How new fintech is using data and rethinking credit distribution to become inclusive

In a rapidly evolving financial landscape, the lines between traditional banks, non-banking financial companies (NBFCs), and fintech startups have blurred.

What began as a sector with startups addressing financial services challenges using technology has now morphed into a broader ecosystem where every player—from traditional banks to startups—is using data analytics to redefine lending, opined financial experts, during a panel discussion at TechSparks Mumbai, YourStory's flagship tech-startup event.

“Up until six to seven years ago, fintech was considered to be a startup way of doing finance, but now fintech is essentially Version 2 of delivering financial services in India. Fintech now doesn't refer to a sector or a type of company, it's a means of disseminating finance," said Yashoraj Tyagi, CEO of CASHe, a personal loan and credit line app.

This ‘Version 2’ of fintech, as Tyagi put it, is about collaborating with businesses that have access to customer data and then leveraging that data to understand a customer beyond their financial parameters: who they really are, the kind of financial transactions they do, and their digital footprint.

Behavioural analytics, Tyagi said, can eliminate financial biases and allow for underwriting of loans for customers who may demonstrate strong borrowing potential but do not fit the criteria of traditional loans.

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Akshay Mehrotra, Founder of lending platform Fibe (formerly EarlySalary), concurs with this view and adds that using data to profile customers benefits startups and other companies that face prohibitively high costs of capital.

“When you look at a bank, their biggest advantage is that their cost of capital is 4% ... For an NBFC, it’s 8-9%, and for a fintech, it’s 11-13%. If the fintech startup can bring operational efficiency and cut down its risk dramatically by using technology, it’s now competing with the bank; it’s no longer competing with the next challenger,” said Mehrotra.

The panellists had slightly differing views on distribution in the new fintech age.

Ranvir Singh, Founder and CEO of Ring, a payments and lending fintech firm, said the universality of a digital application and TPAP guidelines (third-party application provider, i.e. companies that provide apps for payment transactions) can turn any device into a distribution channel.

“The act of planting branches and having customers walk in is a very archaic one,” he said.

However, Sudipta Roy, Managing Director and CEO of L&T Finance, said that, in his experience, while managing a Rs 40,000-crore rural loan book, he has realised that the digital quotient in the country’s hinterlands is very low.

“Especially when we have to lend to rural women, the digital quotient is very low, and that’s a large friction," he pointed out.

“Our approach has been to digitise the origination and payments, but the administration is physical.”

Roy also said that banks, NBFCs and fintech firms haven’t made efforts to design a new user experience or interface specifically for “non-sophisticated, rural usage”, which is why these areas remain underserved.