Fintechs have been servicing Indian MSMEs, that are having barely any access to institutional financial services owing to irregular record-keeping, loan defaults, and incomplete or unverifiable documentation, among other issues at that scale. Fintechs have found innovative ways by identifying alternate proxies to bridge the gap between these two important parts of the country’s economy, whether it’s by creating a platform to help banks verify data faster, or providing a full suite of services – including delivery – to provide an end-to-end one-stop solution.
The new normal is more of social distancing, where all of us will have a preference for contactless and remote business operations and innovative business models for survival and thriving in the coming times. There have been multiple scenarios that the economy could chart, technology remains the single most important factor to help organisations sail through the chaos swiftly.
Although most technologies required to drive innovation were widely available and mature, this pandemic has enabled lending Fintech to implement creative technological ways to overcome challenges and looking at early trends, it can be said that post lockdown times, there will be an upsurge in digitization of lending funnel.
During the lockdown period, reach out to MSMEs was to be prioritized to identify their requirements, needs and expectations and evaluating financial products that can be offered to address existing gaps. In the post lockdown period, these MSMEs are in a recovery phase with payment cycles continuously evolving with the gradually growing economy, and hence they are looking for more flexible working capital solutions in the market.
There has been an exponential increase in the adoption of digital solutions with ~40% of customers using Payment apps to send or receive money, personal finance/budget apps, Investment/stock trading apps, e commerce and grocery purchase apps.
Various ecosystem aggregators like food delivery networks, health tech platforms, and e-commerce, among other aggregators, make it easier for small businesses to access credit services through the pre-existing relationships they have with financial institutions.
Multiple initiatives are taken by the Government of India with the help of regulators related to the development of India Stack like Aadhar-based customer authentication, Digital Signatures, Digital Payments via UPI, and Adoption of digital technologies has not just boosted business opportunities for MSMEs, but also transformed the way they operate. The launch and adoption of UPI (Unified Payments Interface) brought in place a real-time system for various mobile transactions, allowing business owners to monitor their everyday financial activity and keep a proper record of all transactions.
The introduction of Goods & Services Tax (GST) further helped simplify business taxes and increase tax reporting. The GST acts have achieved a milestone in formalizing the MSME community with GST registration of approximately 9.2 million businesses all over the country.
The online registrations and tax reporting has created a large pool of digital data from the MSMEs – Additionally, data that is verified, updated and accessible electronically, thus reducing the frauds and related risks. The potential game changer has been ‘India Stack’ – which has accelerated this digital evolution of the Indian economy. India Stack with other additional APIs has become a rich reserve of both public & private data.
In lieu of these significant inroads being made in technology over the last 5 years, the large scale financial exclusion challenge is being addressed. By leveraging the platform capabilities like OCEN and digital loan delivery options, the cost of processing and extending the small-sized loans to remote locations has reduced.
The customer will no longer hold the brick and mortar presence significant and will be prioritizing digital engagement, so his time and efforts are saved to avail credit products and the end to end digital journey will take the hot seat in creating a common language for lenders and lender service providers to distribute credit products at scale.
The next evolution of fintechs will be in real-time sharing of financial information with consent of the users, digital automated repayments via various payment avenues, and hence fintechs and financial institutions to service dynamic and varied loan demands better for small businesses. The transactional experience for the customers is being reinvented by emerging technologies improving time and cost efficiency and at the same time, extending the reach by enabling multilingual penetration, simple design interfaces making remote locations at equal footing.
The digital advancements also warrants a more proactive and strategic mechanism towards various interfaces as the growing exposure of Fintech applications will be employing a combination of multi-layer authentication and insurance, behavioural biometrics, real time monitoring of frauds to control cyber vulnerabilities and risks that will arise with growing exposure of fintech applications.
It is imperative to ensure safety as there has been an increase in cyber-attacks since the start of COVID-19, which also leads to downtime in case of API attacks. The Fintechs are developing a robust security-cum-API strategy to gain the trust of their customers while providing them a great user experience.
Fintechs are getting ready to play an important role across a broad ecosystem of stakeholders- including financial institutions, government regulations, technological innovations, new workforce operational guidelines and a vulnerable recovering economy.
There has been a surge in digital payment volumes after this pandemic induced lockdown across small business, transactions, transfers, repayments, bill payments etc. Banks, NBFC, digital lenders have quickly developed deep integration solutions for a seamless experience and making it easy for customers to pay their dues by offering flexible payment schedules linked with their credit cycle.
In the post pandemic period, an already dwindling trend of cash collection will further take a backseat and the robust payment platforms have instilled trust & confidence in the end- user, especially in rural areas and collection strategies will evolve to a compassion-based approach. The customers will witness a democratic Fintech ecosystem, providing equitable benefits within the reach of vulnerable populations.
The author is President-Technology, Analytics & New Capabilities at Lendingkart.
