Digital Lending Trends Over the Next 3 Years | Bharat Fintech Summit 2023 | The Digital Fifth

Summary

In a digital lending panel discussion, industry leaders Abhishek, Satyam, and Mayuresh explore the evolving relationship between banks and fintech, emphasizing the impact of technology on lending processes. They discuss the symbiotic nature of this relationship, the democratization of data through platforms like UPI and India Stack, and the increasing importance of compliance and capital in fintech. The conversation also touches on the future of lending, including the potential of credit on UPI, trade financing, and the rise of green energy financing.

Takeaways

• 😀 The digital lending landscape in India is evolving rapidly with banks and fintechs moving from competition to collaboration, leveraging technology for better lending practices.
• 🏦 Banks are increasingly dependent on fintech for various services, including AI, sourcing platforms, and consumer-facing applications, indicating a significant shift in the banking sector.
• 📊 The use of technology in lending has made processes more efficient and different from what they were five years ago, emphasizing the importance of tech architecture in loan processing.
• 💡 Fintechs and banks are learning from each other, with banks getting smarter about fintech and fintechs understanding the importance of robust risk management and capital.
• 🔑 The India Stack and other government initiatives have democratized data, creating a foundation for new financial products and services, with account aggregation and UPI being key examples.
• 🛡️ Regulatory clarity and compliance costs are increasing, distinguishing between legitimate fintech players and fly-by-night operators, thus raising the entry barrier for new entrants.
• 💼 The importance of profitability in lending businesses cannot be overstated; it is essential for attracting further capital and achieving scale.
• 📈 Economies of scale become evident in lending businesses once they cross certain AUM thresholds, enabling better cost management and profitability.
• 🌐 The digital transformation in sectors like insurance and supply chain finance is opening up new opportunities for fintech innovation beyond traditional lending models.
• 🌿 There is a growing interest in financing clean energy solutions, such as solar and wind installations, with data-driven lending models facilitating this emerging market.
• 🚀 The future of digital lending in India may be defined by innovative use cases such as credit on UPI, cards for creating customer engagement, and trade financing for new asset classes.

Q & A

What is the current state of the relationship between banks and fintech companies in India?

The relationship between banks and fintech companies in India is evolving towards a symbiotic one, where banks are increasingly dependent on fintech for technological advancements and fintech companies rely on banks for capital and large-scale operations.

How has the role of technology in banking and fintech changed over the last five years?

Over the last five years, technology has become integral to banking and fintech operations, especially in lending under 10 lakh Rupees, making traditional methods of customer interaction and loan processing obsolete.

What is the impact of India Stack on the fintech industry?

India Stack has democratized data and created a public infrastructure that allows fintech companies to build innovative products and services on top of it, making it easier to extend services to a larger population.

How do the panelists view the future of risk management in digital lending?

The panelists believe that risk management in digital lending is becoming more sophisticated, with a shift from a collection mindset to a business case risk approach, and an emphasis on joint risk-taking and co-learning between banks and fintech.

What are the challenges faced by fintech companies in terms of regulation and compliance?

Fintech companies face increasing compliance costs and capital barriers due to new regulations. They need to ensure they have the necessary licenses, meet capital requirements, and adhere to data privacy laws and other regulatory guidelines.

How does profitability play a role in the growth and scaling of a fintech lending business?

Profitability is crucial for a fintech lending business as it allows for the amortization of fixed costs, such as technology infrastructure and talent acquisition, and is a prerequisite for obtaining leverage and attracting further capital.

What are some emerging trends in the fintech space that the panelists find promising?

The panelists highlighted the growth in insurtech, supply chain finance, and the financing of clean energy solutions as emerging trends with significant potential in the fintech space.

What is the significance of credit scoring and risk assessment models in digital lending?

Credit scoring and risk assessment models are vital for digital lending as they help fintech companies to accurately evaluate the creditworthiness of borrowers and manage the risk of non-performing assets (NPAs).

How does the availability of data impact the financing of sectors like clean energy and electric mobility?

The availability of data in sectors like clean energy and electric mobility allows for more informed lending decisions, as it helps in assessing the viability and risk associated with these new asset classes.

What are some key factors that contribute to the success of a fintech lending business?

Key factors for the success of a fintech lending business include a strong technology infrastructure, effective risk management, efficient cost of customer acquisition, and a clear path to profitability.

How does the panel see the role of UPI in the future of digital lending?

The panel sees UPI as a significant platform for the future of digital lending due to its widespread adoption and the potential to offer credit services directly through the payment infrastructure.