Financial Technology And Its Impact On Faster And Improved Credit Approvals

Tarun Kumar Kalra 
Global Head of Sales, CredoLab 

Financial Technology And Its Impact On Faster And Improved Credit Approvals 

Progress in technology and increased digitisation is transforming all the industries and, lending institutions are not to be left behind! While financial lending was earlier synonymous with banks and credit unions, Fintech companies are revolutionising lending, embracing digitisation, and modernising established practices. 

The Global Fintech Adoption Index 2019 published by EY, ranks second in India in Fintech adoption rate, worldwide. From the increased use of ATMs to digital credit notes to mobile banking apps, digital services are reshaping consumer expectations, and Fintech models show great promise in addressing changing customer behaviour and needs. 

In the last five years, the Indian Fintech industry has experienced steep growth and will continue to do so. Evidence of this growth, lies in both the increasing number of Fintech companies in India and the investments they have been able to attract. According to Tracxn, over 2,000 Fintech companies have emerged in India from 2013 to 2018, making it a hotspot for entrepreneurial opportunities in this area. 

Introduction of alternate lending models 

Traditional lending models are based on credit deposits used by lenders to offer loans to other customers. Fintech companies have revolutionised this established process by doing away with the need for credit deposits. They have introduced peer-to-peer lending where lenders earn interest on the amount they lend. Banks and peer-to-peer lenders collaborate by offering low risk products at attractive rates to customers. RBI’s latest hike in the lending limits for P2P players to Rs 50 lakh, has given this industry the right push it deserved. Companies such as Lenden Club offer a platform that matches lender to quality borrowers, thereby, enabling credit transactions for a small fee from the borrower’s repayment. 

Quick and hassle-free approvals 

Even though traditional banks and financial institutions are catching up with the digital wave, there is a lot left to be done to ensure speedy loan approval processes customised to modern credit market requirements. In certain cases, banks can take up to weeks and months to process a loan, while Fintech lenders take a mere few hours or less to approve a credit transaction. With digital application processes and lightning-quick digital approval, Fintech firms such as CredoLab are better equipped technologically to shorten the loan processing time, thereby, offering instant loan disbursement. With the AI capability to generate scores within three seconds, CredoLab’s bank grade algorithm is the most predictive and efficient alternative credit scoring solution available in the market. Both, global Fintech players such as Google Pay, Amazon, and those closer to home like Ola, ZestMoney, PayU and so on, have already gained a stronghold in the market when it comes to fast loan services. 

Use of alternative data sources 

Around four billion adults in the world lack the traditional banking services and they constitute an entire underserved market mostly in developing countries. And while banks are still figuring ways to penetrate these underserved sections, telecom companies have already been able to reach this tier of customers. Majority of this population is using prepaid mobile connections, which presents a huge opportunity for Fintech firms in the form of a ready customer base. Many industry players such as the African Development Bank (ADB) have launched a fund for making digital financial services available to at least 320 million Africans. In a similar attempt to cater to an underserved market, the CIMB Bank Philippines has collaborated with CredoLab. The digital-only bank is using data points such as number of apps, percentage of unread emails, payment wallets, etc. from customer’s mobile phones to assess their creditworthiness. With an easy access to a flexible loan mechanism, Fintechs are working their way to increase financial inclusion. 

Flexible tenures and loan amounts 

Majority of banks and financial institutions offer a minimum loan amount of Rs 50,000 with the tenure of 12 to 60 months. Also, most of these financial firms quote Rs 25 lakh as the highest limit for credit. Fintech companies, on the other hand, offer personal loans for amounts as low as Rs 5,000 and the tenures are very flexible too, starting from just three months and extending up to 60 months.With the increased availability of flexible finance options with easy repayment tenures, more and more individuals as well as MSMEs are beginning to rely on advanced Fintech firms. Borrowers no longer have to worry about maintaining a high credit score in order to apply for high quality loans. With a low credit score of 600 to 650, they can now seek personal loans from Fintech firms at higher interest rates of 18 per cent to 20 per cent. 

Better customer experience across industries 

From travel trends to purchase impulses to payment needs, all customer-related patterns are evolving and technology is at the core of this evolution. Globalisation and digitisation have led the industry to the age of customers, where they are more aware and connected than ever, and modern businesses are gearing up to meet their changing needs. Several industries in developing economies are turning to the latest financial technologies to serve their tech-savvy customers. We Travel, a Fintech booking platform for travel companies, is coming up with their first pre-paid credit card for travel operators in the US. We Travel users can create a We Travel Card in no time, through an application-free and hassle-free process. Another innovative Fintech solution is the emergency airtime that allows pre-paid mobile connection users to receive airtime value in credit to extend their talk time, send SMS, surf the internet, etc., once they run out of balance. 

The future is full of possibilities 

In order to cater to a wide range of demographical and economical strata of customers, Fintech lenders are looking to scale up their operations. A number of alternative lenders are focussing to merge with NBFCs to offer a whole gamut of financial services to new-age customers. Apart from easing loan facilities, Fintech firms are also exploring new technologies to expand their range of offerings. Many firms are now evaluating investing in blockchain and crypto assets as they are disruptive technologies with high growth potential. Currently, one-fourth of the Global X Fintech ETF (FINX) companies are exploring the possibilities of blockchain or crypto-assets. This is just one example of the potential that the intersection of finance and technology has to offer, while there are many more, yet to be explored.