtain relatively small loans from digital lending companies via applications or online platforms. In comparison to bank loans, digital lending does not require a specific bank account, has fewer conditions, and is much faster.

Besides individuals, lending companies can also provide micro, small, and medium loans (MSME). The coronavirus (COVID-19) outbreak increased already high loan demand in this industry. As a result, many businesses could not obtain bank loans and be forced to seek alternate funding.

Increasing Trust and Convenience

Low-income households generally tend to distrust digital financial services and prefer cash for transactions. Therefore, the technology should strive to build a more robust infrastructure that allows users to interact with human interface and not solely rely on digital channels like chatbots to gain the confidence of low-income users.

In addition, fintech innovations such as embedding finance in already operational retail chains familiar to low-income households can help generate trust and inclusivity.

Providing Access to Basic Credit

Low-income households often lack access to essential services like water, health, sanitation, education, and electricity, among others. Fintech innovations like pay as you go models allow this section of the population to avail essential services on their terms.

When they save and see the corresponding benefits, they are motivated to keep going, thus encouraging more people to join and help in economic development. For example, Pradhan Mantri Jan Dhan Yojna is a scheme launched by the Government of India. It aims to fulfil the basic credit needs of the underserved sections of society. It comes with an overdraft facility and also offers accidental insurance cover. It is a zero balance account that aims to cover savings, insurance, pension and credit.

Fulfilling Unmet Credit Needs

Low-income households lack formal property rights and documentation, bank accounts and do not have credit histories. The traditional credit rating system considers all these factors and more while considering loan approvals.

Often these households are filtered out by the conventional lenders due to fear of default. Low-income women entrepreneurs are often hit more by this even though they tend to default less than men.

Fintech innovations such as a digital credit scoring mechanism monitored by machine learning can be used to process details and predict creditworthiness.

Plugging Cash Leakages

Low-income households generally undertake cash-based transactions. However, they are inconvenient, lack efficiency and transparency. Large ticket transactions are unsafe and expensive also. Fintech innovations like digitising payments can plug leakages, reduce costs, and improve traceability.

Financial Products Tailored to Fluctuating Incomes

The cash flow of low-income households is often constrained and unpredictable. This is because most of them are dependent on agriculture for income flows that rely on planting and harvesting times.

Traditional financial service such as monthly EMIs and frequent visits to the bank branch is inconvenient for them. However, fintech innovations such as FarMart and Jai Kisan offer flexible and timely financing to farmers to meet their equipment needs.

To sum up

The fintech innovations have increased its outreach to include stocks, bonds, peer to peer lending, and more. The widening of scope will ultimately help to encompass the underserved low-income sections.

Financial inclusion will catalyse both economic growth and poverty elimination. It will also aid in the achievement of the United Nations’ Sustainable Development Goals (SDGs).

In addition, by bringing innovation, the fintech industry in general and the lending industry will build newer financial products on a scalable architecture.

Finezza offers a whole suite of customised financial solutions to herald a new era where small and medium enterprises, women entrepreneurs, and others could gain financial opportunities like never before. So get in touch with us today.

OCEN – The Way Ahead for Digital Lending and MSMEs

Updates

Open Credit Enablement Network, a.k.a., OCEN is the new buzzword in the financial lending space. OCEN, launched in July 2020, is an open protocol infrastructure between Loan Service Providers such as e-commerce players and FinTechs and mainstream lenders such as banks and NBFCs.

The OCEN framework aims to put a set of protocols and frameworks that can provide credit to segments that need it the most.

As per reports, it is expected that the digital lending market will grow to $100 billion by 2023. OCEN is a framework for the interaction between lenders, Loan Service Providers (LSPs), and Account Aggregators (AA).

Challenges in Credit-Based Lending for MSMEs and Lenders

MSMEs and the unorganised sector struggle to invest in technology, enhance infrastructure and upskill the workforce due to lack of timely and affordable credit. The situation has worsened in the current pandemic, with several businesses either shutting down temporarily or permanently or struggling to secure liquid cash for their operations.

The traditional lenders have been unable to guide credit towards businesses that need it. MSMEs need timely working capital but cannot access it from traditional lenders such as banks and NBFCs.

The Problem of Lack of Credit History

Due to a lack of adequate credit history and formal records, lenders ask for collaterals that the entrepreneur cannot provide. This has hampered the credit disbursal to small business at the right cost of capital and which is customised as per their requirement.

The current lending setup makes it cumbersome for banks and NBFCs to give loans to borrowers as they are keen to reduce the risk of NPA. Any innovation is hindered by time and cost constraints in identifying and servicing new consumers, collecting documents and processing payments.

Banks have the lowest cost of capital due to deposits and accounts of the public, while they tend to lend to larger enterprises who have a higher ticket size requirement. Smaller enterprises that make up a larger portion of the working economy are unable to often provide necessary data or collateral to banks. In the absence of this, they cannot avail of loans even though they most need the loan. They must depend on lenders who charge higher interest to compensate for the higher cost of capital and riskier customer base.

The majority of the MSMEs tend to gravitate towards NBFCs for their loan requirements even though they charge a higher interest rate than banks. There are several reasons for this:

Personalised attention,
Collection of documents in one go,
Shorter process time, and
An enhanced customer experience.

Asset-based vs. Cash-based Lending

Complex documentation and repeated visits to the bank branch are considered another major hurdle for entrepreneurs accessing fiancé from the banks. Several instances of underfinancing have been found where banks had sanctioned less credit than required, forcing entrepreneurs to meet the credit gap through the NBFCs.

Instead of asset-based lending, cash-based lending can help promote the credit flow towards MSMEs. This model of extending credit is reliant on projected cash flows instead of assets. Therefore, traditional lenders can partner with fintech’s to lend to MSMEs through cash flow-based lending and reduce the risk of NPA.

How OCEN Can Help in Loan Disbursement to MSMEs

There is an expected customer base of nearly 300 million Indians who have not been tapped by the formal credit lenders, the banks and the NBFCs.

As we are inching towards more and more digitalisation in every sphere, there are several newly digitised users such as gig economy workers, entrepreneurs of MSMEs, small shop owners, rural self-help groups, farmers, and traders. They are generating a digital transaction history that can be used to inform and build trust with lenders. However, there is still a lack of credit facilities that are customised as per needs.

Here, OCEN can act as a common language, connecting lenders and mediators to create innovative financial products that can be scaled.

OCEN Framework in Cash-flow Based Lending

MSMEs can benefit from the new developing ecosystem that provides seamless access to capital and eases the rigours of business. With OCEN, the vision is to enable a digitised credit infrastructure that standardises the loan application process and makes it quick and hassle-free at both ends. A uniform system for lenders will help them offer small-ticket loans to deserving MSMEs.

OCEN can enable banks to co-lend with NBFCs and extend capital to MSMEs. With NBFCs as the primary interface for the borrower, banks can benefit from greater outreach, technical capabilities and operational expertise of NBFCs as they can ensure last-mile connectivity. Thus, banks can serve a larger customer base without having to bear heavy operational costs. This lending system can benefit NBFCs as they are currently faced with a liquidity crunch, can serve better with financial backup from larger banks.

This conjunction of lending scenario is an enabler of digital lending for borrowers who can make use of credit disbursal processes that are faster and quicker. In addition, the digital interface allows to cater to small -businesses even in far-flung areas and create a win-win situation for both.

OCEN is expected to address several issues such as

Identifying the creditworthiness of the borrowers
Reducing the high cost of borrower acquisition
Ease of connecting customers with lenders
Reducing the high turnaround time of loan disbursal
Creating customised financial products as per need
Extending credit to small scale and unorganised biz owner

To sum up

OCEN is the way ahead, a solution for the need for credit and a problem to credit distribution need. It cannot bring more credit into the system but can make it easier for MSMEs to access it and reduce the concentration of the capital in the pockets of a few.

At Finezza, we offer a range of fintech solutions for banks, NBFCs and other institutes, from loan origination system to AA integration. Get in touch with us to adopt a loan management system with account aggregator integration, and experience the possibilities of OCEN.

Can OCEN Ecosystem Lead to a New Collaborative Lending Order?

Lending Lifecycle Management, Loan Origination System

After the runaway success of the Unified Payments Interface (UPI) mobile payments platform, India is moving forward with the next stage of digitising its financial services sector. The opportunities are immense but so are the challenges. Most Indian lenders have been hamstrung by a growing NPA burden and the focus has shifted to the underfunded SME and micro-lending segment. However, in the absence of access to real-time credit data, lenders have been unable to unlock its true potential till date.

The Rise of Open Credit Enablement Network (OCEN)

The credit gap in the MSME sector is estimated to be between $270B to $330B. Also, the cost of lending is too high for small value loans to be feasible, which keeps most small and mid-sized businesses out of the loop.

To address this problem, a common credit information framework is being developed to connect lenders, customers, and merchants under the Open Credit Enablement Network (OCEN) initiative.

O: Open – An open credit protocol.

CE: Credit Enablement – To enable credit for the underserved MSME sector.

N: Network – A network of lenders, account aggregators, and borrowers that will rely on the bandwagon effect.

Let’s take a look at how OCEN ecosystem can open up a new horizon in our financial landscape:

Addressing asset quality challenges

Simply put, OCEN is to lending what UPI was to mobile payments. It is an open protocol that will enable the smooth flow of consumers’ financial information from the point of purchase to financial institutions through dedicated data aggregators with the customer providing consent in real-time. This will, in turn, help lenders close down the gap in loan origination with customers getting the best possible quotes. OCEN will run on a secure digital platform and will be compliant with the strict data protection requirements of the Personal Data Protection Bill that was tabled in Parliament in 2019.

The technological foundation is proven. OCEN is the latest evolution of the India Stack, a framework that has made innovations like Aadhar/UID, DigiLocker, and UPI possible. Lenders will now be able to access customer credit information through a new category of NBFCs called Account Aggregators that will serve as the gatekeepers of credit data. Account Aggregators (AAs) will, in turn, source the data from a common public credit database that will integrate traditional and non-traditional credit data sources. OCEN will enable banks to closely monitor the spending behaviour of borrowers and take timely corrective action if there are signs of financial distress. Merchants will act as frontline loan service providers in partnership with aggregators and lenders.

For the first time, it will be possible for lenders to leverage data relating to consumer spending activity such as utility payments and tax data for loan underwriting purposes. Currently, credit bureaus do not include such data in their reports. This is likely to improve lenders’ ability to visualize risk better and improve asset quality over time.

Large scale democratisation of consumer credit information

The coronavirus pandemic has triggered a record drop in economic growth. Growth in demand for retail and business finance has already stalled and lenders have been looking for ways to control credit costs. With OCEN, credit data collection, and more importantly, market intelligence will become far more streamlined for lenders. It will lead to the democratisation of access to credit data throughout the lending value chain. This will help lenders predict market trends on a macro level and develop targeted products to meet emerging demand.

The lending industry operates in a tough regulatory environment. In the past, the RBI has cancelled the licenses of several NBFCs for failing to meet licensing norms and for violating the provisions of the Credit Information Companies (Regulation) Act, 2005. According to reports, the upcoming Personal Data Protection Bill makes provisions for penalties between INR 5 crore to 15 crore for minor and major regulatory violations respectively.

This will raise the stakes for banks and private lenders that are already struggling to remain competitive in an uncertain business environment. By leveraging standardised credit data, lending companies will be able to be proactive in their approach to compliance and risk management. Standardised data will also help reduce, if not completely eliminate, the need for extensive back-office processing which is currently driving up operating costs for lenders.

OCEN’s open API means that lenders can create seamless data pipelines with merchants or loan service providers, improving turnaround times. This will, in turn, directly contribute to better customer experience. From loan origination to account servicing, lenders can now look forward to deriving cost efficiencies that would simply not have been possible with traditional processes. In addition, insights from OCEN can lead to the development of better risk models.

Plugging existing gaps

OCEN will be the perfect test case for a host of similar frameworks in domains as diverse as insurance, education, and skill development. Its real-world impact is already being watched with great interest by countries such as Brazil. For Indian lenders, the confluence of e-KYC, online documentation, and instant credit verification through the various layers of India Stack will enable better economies of scale, improved utilisation of resources, and better margins.

In the era of open banking, lenders cannot survive without adopting a customer-centric business model. This means giving customers greater control of their bank accounts and other investments. With loan marketplaces enabling faster product discovery, some large banks have taken the lead in using data analytics to disburse pre-approved loans in under a minute.

With OCEN, the majority of lenders would be able to approve such loans in near real-time while ensuring complete compliance with credit guidelines. For smaller NBFCs, OCEN could level the playing field in terms of identifying new market opportunities, particularly in the Micro, Small, and Medium Enterprise (MSME) segment.

To take advantage of the new protocol, however, the only prerequisite is a compatible loan management system that can interface with the OCEN API. Most Indian lenders are well on their way to integrating technology into their lending workflows, however, the dubious quality of credit data had been a cause for concern.

By creating a universal credit data framework, the government has sought to uphold the interests of the lending community while giving consumers the widest choice of financing possible.

Conclusion

India is one of the market leaders in the areas of Fintech and data analytics. Despite this, the vast majority of Indians are credit deprived and forced to rely on informal sources of credit. From the farm sector to small traders, the business opportunities waiting to be tapped are extensive. The introduction of OCEN is likely to lead to better integration between lenders and marketplaces. With the number of lending channels increasing exponentially, however, lenders will need to embrace change and leverage partnerships effectively to innovate and grow.

Finezza is a leading lifecycle loan management and analytics platform that is built to deliver actionable insights across the credit value chain. It is designed to increase process efficiency, reduce operating costs, and improve decision quality in a seamless and sustainable manner for our customers. To know more about Finezza, get in touch with us.