Why digital lenders are targeting first-time borrowers

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The digital lending market has emerged as a crucial factor in creating financial inclusion across the globe. With increasing smartphone penetration and high-speed internet services, digital lending presents a large opportunity in the Indian context. However, the flexibility provided by digital lending remains unparalleled as long as innovation continues to catalyse the change forward. New-age fintech today strive to constantly adapt to these developments and make the customer journey online more adaptive and comfortable. We see lending startups innovating with models such as sachet loans, Buy Now Pay Later and advance salary products for the rising urbanisation in Indian cities and the younger crowd of today.

Avoiding long queues with this digitisation of banking has also led to faster turnaround time. With no visits to banks or physical verification of documents, getting a loan sanctioned digitally takes no more than five days.

With an estimate of the total retail loans disbursed digitally to be over $1 trillion in the next five years, it is natural for complete processes of loan life cycles to shift online. Let’s look at a few reasons which are driving digital lending platforms today to maximise this opportunity and invest in first-time borrowers.

Changing consumer base

Around 411 million Indians form the addressable market of young salaried professionals today. Formal employment surged with this 46% of India’s working population, made of first time earners that are new to credit. The unserved community of millennials forms the greatest receptor to digital lending practices, as a generation that has adapted to financial digitisation. Compelling even traditional banks trying to keep up with the trends, young and tech-savvy Indians are much ahead of the previous generations when it comes to borrowing or even using the platform as lenders. This generation has led to an increase in the consumption of small-ticket size loans like taking loans to either purchase electronic gadgets like smartphones and TVs, loans for travel, wedding loans etc.

Ease of Artificial Intelligence

With products like unsecured lending paving growth with smaller ticket sizes, operating costs for lenders have decreased, while providing first-time borrowers access to secure funding with zero human interaction. The supply side of fintech has seen a massive shift in terms of adoption of technical services on platforms. This has provided a greater connect and an ease to business that is accepted and accelerated by the digital savvy borrower of today. The use of technology like AI today helps financial institutions assess the creditworthiness of first-time borrowers by scanning their social media footprint, digital payments data, etc. With data of the borrowers on their fingertips, it is easier to increase the pace of the lending procedure and pre-approved loans up to certain limits.

Easy to bet on

In recent times, winning consumer trust emerged as a challenge across sectors. The pandemic brought loss of jobs and salary cuts that drove a shift in consumer behaviour with 16% of millennials availing loans for credit refinancing. This situation worked in favour of digital lenders as these new-to-credit borrowers are comparatively more excited about taking loans. This incentivises lenders to have the ability of charging higher interest rates along with increasing the volume base.

Trust in digital and sustainable businesses

Millennials today have a profound sense of familiarity with the digital space. They understand digital lending, payments and investing in a superior fashion as compared to other generations. This knowledge seeds trust in the process by first-time borrowers which develops a consumer psyche of transparency in digital touchpoints, putting neo banks and online-only platforms in currency. Along with that, first-time borrowers today are more aware and concerned of the environmental impact of their financial decisions too.

As India’s credit market continues to grow, borrowers move towards the ease of doing business where alternatives that provide simple and straight-forward solutions can be accessed from the comfort of their homes. The power of digital has been embraced by the world in a wholehearted manner post the lockdown. In a scenario where internet was the only means left to connect and continue doing business, the economy has managed to remain intact due to its adaptation to the digital scenario. The Banking and Finance Sector has flourished in its catalysed adoption of the same.

(The writer is founder and CEO, IndiaLends. Views expressed are personal)