India’s Lending Fintech Landscape: Road Ahead and Potential Challenges

With over 9,000 registered lending fintechs, India has the third-largest fintech ecosystem worldwide. The notable rise in fintech companies can be attributed to several factors including high internet penetration, incompetent banks and financial institutions, evolving consumer behaviour, and favourable regulatory policies.

Additionally, India’s large unbanked or underserved population coupled with a thriving startup ecosystem has further fueled the fintech boom in the past few years. fintech companies are transforming certain areas of the financial system that desperate need of a makeover and lending is one of them. They have successfully managed to attract a significant number of small and medium enterprises (MSMEs); the lifeblood of India’s economy.

This article explores India’s lending fintech landscape and how fintechs are transforming lending in India.

Lending Fintechs: Bridging the Gap

There are over 75 million registered MSMEs in India and projections suggest that the sector is likely to create 50 million employment opportunities by the end of 2024.

Traditional financial institutions, including banks, are actively exploring new technologies to enhance their services and financial products. While this shift is often slow-paced, consumers, especially the younger generation, are looking at fintech companies as accessible alternatives.

These platforms often come up with readily-accessible and useful financial products with less complicated packedging. This helps borrowes to meet their financial requirements seamlessly. 

Fintech companies leverage technology and data to provide tailored solutions, convenience, and a flawless end-to-end experience.

This is how non-traditional lenders are seeking to transform lending and, more importantly, make capital accessible to the country’s huge underserved population.

How Are Lending Fintech Companies Redefining Credit?

Here’s how the fintech companies in India can overhaul the loan landscape:

In-house Credit-rating Algorithms

Some of the major highlights of this journey include the use of various metrics to determine a borrower’s creditworthiness or ability to repay the loan. This transparency helps lenders avoid risky borrowers, defaults, and NPAs.

Additionally, many fintechs are also developing their credit-rating algorithm based on different parameters including social media scores, POS collections, transaction histories, and more.

Faster Loan Approvals

The push for faster and smoother loan approvals is another reason why fintech firms are becoming increasingly popular recently.

Innovations across various financial and collection processes combined with a modern borrower’s increasing appetite for convenience are some of the top reasons why fintech firms are performing well.

Lending to MSMEs

Despite steady progress, traditional lenders have not been able to reach or serve a significant number of MSMEs.

Nearly 60-65% of MSMEs are in rural or tier-2 and tier-3 cities where banks and other types of lending institutions haven’t been able to make an impact or make capital accessible to them.

Fintech companies have stepped in to address the problems faced by MSMEs with limited credit history fall under the high-risk category.

As mentioned earlier, fintech companies have managed to trim down the average turnaround time to approve a loan by 90%. This is empowering MSMEs to maintain a steady cash flow and continue with their day-to-day operations.

Lending Beyond Geographic Locations

Lack of physical bank branches and time-consuming and lengthy loan approvals at traditional banks are some of the major hurdles faced by MSMEs in accessing credit. Fintech firms blur these constraints and make credit accessible to them in just a few minutes, thanks to their digital lending services.

From verification to loan disbursal, fintech companies are equipped to facilitate seamless loan approvals thanks to their ability to leverage technology and data.

Lending Fintech: Some Key Challenges

While there is no doubt that fintech startups and companies are likely to dominate the lending sector in the future, there are a few roadblocks that need to be navigated. For example:

Changing Regulatory Policies 

The Government and other regulatory bodies play a key role in drafting and implementing policies that shape the lending fintech landscape and the overall financial ecosystem.

However, owing to the spur in unregulated credit and other malpractices, the Reserve Bank of India (RBI) along with other bodies SEBI, IRDAI, etc, are now taking action or imposing restrictions which could adversely impact the business agility of fintechs.

For example, RBI’s crackdown against Paytm due to ‘’persistent non-compliance’’ is a good example illustrating the need to stay vigilant and not take regulatory leniency for granted.

While the government has remained supportive of the fintech ecosystem, it is expected to take a more balanced approach to ensure fintech companies do not overstep and flout regulations.

Customer Acquisition and Retention

The Indian lending fintech ecosystem is flooded with innovative startups vying for a place. While the fintech boom is likely to continue in the upcoming years, acquiring new customers and retaining existing customers could become challenging for fintech companies.

Thus far, fintech applications have enjoyed decent retention since a majority of consumers are still getting familiar with the product’s interface and how things work. Additionally, switching between multiple fintech apps can be a hassle, as each one has its own interface and learning curve.

That said, the younger generation is not reluctant to explore and experiment with new products, which could make customer retention a bit challenging in the future.

Key Takeaways

Fintech companies are transforming the lending landscape with their transparent, data-driven services and focus on customer experience.  This shift could lead to new forms of collaboration with traditional institutions.

Despite RBI’s recent assertive measures, we expect the Indian government and other regulatory bodies to create a more favourable environment for fintech companies to grow and evolve.

As a cloud-based analytics platform for finance companies, Precisa has developed an array of advanced solutions that empower our clients to provide seamless customer experiences to their customers.

Our products and APIs help lenders, financial institutions, and fintech companies improve their offerings and services thereby serving their customers efficiently.

Contact us to learn more.