With Fintechs leading the market in addressing the changing consumer behavior for accessing loans worldwide digital lending is placed to change the lending landscape globally. Digital lending is gaining popularity all over the globe and in India as well because of the seamless online transactions and user-friendliness. The statistics show that there are more than 1000 FinTech companies operating in India and these companies have entered the lending market with digital models carrying the potential to disrupt the lending market. Even the banks have now partnered with the FinTech companies and are digitizing the lending process.
With the increasing consumer demands, these FinTech companies have accelerated the digital lending across the globe. In a recent report on digital lending BCG has identified the following 4 factors which are driving the growth of digital lending globally:
In the world of technology, consumers are actively becoming digital savvy. Starting from ordering food online to shop for groceries and vacations online, everything is booked online by the consumers. The change in the buyer’s behavior has eliminated the need for the physical interaction with the sellers. Consumers are relying on online reviews, videos, social media and websites for making purchases.
With the development of online channels, many interesting patterns have developed. In the financial sector, the transactions made have recorded the time after the work hours. For e.g., Yu’eBao, World’s largest money market fund has even recorded its 50 % transactions are made outside the working hours.
The advancements in the smartphones have enabled two-thirds of the world to have an access to the mobile services. It has created a world of economic activities available at the fingertips of the people. With this surge in the number of users, the advancements in the mobile internet technology too are going hand-in-hand. This surge has also created a large amount of data which is available for the companies.
Devices like smart watches, cars etc. remain connected to the internet and these devices keep on increases the availability of the data present online. The availability of large set of data has enabled the companies in the financial sector to create substantial value. The best example of this is the Visa. The company has used big data to the fullest and has been successful in decreasing the average time to detect the card fraud from 1 month to just 13 days.
Not only the advancements in mobile internet technology are benefitting the financial sector but the advancements in biometric technology like iris, thumbprints, internet of things, instant payments, face recognition, blockchain etc. too are playing a critical part in digital lending.
Innovative Operating models have emerged as the strongest pillar in fueling the digital growth. Adoption of such models by the FinTech companies, financial aggregators etc. has accelerated the growth of digital lending across the globe. These operating models come in four main archetypes:
In this kind of model, the consumers are acquired by the FinTech companies and the lending to them is done by partnering with the banks. The best example of such a model is the Israeli FinTech company, BeeEye which translates the online available data of the customers into tailored financial indicators which is further passed onto the lending institutions to work upon and deliver improved market prediction models.
A FinTech company which lends directly to the consumers by raising debt and equity funds through institutions is a typical example of the independent platform. This type of platform does not include a partnership with the incumbent banks. Consumers can easily approach such platforms through various online channels. A U.S. based company. Kabbage is the perfect example of such a platform.
Peer-to-peer lending is gaining popularity in maximum countries. It is becoming the favorite in maximum countries across the globe. According to the statistics, in the U.S. alone P2P lending companies have extended more than $33.6 billion by the end of 2017. While in U.K. P2P companies lent more than 11 billion. These numbers are expected to witness a surge in the coming future and not only in these two countries but across the globe.
As the name suggests, these models are built as a “value add” to the consumers of already existing large businesses. Or, we can simply count them as extra services to the existing consumers of the businesses.
China’s only online WeBank is a good example. Tencent is the biggest shareholder in the bank and it has started providing unsecured small loans to the consumers via WeChat and QQ app since 2015. Depending upon the scores of the consumers, they are also eligible to enjoy a number of other services and perks.
Digital lending is witnessing continuous global growth and the financial regulators are working in coming up with solutions to regulate the sector to grow safely. In many developed economies like U.K, Singapore, US, Hong Kong, Dubai and Australia, the regulators have created sandboxes to support and hasten the innovations in the sector. In the US, the New York State Department of Financial Services has issued BitLicenses for the businesses dealing with virtual currencies. In China, the China Banking Regulatory Commission has issued draft rules for online lending. Following the same trend, Indian Government too has developed and implemented the India Stack, which is an open architecture platform for authentication and data access.
All such measures taken by the governments of different countries have enabled the lenders to accelerate consumer acquisition and boosting the growth of digital lending.
Lending is undergoing a fundamental change by ditching the old banking formula “3-1-6”. This has been possible with the global digitization of the lending process. SME’s and big businesses have readily accepted the change and more companies are expected to ride in the digital boom in the near future.