Is the current digital lending process exciting to modern day users?
Nov 30th, 2016 |
The current lending systems have transformed the traditional lending process by making it easy and hassle-free. The borrowers appreciate the convenience and speed of accessing & processing loan applications across devices like phone, laptop, tabs etc. However, even though this process is convenient, hassle-free and safe compared to offline processes, there are two big dampeners in today’s digital lending process especially for a market like India.
1. Is the end to end lending process truly digital?
The biggest pain point is that most of the processes partially runs through offline channels. The reasons for the process to hitch-hike through offline modes is due to challenges explained in my previous article. Because of this, the whole experience of digital is perforated by delays and discomforts for a digital user.
2. Is the lending process inclusive?
The digital process is not inclusive because of lack of availability of data in terms of the credit scores and eKYC. The credit scores are available only based on PAN card, but less than 25% of total Indian population hold PAN cards which straight away rules out the remaining 75%. Even amongst the PAN card holders, some users do not have a credit history for instances students. Does absence or lack of certain data mean he/she isn’t creditworthy?
Leveraging alternate source of data will change the game
Financial institutions can leverage data, one for enabling straight-through processing of loans by utilizing specific fintech services performing certain functionalities and second for accessing information provided by third party services to assess creditworthiness. Financial institutions need a new age lending system which can orchestrate these functions utilizing alternative of data that can redefine the digital lending process for modern-day customers.
Roadblocks in digitalizing end-to-end loan process in Indian market
Nov 30th, 2016 |
The current lending scenario in Indian market has evolved with new-age fintech providing cutting-edge digital lending platforms. Bank and lending institutions are leveraging digital technologies to serve modern customers. Some reasons aiding this market are the government initiatives toward a digital economy, rise of smartphone users, internet penetration and presence of large middle-class population which is an important segment looking for several types of loan schemes. Enterprises are leveraging technologies to digitalize loan process primarily for its benefit to reach a vast majority of the audience but is the road to digitalizing complete loan process smooth?
Some of the challenges that we foresee for the end to end loan process to be digitalized are
Restrictions because of the data: The prime reason is that the data present across country is either not available digitally or works in silos without allowing connections to other systems. The example for former is the lack of linkage of data between Aadhar and PAN resulting lack of credit scores without PAN. The example of former is the vehicle loans. The RTOs though are digitized, they still work in silos without exposing their systems to lending agencies. Had they exposed their system to authorized lenders, then the hypothecation process will happen digitally.
Restrictions because of compliance: The regulatory authorities impose certain steps in the process for making the process transparent and secure. However, some of these steps hamper complete digital process. One such example occurs in the Loan Against Securities. In this the user must give “Power of Attorney” with respect to pledging securities. For such policies, alternative steps have to be innovated so that the process can be smooth.
Old Habits of Offline Processing: When employees and users are habituated for offline processing, they will find it difficult to adapt to digital methods. Sometimes these digital methods make the whole process easy, more secure and more transparent. However, the inertia does not allow the adaptation of entire digital process. A few such examples are the physical collection of the documents, physical verification of person’s selfie with the picture in PAN and Aadhar. Today’s technology allows the user to upload documents securely. Also, a person’s photo can be digitally mapped to the Aadhar and PAN card picture. The technology is not perfect; however, the success rates are better than a manual process.
Even with smart lending solutions and platforms enabling omnichannel origination and interactions supporting several online and offline touchpoints to cater to the modern-day customer, restrictions because of data and compliance still remain a challenge. Is there a new road ahead?
P2P Lending in India
Nov 30th, 2016 |
While Digital Lending itself is becoming big, P2P lending is a strong emerging trend. In this blog, I want to analyze if P2P lending will emerge strong in India? If so then in what form or structure? Who are advantaged to gain initial successes?
As per the Reserve Bank of India, Peer to Peer Lending (aka P2P Lending) is a form of crowd-funding used to raise loans which are paid back with interest. Currently, Indian P2P has more than 30 players, and the market size is slated to cross USD 4 Bn to 5 Bn by 2023. The VC activity in the sector is also high with around USD 221 Mn flowing in the last two years. Naturally, RBI issued final guidelines in Oct’17 for P2P Lending in order to better regulated and also make it trustworthy.
Peer lending is not new to Indian culture. The society already has the practice of borrowing funds from friends, colleagues, relatives and other acquaintances. All these are paid back with an interest as agreed. Even in this age with the advent of advanced banking and financial systems, borrowing from kith and kin already exists. However, so far the process is done manually without a platform. For a generation which is not averse to transacting online for Whitegoods, Grocery, Apparels, Banking, Wallets, the shift of borrowing on a portal as an intermediary is not far-fetched. It's just a question of when and how?
The portal/platform will be just a facilitator providing guidance and compliance making the transactions legal and regulated. This makes the transactions more trustworthy and eventually attract more lenders/borrowers. The benchmarks for these platforms will be integrations with social media, Mature warning systems and digitally comply with regulatory guidelines.
a. Integrations to Social Media: The connectivity to social media includes connecting to Facebook, WhatsApp and other social chats. These integration help in “Track and Shame the defaulters in his societal circles”.
b. Mature Warning systems: The biggest drawback in P2P lending versus the formal lending channels, is the barrier to invest and identify the credibility of a person. If platforms can help the lenders assess the risk involved in a transaction both before and after the lending happens, it will be a great benefit.
c. Digitally Comply with Regulatory guidelines: Complying with Regulatory guidelines involves a lot of paperwork and audit trail. Maintaining this in this digital world is not tough. However, the knowledge, ability to interpret and change as per changing Regulatory guidelines will be the differentiating factors.
As per my reckoning of the current Indian market, the popular Wallets are better advantaged to become successful P2P platforms than others. This is because they already have social integrations embedded and also are already aware and complying with Regulatory guidelines. For them to comply with lending guidelines will be a nudge. Already advantaged with the two baselines, they only need to build the expertise of Risk Warning systems. This will be incremental. Moreover, the Wallets already have a strong user base from which the P2P lenders and borrowers will eventually emerge.
Top 5 key takeaways from Gartner Symposium/ITxpo 2017 with special reference to financial domain
Nov 30th, 2016 |
Every year in November leading analyst firm Gartner hosts the largest gathering of CxOs at the Gartner Symposium/ITxpo in Goa and this year was no different either. We witnessed some of the Leading Analysts showcase how technology is going to shape up the future of enterprises. The 4-day Symposium was completely based in and around the themes of Artificial Intelligence, APIs and IoT.
Here are my top 5 key takeaways from these Keynote sessions and presentations:
1) Scale isn’t necessarily to be bigger:
The key note session Creating Digital Value at Scale led by Analyst Miling Govekar and Helen Huntely shared insights on how scaling isn’t necessarily about being bigger and how smaller organizations can compete with the larger ones. The 3 ways to start is by Scaling up, which is about maximizing efficiencies. Scaling across, which is about agility and Scaling out, which focuses on connecting with the ecosystem.
2) The Need of Digital Platform for every Digital Business:
Digital Platform Roadmap a session by Analyst Jorge Lopez showcased the need of Digital Businesses Technology Platform for Digital Businesses that essentially consists of 5 key components, Customer Experience Platform (Multichannel Interaction & Commerce, Customer Portal & Apps), IoT platform which focuses on leveraging connected things, Data & Analytics Platform (BI Algorithms and AI engines) and Ecosystems Platform(Run or Participate in Ecosystems and API economy Customer-facing and Public APIs) and Information System Platform (Business & Operational Analytics, Core Systems and Back-Office Systems).
3) Choosing the right type of Fintech in the emerging markets:
Fintech in Emerging Markets a session by Analyst Rajesh Kandaswamy showcased the blend of different industries in the emerging fintech markets and sighted examples of conjunction of Fintech across other industries like healthcare and retail. Choosing the right type of Fintech framework showcased 3 types of Fintech players, one being the Complimentors who work alongside services of financial firms, the second being the Competitors who are in the same line of business as of financial firms and the Catalyst who help financial services firms compete in the emerging fintech market.
4) Customer Analytics a critical factor for Customer Experience
Customer Experience Strategy session hosted by Analyst Ed Thompson addressed several challenges faced by Cx0s and shared insights on the roadmap to differentiation. It wasn’t surprising to witness that Business Process Management and Customer Analytics were ranked among the top most critical technology investments to Cx0s in 2016, and 41% claim to expect their organization to increase investment in customer analytics and 26% claim to increase investments in Business Process Management in 2017 versus 2016. Hence Customer Analytics stays the highest focus for enterprises.
5) Integrate the business strategy with the AI strategy
Artificial Intelligence in Banking a session by Analyst Vittorio D'Orazio focused on sharing insights of importance of AI in banking especially with the rise of smart Fintechs everywhere. The session showcases a multidimensional model for AI in banking which consisted of Business Functions, AI types, Smarter channels, AI algorithm, Intelligence Automation, Strategic Goals and Analytics Business Focus and applications of AI across various banking functions like Lending services, Bank information and Alerts.