How FinTech will revolutionize lending in India

Oct 2018 | Team Rubique

It is the duty of technology to revolutionize the way things work. It has been seen in every sector that old and traditional methods become obsolete and newer technology takes place. The trend continues in the financial sector also. Recent times have seen India adopt digital methods for funds transfer. Money order through post or bank has been long obsolete. They have been replaced by the electronic fund’s transfer like the NEFT (National Electronic Fund Transfer) and RTGS (Real Time Gross Settlement).

People keep on coming up with better options and technology which is faster than the current one. So obviously, there was to come a time when NEFT and RTGS also become old. With the advent of FinTech or financial technology, even these money-transfer methods seem relatively slow.

Over the past couple of years, all tech-savvy finance executives are aiming at bringing faster and more efficient ways for delivery of all financial services. It also includes lending money. Even Bill Gates is known to say that there are ways to bypass banks for a loan from credible sources.

FinTech is becoming a favored option in the US. But will it be able to do that in India?

What is FinTech?

FinTech means financial technology. It is simple. Whenever technology is applied in the financial sector, it is FinTech. So, when it is put like that, we realize that FinTech is not new. It has always been here. One by one it’s changing the way we handle our money. We have adopted the latest technology for funds transfer easily. now it is time for the lending sector to get a technical makeover.

The FinTech companies are now targeting the way people take loans.

Current Indian lending scenario

When we look around us, we feel that the pace of things is increasing every second. With every passing second, technology is taking over our lives. But that is not the scene all over India. Even after 71 years of independence, a large sector of India remains aloof from the formal financial sector. More than 40% of households do not avail banking facilities.

Especially in low-income states, the situation is even worse. Restrictions like limited internet facilities and cell phone access add an extra layer of complexity. Even in Urban India, there are restrictions. The MSMEs by choice do not procure funds from formal financial sectors. They lack institutional credit, and because of that 80%, MSMEs are self-financed. 32% prefer to loan from friends and family while the remaining 12% turn to informal lending networks.

How will FinTech help?

FinTech can provide a legitimate and formal alternative lending option to the Indian population. The large section including MSMEs and start-ups which do not access formal banking solutions now have an alternative solution. The new business model of P2P or peer – to – peer lending offered by the FinTech companies can democratize the sector not serviced by banks.

These FinTech innovations allow transfer of money instantly and safely through mobile apps like PayTM and Freecharge. Of course, these apps have a user-friendly interface, but apart from that, they facilitate every kind of payments including payment of utility bills, online shopping, travel, and mobile recharge. The users don’t need lengthy account numbers for making the payments. All they require is the mobile number of the party to whom payment is being done or a QR code.

This is possible because the UPI has been able to link all the bank accounts to a single mobile number. There was still a lack of confidence among certain users, but it has been given a strong boost because of the government support. IndiaStack provides paperless, cashless and presence-less authentication of proofs like Aadhaar, e-KYC, DigiLocker, and e-Sign. As a matter of fact, the RBI is even granting banking licenses to some of these FinTech companies.

These innovations let a user send money to any other user by just a touch of a button. It is instant, transparent and no lengthy process is required. Because the approach is direct, the operational costs come down. All parties involved have better financial benefits. The borrower is able to fulfill his financial requirement at a lower interest rate because the entire middleman process is eliminated. The lenders also gain much higher returns which makes it lucrative for them.

Summing up

FinTech has tremendous potential in the lending sector in India. Receiving money from people they trust is what Indians prefer. FinTech can continue that process in a formal lending structure. Expanding the financial services in currently deprived sectors can remove the glitches currently face by the modern technology. A few cutting-edge ideas will take time in implementation, considering the population. But within a span of few years, it will replace the old and traditional methods completely.