There is a stark contrast between India’s current financial landscape and its state in the 2000s primarily due to the influx of fintech companies. The confluence of technology and finance combined with the increasing demand for convenient and user-friendly financial services are shaping India’s economic ecosystem.
While traditional banks and financial institutions have served the masses in the past, they have been somewhat sluggish in embracing new technologies and streamlining the lending lifecycle.
The arrival of fintech companies and tech advancements has transformed India’s financial landscape and influenced consumer behaviour. Indian consumers, especially the millennial and the Gen Z population, aren’t shy about ditching their incumbent banks in favour of better and more efficient alternatives.
While the Reserve Bank of India’s (RBI) support will be crucial for fintechs to flourish, new technologies will shape the future of lending in the upcoming years. This article explores these innovations and how the fintech revolution is improving the lending life cycle.
State of Lending Lifecycle Before Fintechs
As mentioned earlier, traditional banks and financial institutions have been somewhat rigid in thinking out of the box and improving their products and services.
While we cannot disregard their role in the Indian financial system, the lack of digital-first offerings, lengthy lending lifecycles, and outdated processes have partly dented their reputation.
Furthermore, their services and products were only available to consumers in the locations where the company had a physical presence, such as stores or offices. This significantly restricted their ability to reach potential customers in other areas.
It is also fair to say that banks were not proactive enough to provide tailored services and products to their customers, resulting in poor customer experiences.
Fast-forward to 2024. What has changed?
Let’s look at some interesting technology trends that are redefining lending lifecycles.
Technologies and Innovations Revolutionising Lending Lifecycles
This section explores some of the latest innovations, from machine learning (ML) algorithms to smart data analytics, that are expected to streamline the lending lifecycle:
1. AI For Credit Assessment And Disbursement
Banks and even fintechs often struggled to assess first-time borrowers’ creditworthiness, delaying loan approvals. Things have gradually changed since digital lending took off in India, compelling lenders to tighten their grip over credit assessments and tackle this roadblock.
Traditionally, bank statements and credit reports were used to determine a borrower’s creditworthiness, which did not provide a clear picture. Today, lenders use AI-powered algorithms for credit assessment using various touchpoints, including a borrower’s online transactions, social media behaviour, and other patterns.
2. Automation
Automation has made significant inroads in the financial sector, playing a critical role in improving lending lifecycles. Today, many lenders are on board with end-to-end automation across all lending activities.
From credit assessment to loan disbursement, lenders must automate every stage to meet the requirements of tech-savvy consumers who want faster loan approvals.
Climate-conscious Gen Z and millennials are also turning their backs on lenders that require them to fill out physical documents or perform manual labour. Automating the entire lending lifecycle paves the way for convenience and a better lending experience for the borrower.
3. Hyper Personal Loan Products
Gone are the days when borrowers were satisfied with basic or peripheral personalisation. Today, lenders must switch gears and focus on creating hyper-personalised experiences for borrowers.
Around 72% of people rate personalisation as a critical metric when choosing a bank or a fintech alternative.
Lenders who overlook the importance of delivering personal communication and lending services are likely to be replaced by those who prioritise personalisation.
Therefore, lenders need to leverage different tools to capture relevant user data to curate tailored lending experiences. These experiences can be crafted around a user’s immediate requirements, spending patterns, recent expressions of interest, and more.
4. Fraud detection with AI
Lending fraud remains one of the most glaring issues for credit unions, digital lenders, and banks. Lending-related fraud surged 14.5% in 2022 against a modest 6.9% in 2021.
It is clear that lenders have never had a better time to address this menace and mitigate loan fraud risk, and this is where technology can step in.
AI-powered fraud detection solutions can detect suspicious data and activities by observing real-time anomalies and patterns. These advanced systems can prevent fraud, including identity theft, email phishing, ID document forgery, and more.
5. Smooth API Integration
Lenders, particularly banks, have realised the importance of using third-party applications and APIs to improve the lending lifecycle and unlock new opportunities.
Many fintech companies are rolling out reliable and accurate solutions that can easily integrate with the lender’s existing tech stack. These solutions empower lenders to make informed decisions, expand their lending portfolio and improve the lending process based on real-time borrower data.
Parting Notes
Undoubtedly, technology will dictate the course of the digital lending landscape in India and other parts of the world.
Traditional lenders, including banks and credit unions, must escape the clutches of outdated systems and processes to compete with new-age fintech companies. It is worth noting that borrowers are swaying toward lenders prioritising transparency, personalisation, and convenience.
The onus is on lenders to embrace innovation and streamline their lending lifecycles to attract and retain borrowers.
Finezza’s advanced loan origination system is a cutting-edge solution for expediting and improving direct and indirect lending. Its wide range of third-party integrations, combined with its exceptional automation capabilities, has helped our clients transform lending and take it to the next level.
Book a demo to learn more.
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