How new-age lending models are revolutionising the way Indians shop

In the 21st century, technology has advanced rapidly, and digitalisation is wholly responsible for the global transformation of businesses.  

The capacity to communicate with businesses has become frictionless, thanks to the internet and mobile technology, resulting in businesses changing their operational procedures. The retail sector has undergone a massive transition and embraced a customer-centric strategy in order to enhance company operations and place a stronger emphasis on customers.

Changing consumer behaviour 

Customers are embracing digital channels due to internet and smartphone usage expansion. Between 40% and 60% of all loan buy transactions are influenced by digital media. 

Online research is the primary discovery tool for credit goods. Almost 55% of customers consult online resources or suggestions for credit products. 

By the end of 2022, mobile is anticipated to impact six out of ten personal loan transactions and seven out of ten transactions involving other retail loans. 

Additionally, the demographics of consumers seeking credit for the first time are changing. Nearly 49% of consumers are under 30 years old, 71% are from non-Tier I cities, and 24% are female borrowers.

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The emergence of new age lending models

According to international standards, credit card expansion in India is among the lowest in the world — at around 3%. Customers who don't have adequate credit can't afford medium and large ticket goods. Thus, they seek out simple and affordable financial services but frequently avoid using credit cards due to their high-interest rates, fees and other hidden costs. 

On the other hand, new-age loan methods operate similarly and charge little to no interest. The expansion of ecommerce in India is a significant factor in the emergence of new-gen lending arrangements in the country. 

A Deloitte analysis projects that new-age lending methods would own 11.4% of the Indian retail sector by 2026, up from its current 7% share.

Customers are increasingly using ecommerce as their primary method of shopping. In this context, no-cost EMIs and Buy Now Pay Later (BNPL) methods are quickly gaining universal acceptance as the preferred payment method and permanently altering how people shop. 

Thanks to technology, the micro-credit lending concept has become increasingly popular worldwide, including in India. Customers have the choice of completing their purchases immediately but delaying the payment to the future by using no-cost EMIs and the BNPL plans. 

In principle,  these schemes permit the consumers to enter a contract that binds them to future principal and interest payments, much like the EMI of a conventional loan but without the interest. 

Customers now have the choice to purchase and spread out payments for large-ticket purchases, including furniture, laptops, smartphones, and washing machines, without experiencing financial hardship.

The time for "lending as an end-to-end service" has come

Now, financial institutions provide digital lending-as-a-service and develop creative use cases around it because of the increasingly active and growing digital ecosystem and infrastructure. 

Additionally, digital lending-as-a-service provided through digital infrastructure is a forward-looking business model for banks, NBFCs, and fintechs, allowing them to integrate into the larger ecosystem to meet clients' daily requirements and life objectives. 

Financial services companies are working towards an ecosystem-based model for their consumers by becoming pervasive.

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What's next for new-age lending models in India?

As per the Worldpay from FIS Global Payments Report, new-age financing concepts include no cost. The fastest-growing payment options in India are BNPL and EMIs, expected to increase their market share from 3% in 2020 to 9% in 2024. 

Indian businesses are anticipated to follow the lead of their international counterparts and provide EMI-based pay later options to aid consumers in making expensive purchases.