Digital Lending is continuously gaining growth. Over a span of 10 years, India has witnessed a growth of CAGR 39.5% owing to the emerging digital lending companies and an increasing number of fintechs entering the market, according to reports.
In 2022 alone, disbursement grew by a whopping 11%, bringing India’s digital lending market to stand at USD 270 billion.
There are myriad factors responsible for fueling the global growth of digital lending.
However, to recognize those, it is necessary to understand what digital lending particularly entails.
What is Digital Lending?
Digital lending is the process of providing financial loans or credit to individuals or businesses through various online platforms or digital channels.
It allows borrowers to conveniently apply for loans through mobile applications or websites without having to undergo the hassle of physically visiting a bank, for various products including credit cards, loans, or mortgages.
It requires forms to be filled out electronically and remotely while submitting relevant documents in the same way.
The entire process is carried out completely digitally via digital lending platforms. It completely transforms the traditional lending process by reducing paperwork, enhancing customer experience, accelerating the loan process, and more.
Information collection, credit evaluation, loan approval, acceptance, loan disbursal, as well as loan repayment, all stages of the entire process are conducted digitally, eliminating the need for physical interactions or paper-based documentation.
5 Key Factors Driving Global Growth in Digital Lending:
- Regulatory Environment and Security: A regulatory environment supports security and majorly mitigates risks associated with digital lending such as fraud, identity theft, and predatory practices, and provides the public with a well-established, defined and structured framework.
This regulatory framework supports the establishment of guidelines and standards that ensure consumer protection, data privacy, fair lending practices, and financial stability.
To ensure a regulatory environment that ensures safety and security, governments of countries, or their respective financial regulators have created innovation hubs or testing grounds.
Likewise, the Indian Government to has developed the India Stack, a standardised digital framework that facilitates secure and effortless authentication, e-signatures, and access to diverse services using a unified digital identity.
It serves as an open architecture platform designed to leverage technology effectively, enabling the efficient delivery of citizen-centric services.
- Technological Advancements: Technological advancements have significantly broadened the reach of digital lending, making it more easily accessible to a wider population.
With the internet and smartphones being widely accessible, borrowers can now conveniently utilise online platforms or mobile applications to access loan services, eliminating the need for physical visits to banks or financial institutions
The improved accuracy of credit assessment is a significant driver in the expansion of digital lending. Utilising sophisticated algorithms and data analysis tools, digital lenders can assess the creditworthiness of borrowers more effectively.
By considering various data points such as credit history, income, and financial behaviour, lenders can make informed loan approval decisions, ultimately minimising the likelihood of defaults.
- Convenience and Speed: Digital Lending offers unparalleled convenience, as well as speed. Firstly, digital lending eliminates the need for multiple physical visits to banks as borrowers as they can conveniently apply for loans online, complete electronic application forms, and submit necessary documents remotely.
Furthermore, digital lending allows borrowers to compare multiple lenders, interest rates and terms at the click of a button. This empowers borrowers with the ability to make informed decisions, ensuring they secure the most suitable loan options tailored to their needs.
Moreover, the time taken for disbursal of funds is significantly less in digital lending as compared to the traditional mode; a number of days compared to a few hours. This has significantly increased the number of people adopting this digital method.
- Innovative Operating Models: The digital lending marketplace has only been able to flourish tremendously owing to new and innovative Operating Models.
With advanced data analytics and machine learning algorithms, vast amounts of data can be analysed in real-time, reducing the amount of time required for the entire process as well as providing more accurate loan decision-making.
New Operating Models have accelerated the growth of the digital lending process across the entire globe, owing to a more efficient, inclusive, and accessible landscape.
- Financial Inclusion: With greater accessibility, and availability, digital lending offers greater financial inclusion, as it tends to include those excluded from traditional banking systems.
Lack of credit history and collateral are often cited as a reason for the exclusion of myriads from the traditional lending system, however digital lending provides various alternative credit scoring systems that help in the inclusion of the marginalised.
Various non-traditional factors such as digital footprints, online transaction history and social media activity are widely used to assess credit in the digital lending ecosystem.
In conclusion, the growth of digital lending has been fueled by a combination of different factors including enhanced safety and security – mitigating risks and establishing digital lending as a favoured option.
Technological advancements have played a pivotal role, facilitating enhanced convenience and accelerated processing speed. The expansion of digital lending has also fostered financial inclusion, bringing previously underserved individuals and businesses into the financial ecosystem.
Additionally, the emergence of innovative operating models has contributed to the overall growth and evolution of digital lending, further solidifying its position as a transformative force in the financial industry.
Trustt, formerly known as Novopay, is a Bangalore-based company that provides digital banking systems for Banks, NBFC, MFI & Fintech companies.
The company provides banks with Digital Lending Platforms with an end-to-end lending stack including Loan Origination System (LOS), Loan Management System (LMS), Collections and Credit Underwriting Engine.
Their Loan Origination Platform is designed for swift configuratio in using the Business Rules Engine (BRE) and Low Code Framework, enabling the quick deployment of new loan products within a few weeks.