The lending technology sector in India is on the verge of a major transformation as we approach the end of 2024. Shaped by strong macroeconomic factors, evolving consumer demographics and advances in technology, the lending landscape is witnessing remarkable trends that are reshaping the way. financial institutions operate, interact with consumers and manage risks. It is important to understand the key trends defining the lending space and their implications for the future of the industry.
Accelerated Growth – Robust Credit Market Dynamics
The credit market in India is experiencing strong growth, supported by strong macroeconomic factors. The CAGR from 2015 to 2023 stands at an impressive 15.6%, demonstrating the resilience and adaptability of the sector. This accelerated growth trend is further emphasized by the CAGR from 2019 to 2023, which is even higher at 16.1%. The lending landscape has become increasingly dynamic, with financial institutions adapting to changing consumer needs and leveraging technology to streamline processes. This expansion shows not only the industry’s ability to adapt but also the growing demand for credit products and services.
Gen Z – The Driving Force in Consumer Credit
As the year ends, Gen Z takes center stage in the lending landscape, poised to become India’s largest credit user group in the next decade. This tech demographic, aged 18 to 30, demands attention from financial institutions aiming to remain competitive. Accelerated inclusion is evident in semi-urban and rural areas, with a tenfold increase in demand compared to metro areas. Consumer lending patterns are shifting to prime and super prime borrowers. Despite the continued growth in credit card demand among younger consumers, conversion rates are declining as lenders navigate the balance between meeting growing credit demand and managing associated risks.
Responsible Lending Practices
In response to the increase in demand, the lending industry is witnessing the rise of responsible lending and lending practices. Financial institutions adopt a compliance-focused approach with a customer-centric mindset. As the lending landscape transforms, liquidity management becomes a crucial aspect of responsible lending practices, ensuring sustainable growth without jeopardizing the financial well-being of both lenders and borrowers.
AI and ML WillShape the Future of Digital Lending
AI and ML are playing pivotal roles in revolutionizing digital lending. These technologies are instrumental in assessing the creditworthiness of borrowers, streamlining automated underwriting processes, and offering personalized loan products to individuals. The adoption of AI and ML in lending will raise concerns about customer privacy where financial institutions will have to prioritize the safety and security of customer data, ensuring that the implementation of these technologies aligns with ethical standards. This technology-driven approach not only improves the overall customer experience but also sets the stage for the future of lending.
Holistic Platforms and Strategic Partnerships
Digital lenders are increasingly forming partnerships with other stakeholders in financial services to provide comprehensive platforms for customers. These partnerships extend beyond offering loans, providing access to investment options, insurance and other financial products. The digital interface is leveraged to create a customer-centric ecosystem that prioritizes seamless experiences and efficient management of financial needs. This holistic approach not only improves customer satisfaction but also positions digital lenders as one-stop solutions for a diverse range of financial requirements. The integration of services and strategic partnerships will contribute to a more robust and versatile financial ecosystem.
Financial Services Serving the Aspirations of Young India
As consumer behavior evolves, financial services are adapting to meet the aspirations of young India. Retail lending witnessed a large 21% increase in demand, outpacing the 5% increase in supply. Similarly, credit card demand stands at 27%, with supply growth of 12%. This trend indicates a growing need for credit among the younger demographic, but financial institutions are approaching this demand with caution, ensuring that supply is paced to maintain a healthy risk profile. Successful customer retention strategies will become integral in this landscape where the demand for credit increases, but the supply increases to manage related risks effectively.
Embracing the Future
As we approach the year-end of 2024, the lending technology sector in India stands at a crossroads of innovation, accountability and growth. Navigating these trends requires a strategic approach from financial institutions, emphasizing responsible lending practices, leveraging technological advances and understanding the diverse needs of consumers.
Embracing the future involves aligning products and services with the expectations of evolving demographics, fostering responsible lending practices and staying at the forefront of technological advances. The evolution of the lending landscape will continue to be influenced by macroeconomic factors, demographic changes and the industry’s ability to adapt to changing consumer dynamics. The year-end trends will provide a glimpse into the future and will be well positioned for continued success in the dynamic world of lending technology.
This article is written by Akshay Mehrotra, Co-Founder & CEO, Fibe. All opinions expressed are personal.