Leveraging data for better lending practices

With increasing penetration of the internet and smartphones, and the constant push by the government to accelerate digitisation, the lending ecosystem has completely transformed over the last few years. If predictions are to be believed, it is projected to surpass $720 billion by 2030. From banks to non-banking financial companies (NBFCs), to fintechs, the space is going through tectonic shifts, making it easier to access capital than it ever was.

At TechSparks 2024 in Mumbai, this was the theme of a discussion moderated by Hemant Gala, CEO, PhonePe Lending. The panellists included Sudipta Roy, MD & CEO, L&T Finance Holdings Ltd; Akshay Mehrotra, Founder, Fibe (formerly EarlySalary); Ranvir Singh, Founder, CEO & MD, RING & Kissht and Yashoraj Tyagi, CEO, CASHe. Each of these industry experts discussed the potential opportunities to grow the digital lending ecosystem through impactful use of data.

Hemant Gala, CEO, PhonePe Lending, kicked off the discussion by talking about how fintech is essentially about financial technology.

“It's not about the specific nature of a company. It's not about a particular kind of setup or an entity, it's about the DNA and the culture of the organisation. In this dynamic landscape, organisations need to embrace fintech not as a mere tool but as a guiding principle. By embracing fintech, organisations can unlock new opportunities, drive meaningful impact, and lead the charge towards a more inclusive and sustainable financial ecosystem," Gala added.

The evolution of fintech in the lending space

Previously, fintechs were viewed as startups that were solving a specific problem in the financial services space, using technology. As the tech ecosystem has evolved all over the world, including India, the distinction has blurred today, highlighted Roy.

“Everyone is a fintech today–be it a private sector bank, non-banking financial services company, or a startup in the financial services sector. Nowadays, I define fintech as horizontal or vertical fintech. Horizontal fintech is a bank or an NBFC where you are trying to apply a broad base digitisation initiative to all the lines of business,” he explained.

“Vertical fintechs are those where you are focused on one line of business but are trying to go deep. Both have a symbiotic relationship with each other,” he added.

In a similar vein, Tyagi recalled how fintech, until a few years ago, was assumed to be a ‘startup way of doing finance’. In the current scenario, it can be defined as a way of doing business in finance rather than a particular type of company.

“The sheer amount of access to datasets with customer consent and how regulation allows you to do it in India, plus the kind of innovations that are happening, allows everybody to hop on to that train of the new age of delivering financial services,” he reiterated.

Utilising data for innovation

Mehrotra believes that data can be leveraged to ensure consistency and make an impact. For instance, when KYC is done—say if someone has declared their income to be Rs 50,000; a human may have certain judgments around this individual’s profile, questioning if they appear to be someone earning that sum. However, it isn’t the case with machine learning. It will do its work consistently against millions of data points.

On the other hand, Singh is of the view that the power of data is yet to be completely explored. As reams of data is being generated either through transactions or other interactions, it has given such companies the arsenal to create the right model using technologies like artificial intelligence and machine learning.

“There is a myth that exists. Just because you are serving mass market customers or the mass affluent, all the rules of customer service and convenience and proposition delivery are suspended. It is not only about using data to do the risk and say I will give you the credit. Besides transparency and uncomplicated processes, the customer is also looking for rewards,” he added.

Enhancing distribution

Gala highlighted how distribution in India in terms of lending has to include a wide spectrum of geographies, while also delving on how it can be solved in the digital era.

Roy pointed out the existence of a large workforce in the rural areas. Citing an example, he added that when they have to lend to rural women, the digital quotient continues to be low; while at the same time, the friction was high.

“Our approach is to digitise the origination and payments but the administration still remains physical. Going forward, we believe that financial services firms, especially banks or NBFCs or even fintechs must leap to design a new user experience, which is meant for non-sophisticated rural users,” he recommended.

On a closing note, Tyagi concludes that the next phase in this journey would be about creating new markets, since everyone is over leveraging the customer through different platforms.