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By Reeju Datta, Co-founder of Cashfree
The lending ecosystem has experienced remarkable transformations, marked by operational changes, availability of liquidity, new policies and regulations around borrowing and lending, among others. Modernization of payments technology have been instrumental in driving this growth and evolution, from video KYC to contactless repayment options to automated technology driven banking paving the way for easier access to credit, which is critical to driving economic recovery.
Post the Covid-19 induced pandemic lockdown in March 2020, NBFCs and lending companies took a massive hit, suffering multiple setbacks in a backdrop of stressed borrowers and pandemic-struck defaulters. Internet-based lenders had lost momentum, with both collections and disbursal of loans down by 90%. As per the latest data from the National Automated Clearing House (NACH) platform, approximately 40.1% of auto-debit transactions by volume failed in October, owing to the country’s shrunk income levels.
Despite this slowdown, NBFCs have now recovered up to as much as 55% from pre-pandemic numbers, and continue to evolve by leveraging emerging technologies and innovative services. With upgraded systems and a modern payments framework, they are rapidly rejigging their models to ensure high-quality performance while gearing up for the next wave of transformation. RBI guidelines on imposing borrowing limits from multiple banks magnified the scope of NBFC lenders, further entrenching them as systemically important.
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Modernizing to adapt and prosper
The importance of strategic partnerships in renovating the payments landscape in the new normal
With digital capabilities and automation picking up speed, the entire banking landscape will experience a positive overhaul. Strategic partnerships are essential for any venture to scale profits in the long run. Digital payment platforms collaborate with financial institutions to rebuild the payments infrastructure, innovating for a seamless online banking experience. Whereas, banking institutions work closely with digital payments companies to advance their technological infrastructure and cater to the ever-evolving needs of millennial consumers and businesses.
Strengthening India’s lending infrastructure
Digital payment businesses work directly with NBFCs, bringing more efficiency to the process, strengthening the overall framework. With increased connectedness and codependency, FinTechs are gaining traction in the areas of lending, asset management, deposits, and credit system, integrating their innovative solutions and cutting-edge technologies to simplify borrowing and streamline the lending infrastructure while expanding the horizon for NBFCs, as well as banks and other financial institutions. Given the current global stance and the pace of changing expectations, NBFCs must seek strategic partnerships by collaborating with new-age FinTechs for agility in this environment.
Loan Automation – Facilitating seamless lending and recollection
There still exists tremendous scope for businesses to adopt innovative digital payment solutions at scale. For example, lenders and NBFCs have a significant number of cash reliant agent-based collections. However, this physical currency system can be swiftly substituted with electronic mandates, UPI and QR based collections, with the business opting for instant disbursal and recollection solutions to automate loan management.
Currently, instant loan disbursals solutions and an integrated credit disbursal approach through API banking are being deployed by digital payment companies. This solution is used by businesses to facilitate instant loan disbursals from a lender’s bank account via IMPS or UPI, verify borrower’s bank account using API, and allowing borrowers to authorize lenders to debit their accounts through an automated loan repayment collection system in the form of subscriptions via Standing Instructions (SI) on cards or e-mandate on bank accounts. Further to the recent release by NPCI, UPI Autopay can be used for authorizing auto-debit on a one time approval using a UPI enabled app.
The future of NBFCs – Moving towards a digital payments ecosystem
Digital payments is seamless and cost-effective, offering NBFCs access to a much wider customer base. The increased mobile and internet penetration has made it possible for NBFCs to connect with their customers online and bridge the gap, allowing them to complete the entire loan cycle (application, e-KYC, and e-signature of disbursal) through their mobile devices.
In spite of the regulatory steps being introduced in the financial technology space such as RBI’s Regulatory Sandbox, which recently included cross-border payments as the second cohort after retail payments being the first, new challenges keep surfacing given the dynamic nature of the sector. Being at the forefront of transformation while adopting innovative market offerings, NBFCs have completely revamped the way lending is perceived and executed. These digital lenders will play a crucial role in the economic recovery from the pandemic induced slow down. being equipped with advanced capabilities to facilitate seamless, remote lending with digital document verification enabling complete contactless experiences in a non-face-to-face format
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