Given the significant interest in fintech 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 USD 2.4 billion by 2020. Fintech firms are undoubtedly having a moment.
Fintech driven alternative lending is the second most funded and one of the fastest growing segments in the Indian fintech space. At last count, there were over 20 plus digital, alternative lending companies, each with their 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 NBFCs.
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’s an opportunity for the 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’s not adding value then the same must not be dispensed. Open Innovation is the core of digital revolution.
In their short journey, fintech in India have made credit process simpler, cost-effective and offer better risk assessment. However, while partnering with traditional lenders they are often expected to carry forward their archaic pre-credit and post approval processes.
Some of the gaps which need to be filled are:
- 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 don’t have, similarly, fintech companies have nimbleness and technology which acts as a great equalizer.
It’s a match made in heaven.
Fintech lenders also have a responsibility to deliver on their promises. A quick look around and all you can hear is big data and machine learning, it’s all too early and too soon. It would be wise for them to look to the past and learn some lessons from traditional banks. 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.
About the Author
Monish Anand, Founder and CEO, Shubh Loans. His experience of over 20 years in both technology and banking domain helped him think a viable solution. His brainchild, Shubh Loans which happens to be India’s leading mobile lending platform, is already making the loan process simpler and more transparent for people in India.
Monish’s understanding of the lending sector and of technological advancements which cut the clutter can be traced back to his education. In 1992, Monish earned a Bachelor’s degree in Commerce from DAV College, Dehradun. He soon enrolled for a PGDM course and graduated from IFIM, Bangalore in 1997.
He has held key positions in famed national and international organizations such as Citigroup, Standard Chartered Bank, Infosys and British Telecom. Such roles gave him exposure to consumer lending as well as banking technology. To add to the above, his first stint as an entrepreneur saw him become the founder of a BFSI focused BPO in Bangalore, with an employee strength of 650 people.