The digital lending market set to reach over USD 350 billion this year alone. This modern way of online loan provision and credit extension is fast becoming a popular alternative to traditional lending, particularly for those with limited credit history. Fintech startups, neo banks, and NBFCs are banding together and driving this this sector, with great speed. Even commercial banks have been joining in. c
Clearly digital lending is on the rise, especially in India. Let’s delve into the why trend and explore the factors that have contributed to its immense success.
Millennials Embracing Digital Finance
The millennial generation has played a pivotal role in the rapid growth of digital lending. A 2022 study reveals that over 40% of lending product transactions are carried out by millennials. Among these, more than 30% originate from the age group of 18 to 25 years. The tech-savvy nature of millennials makes them comfortable with digital platforms, and they prefer quick and hassle-free access to credit. This demographic shift has spurred digital lenders to adopt innovative technologies and user-friendly interfaces to cater to their needs effectively.
Advanced Creditworthiness Assessment
The ascent of digital platforms has granted lenders access to extensive data on potential borrowers, encompassing their credit history and repayment patterns. This enhanced access to data empowers lenders to more precisely evaluate the creditworthiness of borrowers, thereby facilitating the provision of loans to individuals who might not possess a credit history with conventional banks.
These developments are especially true for the vast number of unbanked individuals, for whom digital lending technology has provided a long-needed solution.
Through “alternative scoring,” digital lending platforms can utilize risk assessment methods such as delving into and analyzing a person’s digital footprint, social media usage and behaviors, as well as harness open banking, and open finance.
The seamless integration of these methods empowers lenders to make informed decisions swiftly, leading to improved accuracy in loan approvals and reduced default risks.
More Personalized Lending Solutions
Fintech startups are utilizing technology to provide customers with personalized lending solutions. By employing machine learning algorithms, some lenders analyze borrower data to create customized loan products based on their unique financial profiles. These personalized lending solutions are designed to cater to individual borrowers’ specific needs, considering factors such as income, credit score, and borrowing history. This technological advancement in digital lending has led to the emergence of tailored loan options that better suit borrowers’ financial circumstances, contributing to the rapid growth of digital lending in India.
Diverse Business Models Catering to Varied Needs
Digital lending is not just about providing loans; it’s also about how these loans are tailored to meet diverse customer demands. Entrepreneurs have developed various business models to cater to the average household’s needs. Some of the popular models include:
- Buy now, pay later
- Rent now, pay later
- Marry now, pay later
- Save now, pay later
- Peer to Peer (P2P) lending
By offering flexible payment options and convenient terms, these business models have gained immense popularity among borrowers.
Future Outlook: A Booming Market
The thriving digital lending industry in India showcases the power of technological advancements and the increasing trust of customers in digital financial services. As the market continues to evolve, lenders must embrace innovation, prioritize customer needs, and establish robust risk management practices to maintain sustainable growth. With a customer-centric approach and cutting-edge technologies, the digital lending sector in India is set to reshape the country’s financial landscape.