By Mukund Kulkarni – CEO, Pepper Advantage India
From the genesis of a simple electronic transaction to the widespread adoption of smartphones, the evolution of online banking, mobile banking, and mobile transactions has propelled the financial services industry to unparalleled heights. Demonetisation and the advent of covid-19 were the triggers that pushed everyone to adopt digital payment methods. As a result, the inclusion of modern technology is reshaping traditional business models and ultimately paving the way for new pathways of growth. In recent years, India’s financial landscape has undergone a remarkable transformation with the integration of cutting-edge technologies.
Artificial intelligence, machine learning, cloud computing, blockchain, and data analytics, have revolutionised the way financial services are being delivered and experienced. Today Fintechs represent the full range of services from digital payments, KYC, loan underwriting, data analysis, credit management, credit investment, debt collection & recovery process, and so on.
The emergence of new-age technologies especially Artificial Intelligence (AI) has undoubtedly made great strides in the finance industry. As a matter of fact, digital lending has become one of the areas where AI has made strong inroads and at the same time has increased the participation of those who have until recently been under-or-un served. AI is a powerful boost to the lending and loan management sector through Fintech.
The projected total addressable market for fintech in India is estimated to reach $2.1 trillion (174 lakh crores) by 2030, demonstrating a compound annual growth rate (CAGR) of 18% starting from 2022. Indeed, the focus is on a rapidly expanding B2B lending market, which is poised to reform conventional lending models and reshape the financial landscape.
There are significant opportunities that have emerged rapidly in the evolving fintech landscape in India. First is, bridging the credit gap where the lack of capital is one of the biggest threats to MSME’s existence. With several Fintech start-ups offering easier and quicker access to loans, MSMEs are no longer required to go through the tedious process of providing documentation, filling in the paperwork and making multiple visits to a bank. According to the IFC.
The digital lending market encompasses Mobile Payments and Transfers, E-wallets, Online Lending, P2P Platforms, crowdfunding, Online Funds, Online Insurance, etc. According to the report, the total addressable credit gap in the MSME segment is estimated to USD 397.5 billion(33 lakh crores). This is where financial technology comes into the picture and has the potential to solve credit availability issues.
Secondly, by driving financial inclusion in India by leveraging data analytics, financial institutes can assess creditworthiness and offer financial products to individuals and businesses that were previously excluded from traditional banking systems.
Third, is cost efficiency, as Fintech start-ups often have lower operating costs compared to traditional financial institutions. They do not require extensive physical infrastructure, allowing them to offer more competitive rates and reduced fees to customers.
Fourth, revolutionising the collection process has allowed banks to evolve their conventional debt collection methods which often involve letters, phone calls, and uncomfortable in-person visits from debt collectors. Using SaaS-based platforms provides cutting-edge digital, data-driven, and customer-centric loan collections, optimising efficiencies to unprecedented levels.
Fifth, identification of fraud is made possible by artificial intelligence and machine learning, enabling fintech companies to identify fraudulent activities and repeated defaulters, a lot more successfully ahead of the credit approval.
Today, these functions are backed with underwriting models that prevent an increase of automatically approved defaulting customers. Fintech companies are constantly innovating by using AI-ML to design products that suit their customers’ evolving needs. With this continued drive and the expedited growth, the digital lending market cap is expected to grow and reach $350 billion (28 lakh crores) by 2025 in India.
Artificial intelligence has already begun reshaping the banking and online lending industries, and its transformative impact is expected to persist. It can be seen in other industries as well like Medicine & health care, Media & Entertainment, Insurance, Education, and many more. Digital technology is allowing Microfinance Institutions to efficiently reach and serve the “unbanked”, through their customer-centric approach. It also has streamlined loan processes and improved customer experiences, making the lending process safer and more accessible for lenders and providing a competitive advantage to banks. As AI technology continues to advance, its impact on the financial industry will likely be more profound, leading to further advancements and optimisations in banking and lending services.