In a significant shift, fintech lending is expected to overtake traditional banking by 2030, according to a recent report by the Center for Advanced Financial Research and Learning (CAFRAL). The report highlights the unique and diverse credit needs of small to middle income segments, asserting that these requirements can be sustainably met through fintech lending.
CAFRAL, established as an independent body by the Reserve Bank of India (RBI) in 2011, highlighted the remarkable growth of the fintech industry, with almost half of the 14,000 startups founded between 2016 and 2021 belonging to this sector. The report highlights the evolving preferences of borrowers and lenders, signaling a shift towards digital financial services.
The forces
Unlike traditional banks, fintech lenders leverage digital platforms and data analytics for quick credit assessments, simplified loan processing and fast cash disbursement. This innovative approach offers several advantages over traditional lending, encouraging the anticipated paradigm shift.
Fintech lending platforms excel at speed and convenience. Online loan applications result in rapid approval and funding within days or even hours, contrasting sharply with the bureaucratic processes associated with traditional banks.
The potential of fintech lending lies in extending credit access to a wider population. Through alternative data sources and advanced algorithms, fintech lenders assess the creditworthiness of individuals often excluded from traditional banks due to a lack of conventional credit history.
Efficient operations and advanced risk assessment enable fintech lenders to offer competitive interest rates. Reduced operating costs contribute to more affordable loan options, challenging traditional banking models.
Fintech lenders leverage big data and AI to provide personalized lending solutions, improving the borrower experience. Adapting loan products to individual needs sets them apart in service to various financial requirements.
The way forward
Experts emphasized the need for fintech lending to address the unique and vast credit needs of small to middle income segments, stating that the large investment in India’s fintech ecosystem provides a solid framework for transforming traditional lending practices.
Fintech leaders anticipate that collaboration with traditional banks will play a crucial role in driving this transformative change.
The CAFRAL report also raised concerns about issues such as usurious interest rates, unethical recovery practices and data privacy concerns amid the rapid growth in digital lending. Borrowers often lack awareness of the total costs of borrowing, and the report highlighted challenges related to fraudulent or illegal lending and third-party harassment.