Given the significant interest in fintech globally, and its ongoing evolution – the word “fintech” is now officially in Oxford dictionary. The fintech ecosystem in India has caught up fast with its global peers in terms of adoption and is expected to reach USD 2.4 billion by 2020.
Fintech driven alternative lending is the second most funded and one of the fastest growing segments in the Indian fintech space. At last count, there were over 20 plus digital, alternative lending companies, each with their version of the truth, and probably another twenty in the stealth mode.
Fintech firms are undoubtedly having a moment.
One thing common with most new age lending companies is that they rightly understand that they have a better chance of succeeding by collaborating with the existing lenders like Banks and NBFCs.
Banks and NBFCs have also reciprocated these sentiments and are actively tying up with fintech lenders.
How are these partnerships faring?
Fintech lending is so much more than just another distribution channel, it’s an opportunity for the banks to reimagine themselves digitally.
Many traditional lenders are finding it difficult to “let go” and adapt. They are still second-guessing and in spite of various tech solutions, they want to “eyeball” physical documents.
As an ex-banker and now a fintech founder, I feel that banking and NBFC partners have to start by de-learning and adopt fintech lending truly. Every single process needs to be challenged, if it’s not adding value then the same must be dispensed. Open Innovation is the core of digital revolution.
In their short journey, fintech in India have made credit process simpler, cost-effective and offer better risk assessment. However, while partnering with traditional lenders they are often expected to carry forward their archaic pre-credit and post-approval processes.
Some of the gaps which need to be filled are:
1. Traditional lenders still expect physical business verifications though there are solutions like work email and domain validation.
2. Instead of on-ground visits, use GPS tagging as an effective tool for residence verification
3. Application forms and pre-credit documents are often required in physical format though soft copies are available.
4. In spite of eKYC facility, physical copies of KYC are required
5. Most of the existing lenders have not adopted e-agreements
For traditional lenders, fintech is an opportunity to innovate and do away with artificially restrictive processes and documentation that have been embraced by their risk departments. They must see themselves as a stakeholder in fintech success.
Traditional lenders have an inherent advantage which fintech companies don’t have, similarly, fintech companies have nimbleness and technology which acts as a great equalizer.
It’s a match made in heaven.
Fintech lenders also have a responsibility to deliver on their promises. A quick look around and all you can hear is big data and machine learning, it’s all too early and too soon. Credit grows extremely fast in good times, but can also contract suddenly and if not prepared, it may be overwhelming. It would be wise for them to look to the past and learn some lessons from traditional banks.
As an eternal optimist, I am sure traditional lenders like Banks and fintech firms get better at working together. This is essential to reap the full benefits of innovation.
Hopefully, these are starting troubles and this partnership will eventually thrive. All it needs is a real sense of commitment to re-imagine the business model.
Monish Anand, Co-Founder, Shubh Loans