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Growth hacks

How new-age technology is improving the loan process in India.

In India, technological advancements over the past few years have profoundly transformed every industry, from hospitality, food, travel, and retail to logistics, manufacturing, and education.

Gaurav Gupta 1 Stories

Monday December 17, 2018 , 4 min Read

In India, technological advancements over the past few years have profoundly transformed every industry, from hospitality, food, travel, and retail to logistics, manufacturing, and education. The financial services sector has not remained untouched by the growing influence of technology on business processes. Various cutting-edge technologies such as automation, real-time processing, and digital connectivity have led to a marked improvement in service delivery standards across sub-sectors such as lending, investments, payments, and securities. In particular, tools introduced by new-age lenders have brought speed and efficiency to the lending segment – a sea change from the way this sector functioned earlier.

Let’s wind back 10 years to get a clearer picture…

Applying for a loan and getting it sanctioned was a slow, tedious, and lengthy process with no certainty or visibility of the final outcome on loan approval. An individual would end up spending a lot of time and effort arranging the paperwork required for the application. Even after all this, chances were high that all he would eventually get was a rejection letter from the bank with little or no explanation, after a waiting period of several weeks.

There is no denying that the lending procedure followed by traditional banks is sluggish and hard for many to qualify for. But, while traditional BFSI players remain saddled by their strict systems and processes, India as an economy has vaulted into the era of innovation in financial services on the back of the latest technology.

New-age fintech players are leveraging tech-led tools to fast track the loan approval process, and are also using them to create alternate lending solutions that are affordable and accessible. Their biggest advantage lies in the collateral-free loans that technology enables them to offer, followed by competitive interest rates, flexible repayment terms, and greater transactional transparency.

The new lending technology reshaping the loan origination is enabled by cloud and automation. Cloud technology allows lenders to get their hands on the latest loan software capabilities that can be deployed quickly, without spending too much on building up the physical IT infrastructure. Cloud-based integrations also give lenders instant access to all the relevant data points – including the borrower’s identity, income, KYC, e-credit reports, uploaded documents, digital signature etc. – without having to go through the time-consuming and costly process of manual verification. This results in faster processing of applications, easy assessment of risks, and reduced overhead costs, while also allowing loans to be provided to prospective borrowers at competitive interest rates.

Meanwhile, automation brings a whole new level of efficiency to the loan approval and disbursal process. It speeds up lending processes – be it approval, underwriting, or disbursal – and facilitates consistent data-driven decision making. This helps lenders in evaluating and defining customised criteria for each loan, be it the level of funding, interest rate, and the time period for loan repayment.

The biggest advantage of technology in the country’s lending ecosystem, however, is providing access to credit to the country’s unserved and underserved. Since the GST implementation on July 1, 2017, there has been an increase in digital adoption amongst businesses for book keeping and transactional purposes. This has created a massive amount of financial data. Technology enables fintech companies to integrate this data with alternative assessment parameters such as social data etc. on a real-time basis. Doing so allows them to accurately gauge the creditworthiness of a borrower, even in the absence of any traditional data points like credit scores or previous credit history.

Bill Gates once said that “Banking is necessary, banks are not.” In hindsight, these words seem almost prophetic. Banks have been offering “one-size-fits-all" loan products for years now, but the tables are finally turning. Technological intervention is rewriting the way consumers access various lending services in remarkable ways, right from initial interaction to processing and disbursal. Enhanced access to high-quality data is enabling risk-free lending. New-age lending organizations are using this advantage to create personalised lending products for every potential borrower, making an impactful contribution to the Indian BFSI ecosystem – and to the economy as a whole.