Technology emerges as the biggest catalyst for banks
The flow of bank credit from April to August was negative, according to recent data from the Reserve Bank of India (RBI). This despite the fact that private sector lenders like ICICI Bank, HDFC Bank are increasing their loan portfolios to double digits. Meanwhile, data from the Securities and Exchange Board of India (Sebi) showed fundraising in the stock market amounted to $ 1,000 billion in August. In addition, the loan portfolio of fintech players is increasing every month. It shows that businesses and individuals are increasingly turning to sources of financing other than banks. And technology plays a big role in this migration.
As the Indian economy waits for the investment spending cycle to resume, personal loans are expected to provide the necessary support for credit growth. And technology is a game-changer in this segment.
Many FinTech companies and Non-Bank Finance Companies (NBFCs) are stealing the show in this segment. With attractive digital interfaces and easy loan processes that complete in minutes, retail loans, especially small personal loans, are increasingly being disbursed by FinTech companies. Innovative consumer loans such as “buy now, pay later”, zero-interest EMIs complement this growth trend. And digital technologies like artificial intelligence (AI), data analytics are fueling this trend.
For example, AI-based solutions make the system smart to understand a customer’s specific need. Whenever the client provides relevant data on monthly earned salary and outstanding loans among others, the system pulls client history from other databases such as credit reporting companies and designs a personalized product tailored to the customer’s needs.
Usually, this process is completed within a few minutes. This instant approval and disbursement via digital platforms makes the process very efficient. As fintech companies add a lot of data to their platform, they are able to assess other’s top customers and lend more in subsequent transactions. Even many fintech companies are starting to lend small loans to blue collar workers, a segment that has not been touched by mainstream banks until now. Fintech companies also offer working capital loans to small and medium-sized enterprises (SMEs), which is a large sector with high growth potential.
No wonder Indian fintech companies have raised more than $ 2 billion in the first six months of this calendar year, according to the KPMG study. While the fintech universe is quite large and includes all kinds of businesses, from payment companies to payment gateway companies, many are active in lending. As the Indian economy recovers from the lows of the pandemic, loan growth will certainly go north. Therefore, traditional banks, especially public sector banks, are well advised to build their technological infrastructure to attract a new generation of customer base.
Many have also started to actively participate in this trend by partnering with fintech companies. However, there is still a long way to go. Supporting working capital for SMEs is an important area of growth that banks can exploit through the development of digital interfaces. Banking methods are changing very quickly and technology is the biggest catalyst. So it is better for traditional banks to adopt the technology to tap emerging growth points and protect their market share in the Indian banking system.