India's Lending Ecosystem Needs an Overhaul A robust digital-first approach is required to bring the massive new-to-bank segment into its banking fold

Financial inclusion is the key pillar of a modern, growing, and robust economy. This means ensuring that all individuals and enterprises across the social spectrum have affordable access to financial services and products from reputable and responsible providers, in a timely and personalized manner. However, the results are uneven, with some countries making significant progress while others lag. A major concern for policymakers is how to determine the country-specific fundamental causes of the digital financial inclusion gap so that necessary initiatives and reforms may be prioritized appropriately. However, in absolute numbers, India still has a population which is considerably under-banked and unbanked, and government of India (GoI) is focused on them through its financial inclusion polices.

Accelerating financial inclusion

Significant innovation in both the public and commercial sectors has fuelled India's rise of digital financial inclusion. Hence, digital lenders can help a big segment of the population gain simple access to affordable loans. These lenders can develop a financial ecosystem where they can service underserved markets and boost their borrowing capacity while protecting their own interests by employing new-age technologies. New-to-credit (NTC) borrowers can be empowered by digital lenders, who can eventually assist them in integrating into India's formal credit system, allowing them to borrow from banks and regular lenders. Physical customer touchpoints become mandatory for large ticket size loans. Thus, making it important for both offline and digital lenders to work together to increase financial inclusion in India.

For digital lending businesses, technology has been a game-changer. Underbanked people can now access financial services from the comfort of their own homes, thanks to rising mobile and internet usage. Borrowers can apply for loans remotely due to the digitization of loan application processes, which is a critical demand in a post-pandemic environment. Fintech companies may not only improve customer experience and assure speedier credit issuance by building a user-friendly, fast, and secure digital infrastructure, but they can also lower operational costs and expand their services across different geographies and customer segments.

Technology removing friction out of lending

By minimising reliance on formal financial documentation such as tax returns, bank statements, and face-to-face customer interactions, digital lending platforms can reduce turnaround time. Fintech lenders are tapping the actual power of data by using cutting-edge technology like artificial intelligence (AI), machine learning (ML), and big data analytics to provide more thorough and accurate credit risk assessment. With initiatives like video KYC, Aadhar-based KYC, and account aggregators, lenders may quickly access client data and assure better due diligence with their consent. There are various government policies that promotes access to the financial system as a tool for poverty reduction and inclusive growth have been one of the primary drivers. Bank accounts have been opened for most Indian residents via the government's Pradhan Mantri Jan-Dhan Yojana (PMJDY) scheme.

Digital transformation can be beneficial for both customers and the financial service providers:

Redefining customer experience: Prioritizing customers and their requirements to create solutions with long-term viability. Throughout the lifecycle of a proposition, banks should consider co-creating with clients on a regular basis

Using a mobile-first approach: Customers expect product and service accessibility via portable devices at any time, from contactless banking to account access.

Creating a personalised data strategy: Knowing what data you have, what data you need, what questions you need to ask of that data, and how to interpret the results are all important parts of developing solutions

Choosing the best technological platforms: Choosing which platforms to utilise and how to use them is critical when incorporating new services into businesses with large procedures and assets that are subject to high levels of regulatory laws, such as banking

A more efficient lending ecosystem

More consumers and small enterprises will require inexpensive and customised loan solutions in the post-COVID period to recover from the economic effects of COVID-19. Low- or no-contact lending practises will likewise be in more demand. The use of a contactless loan disbursement method may enhance the risk of fraud, defaults, and other credit problems. As a result, to efficiently deliver credit to borrowers in a speedier, remote, and secure environment, a digital-first strategy to lending is required. Digital lenders can use technology to find characteristics and false indications that will assist them better comprehend the intent and repayment capacity of borrowers in their current scenario.

Banks can establish a faster, safer, and more efficient lending ecosystem that protects the interests of both borrowers and lenders by introducing non-traditional sources of credit and using digital technologies. This prospective digital revolution, ushered in by COVID-19, will also aid banks in coping with the pandemic's harsher working climate. In the long run, it will be a critical step toward increasing the sector's profitability and returns.