There is significant interest in fintech (computer programmes and technology to support banking and financial services) globally, and its ongoing evolution—the word fintech is now officially in Oxford dictionary. The fintech ecosystem in India has caught up fast with its global peers in terms of adoption and is expected to reach US$2.4 billion by 2020. Fintech firms are undoubtedly having a good time.
Fintech-driven alternative lending is the second most-funded and one of the fastest-growing segments in the Indian fintech space. There are about 20 digital alternative lending companies, each with its version of the truth, and probably another twenty in the stealth mode.
One thing common with most new-age lending companies is that they rightly understand that they have a better chance of succeeding by collaborating with the existing lenders like banks and non banking financial companies.
Banks and NBFCs have also reciprocated these sentiments and are actively tying up with fintech lenders.
How are these partnerships faring?
Many traditional lenders are finding it difficult to “let go” and adapt. They are still second-guessing, and, in spite of various tech solutions, they want to “eyeball” physical documents. Fintech lending is so much more than just another distribution channel, it is an opportunity for banks to reimagine themselves digitally.
As an ex-banker and now a fintech founder, I feel that banking and NBFC partners have to start by de-learning and adopt fintech lending truly. Every single process needs to be challenged, if it is not adding value the same must be dispensed. Open innovation is the core of digital revolution.
In their short journey, fintech in India has made credit process simpler. It is cost-effective and offers better risk assessment. However, while partnering with traditional lenders, they are often expected to carry forward their archaic pre-credit and post approval processes.
There are some gaps that need to be filled:
✤ Traditional lenders still expect physical business verifications, though there are solutions like work email and domain validation
✤ Instead of on-ground visits, use GPS tagging as an effective tool for residence verification
✤ Application forms and pre-credit documents are often required in physical format, though soft copies are available
✤ In spite of eKYC facility, physical copies of KYC are required
✤ Most of the existing lenders have not adopted e-agreements
✤ For traditional lenders, fintech is an opportunity to innovate and do away with artificially restrictive processes and documentation that have been embraced by their risk departments. They must see themselves as a stakeholder in fintech success
✤ Traditional lenders have an inherent advantage which fintech companies do not have. Similarly, fintech companies have nimbleness and technology which acts as a great equaliser.
A MATCH MADE IN HEAVEN
Fintech lenders have a responsibility to deliver on their promises. A quick look around and all you can hear is big data and machine learning. Credit grows extremely fast in good times, but can also contract suddenly and if not prepared, it may be overwhelming.
As an eternal optimist, I am sure traditional lenders like banks and fintech firms get better at working together. This is essential to reap the full benefits of innovation.
Hopefully, these are starting troubles and this partnership will eventually thrive. All it needs is a real sense of commitment to re-imagine the business model.
Anand is founder and CEO of Shubh Loans (Datasigns Technologies).