The expedited adoption of technology in finance has disrupted the traditional lending space. As the economy moves towards digitalisation, entities in the digital lending space are leveraging lower processing costs and increased revenue per loan while reducing processing times for customers and widening their eligibility more than old-school banking institutions. This has brought many fundamental changes – cutting approval and disbursal times drastically.
The spread of the internet and smartphones has given an impetus to the digital lending root. These factors and the growing need for quick and small loans have led to the rise of digital platforms offering instantly approved personal loans. According to a study, small loans of up to Rs 50,000 grew 86 percent between March 2019 and March 2021 due to the increasing number of digital lenders.
Though digital lenders are overcoming barriers that once required loan applicants to go through several eligibility checks, building trust with them has become a critical concern. Since digital lenders are always behind the screen, they need to deliver value and loyalty at every stage of the loan process.
Promote ethical lending practices
The reign of mushrooming digital lenders in India has made consumers explore lending opportunities to meet their needs. Though the space has built an outer layer of consumer friendliness, the need to adopt ethical practices and end mis-selling has become imperative. The menace of unethical lending apps has impacted the billion-dollar digital lending sector.
The Reserve Bank of India has received over 1,000 complaints associated with unregulated and unregistered online lending apps. This clearly indicates a lack of trust and loyalty among consumers.
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Meanwhile, the Fintech Association of Consumer Empowerment (FACE) has released a code of conduct for the adoption, practice and promotion of ethical digital lending in order to build a sense of confidence among consumers. This requires driving away predatory lenders to strengthen consumer interest. Therefore, when it comes to lending, building consumer loyalty comes down to adopting the right technology, framework and partnering with ethical stakeholders.
Focus on consumer empowerment
Unregulated digital lending apps shake consumer confidence in the entire fintech industry. More than focusing on making credit easily accessible through technology, digital lenders must think about being transparent about the entire lending process. This will create a seamless experience for consumers and take fintech companies ahead in their innovation journey.
To build a sustainable lending ecosystem, digital lenders must shift their focal point from consumer experience to consumer empowerment. This begins by creating synergy between regulators and ethical companies and making consumers aware of safety while applying online for a loan. When consumers are empowered, they take charge of their own safety and transparency while transacting online.
Data privacy and protection
The present fintech space is fuelled by an open API ecosystem. There is an abundance of customer data, credit and risk intermediaries in the digital lending value chain. For new-age digital lenders, consumer data is the fuel to sell instant credit and small loans online. Accessibility of consumer data from online platforms makes it more convenient, swift and profitable for digital lenders. However, predatory lending apps jeopardise the privacy of consumer data.
Privacy concerns are raised due to a lack of literacy and digital lending apps must adopt a ‘data, privacy and protection framework.’ A robust security infrastructure makes the lending business more appealing to consumers. Regular security audits and best-in-class data encryption standards ensure complete protection of consumer data, resulting in faster and safe loan processing.
India has a huge chunk of the underserved population when it comes to lending and therefore, it is poised to become a leader in the space. For uninterrupted growth of the sector, the trust deficit among consumers needs to be completely eliminated. Ethical lenders can adopt responsible credit practices that can build loyalty among consumers and promote financial inclusiveness.