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July 7, 2017

Twenty-five-year-old Raj fancies a bike he sees in a showroom. He desires to ride it soon, but doubts his financial capability. Maybe a good financing option would work? What if he can avail an instant offer on the bike, so he gets to take it home the same day? Sweeping changes in Indias lending environment give this scenario a thumbs up.

Lets explore how.

Zeroing on the scheme, the lending executive undertakes Rajs biometric scan for his Adhaar-based e-KYC. This auto-initiates a pre-populated application, which the executive completes and submits in the system. It generates Rajs credit score and gives an instant decision on the loan (approved, in this case). Further, Raj needs to submit a list of documents to complete the loan procedure. He provides these documents through his DigiLocker account and pays the processing fees through the Unified Payment Interface (UPI) app.

Meanwhile, the financial executive generates Rajs loan documents and attaches an e-stamp of a value commensurate with the loan. Raj reviews these and executes the loan by digitally signing his list of documents. Alongside, he gives his consent to repay his loan installments online through the National Automated Clearing House (NACH).

Raj is now in possession of keys to his brand new bike all within an hour of visiting the dealer!

How the India stack is easing the process of originating loans

The India stack towards digital lending eases the steps involved in loan origination. For instance, apart from enabling real-time KYC through Aadhaar, the e-sign functionality enables lenders to execute loan documents digitally. The governments new initiative, DigiLocker, aims to dematerialize personal records so users neednt carry sensitive personal documents for business or education loans, travel and so on. The stack provides consent for loan authentication, execution of documents and for performing cash transactions on demand.

Fintechs are transforming the customer journey.

The digital lending strategy was pioneered and successfully implemented by fintechs like Lending Club and Prosper. For relevant traditional lenders all over world to smartly collaborate with alternate lenders, the former class of lenders has been implementing the model themselves. So, it is not surprising that fintech start-ups like India Lends are finding partners in big banks and NBFCs to provide its underwriting services, or Lenddo to provide customer rating services.

Collecting customer information is easy now. The Reserve Bank of India has laid down guidelines for account aggregators to collect information on customers financial assets and share it with authorized entities in the desired format. In the case of small ticket consumer durable loans, lenders usually depend on the CIBIL score for loan decisions. However, as the loan ticket size increases, lenders require more customer data points to understand loan repayment capacity. This becomes time consuming as it involves collecting documents from customers and relying on them for furnishing financial data that is true and complete. Eventually, lenders may end up approving high loan amounts that the borrower may not be able to repay.

In such an event, through account aggregators, lenders get a consolidated view of the customers financial footprint including various investments, insurance payouts, expenses and regular outgoings. This will enable lenders to provide personalized loans to the customer too. The digital lending revolution in India is thus all set to begin.

Transforming traditional lending to digital lending in India: Using the right tools

While customer information can be easily availed from authorized third parties, loan origination is process-intensive, and requires a flexible workflow system. Business Process Management (BPM) tools with their process logic, business rules, and ability to integrate with existing and new systems provide nimble straight-through processing. This enables lenders to respond swiftly and within the regulatory requirement.

Digital lending in India is a big win for all

The benefits are clear; lenders can provide customers a competitive finance deal instantly, without the fear of losing business to competitors. This could be particularly helpful during festive seasons, when prospects throng showrooms for new vehicle purchases and request for delivery on auspicious days.

As a customer, enjoying a digital borrowing experience to get instant and personalized loans from a traditional lender, protects them from unwanted risk. This is because banking institutions have undergone several regulatory changes to evolve into an enterprise with a robust regulatory framework, as against the fairly new and still-evolving framework for alternative lenders.

Not only can aspirants like Raj bring home their coveted vehicle purchases within the day, but aspirant borrowers like him are only expected to grow!

Amit Bhamare is a Domain Consultant with the Banking and Financial Services (BFS) business unit at Tata Consultancy Services (TCS). He has more than four years of work experience across the areas of commercial banking, project finance, and consumer finance. Bhamare has an MBA in Finance from the Department of Management Sciences, University of Pune, Maharashtra, India.


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