Online Lending Segment Grows as Indian Fintech Adopts a New 'Buy Now, Pay Later' Mantra

Akshat Saxena, Co-Founder, ePayLater Mumbai based ePayLater is a digital payment solution simplifying ‘Buy Now Pay Later’ methodology for online consumers with an interest free credit term for 14 days and enriching their shopping experience.

As of June 2017, Indian banks had close to USD 154 billion in stressed assets on their books, accounting for nearly 12 percent of the total credit disbursed by the economy. This staggering amount was more than the GDP of at least 137 countries and stood at 75 percent of the net worth of India's public sector banks. Faced with such a colossal challenge, most banks tightened their belts, and as a consequence corporate borrowing growth became substantially lower. During the first half of 2017, lending by the Indian banking sector actually showed a reduction of 0.8 percent - a poor indicator for the country’s economic growth. In the midst of all this bad news, there was a substantial silver lining – new-age fintech companies were leading the way, and helping India’s financial sector focus on individual consumers for credit. The only sector for credit disbursal that has consistently shown growth over the last year has been retail loans. According to RBI data, personal loans increased by a remarkable 35 percent between July 2016 and July 2017, indicating that consumers in India were open to taking credit for purchasing assets - home loans, auto loans, and education loans-were increasingly open to taking such loans from new-age fintech companies. Buoyed by changing social norms, younger Indians have found it easier to purchase today and pay later, as seen by the growth in personal loans and credit card debt. According to a leading online marketplace, there has been a 50 percent increase in credit requests for secured and unsecured retail loans in the time between October 2016 and October 2017. This indicates that Indian consumers are looking to traditional and alternate sources of funding to deal with their purchase expenses.

This change in consumer preferences can be attributed to a host of reasons. The traditional banking sector was unable to cater to the increasing demand for credit amongst younger Indians, primarily due to lack or limited credit history data that could be leveraged to evaluate their credit worthiness. Even if credit scoring
was available, the legacy banking sector was n't inclined to provide credit offerings (e.g credit cards) to these individuals in the past. These fintech companies were able to leverage this demand-supply gap through the innovative use of a plethora of technologies. Their challenge was to provide a system that could seamlessly verify customer identity, evaluate their credit information, and disburse money to them in a manner that provided a welcoming customer experience. Online digital lending platforms have managed to do precisely that. These Fintech firms have combined sophisticated new-age technologies and best practices on customer experience to not just provide credit solutions through digital channels in a more encompassing fashion, but to do so through a very smooth process.

The traditional banking sector was unable to cater to the increasing demand for credit amongst younger Indians, primarily due to lack or limited credit history data that could be leveraged to evaluate their creditworthiness

The availability of secure and reliable Aadhaar data, along with new eKYC norms enabled India’s fintech companies to do away with onerous documentation requirements that legacy banking systems still often struggle with. Using cutting-edge algorithms and AI-driven processes, these companies were able to cut down the evaluation process from weeks and months to mere minutes, providing accurate and reliable credit scoring almost instantaneously. Customers were now able to transact almost entirely digitally and no longer had to make repeated visits to their local branch before having to wait several weeks to get their application approved. Further, their credit scoring relied on data crunching algorithms that provided greater accuracy and reliability. Real time credit solutions enabled these companies to offer customized, bespoke offerings that translated credit into a payment method for the customers at both online and offline POS. With modern global consumers indicating that they found visiting a bank branch even more painful than going to the dentist, India’s fintech players came as a boon to Indians looking for credit. Put together, customer experience has leap frogged quickly and is future-compatible as the offerings herein are more in sync with the demographic and technological changes /advancements.

Some fintech companies have already begun to take this process to its logical conclusion, and are now looking to change the manner in which people pay for their purchases online. They have recognized that the urban, tech-savvy consumer is a fan of good customer experience and instant gratification, and is likely to be annoyed at having to pay for products or services and wait for delivery. By providing instant credit at the time and point of purchase, they are allowing consumers to place orders and receive goods now, and pay for them later at their own convenience. This allows consumers to better organize their payments and purchases by effectively delinking them. This even serves to make the transactions more secure, as there is no longer any dependency upon third-party payment providers or gateways for the initial purchase.

These technology-driven innovations and new systems are revolutionizing the digital ecosystem around which consumer habits are being formed and expressed. As India's fintech companies come of age and provide services that are more convenient, more secure, and more in-tune with consumer expectations and demands, legacy players in the Banking and Financial sector will have to evolve with these changing trends. In the meantime,if you're looking for a loan for a new home or a car, or are simply thinking about buying a new phone or gadget - consider that credit is merely a few clicks away.