The digital lending landscape in India for 2024

The digital lending landscape in India is experiencing rapid growth, driven by key regulatory and technological advancements. These developments are poised to bring a significant number of Indians into the fold of formal credit in the upcoming year.

Fueled by the Indian government's initiatives towards digitization and the emergence of cutting-edge Fintech companies, India's digital lending sector is witnessing a swift expansion. It's expected to exceed $720 billion by the year 2030. A variety of players, including banks, non-banking financial companies (NBFCs), and FinTech’s, are at the forefront of this change, innovating and offering new credit solutions. These advancements are making it increasingly straightforward for both individuals and businesses in India to obtain capital via digital means.

As the sector aims to meet the burgeoning demand for credit in the country, players in digital lending and traditional banking are enhancing their digital capabilities. They are focusing on developing integrated platforms that will aid them in streamlining their operations and scaling up effectively in the forthcoming years. The following are the primary trends in the lending sector we anticipate in 2024.

1. Use of AI and ML in lending

Artificial Intelligence (AI) and Machine Learning (ML) are pivotal in revolutionizing the lending industry. A substantial number of financial organizations have either adopted or experimented with AI in various sectors of their operations. By the end of 2023, about three-fourths of companies had implemented AI and machine learning technologies, with 81% expressing confidence in their application of advanced analytics and AI for credit risk decision-making. These cutting-edge technologies are employed by lenders to streamline underwriting procedures, accurately evaluate credit risks, and enhance fraud detection systems. Moreover, AI-enabled chatbots and virtual assistants are becoming increasingly prevalent in customer service, providing instant assistance to borrowers and improving the overall customer experience.

2. Use of alternative data for credit underwriting decisions

Automated and data-centric decision-making processes have played a crucial role in enhancing and automating the assessment of risk in underwriting. This advancement has enabled the provision of credit to market segments that were once deemed excessively risky or impractical. With the expansion of the India Stack to encompass a broader range of non-conventional data sources, digital lenders are poised to conduct credit evaluations more effectively. This development is anticipated to contribute to the evolution of a more agile and responsive lending environment.

3. Newer Lending models take center-stage

In the evolving financial landscape, innovative lending products like Buy Now Pay Later (BNPL), Invoice-based lending, Point-of-Sale (POS) financing, and Peer-to-Peer (P2P) lending are gaining prominence. BNPL offers customers the flexibility to purchase immediately and pay over time, typically without interest. Invoice-based lending provides businesses with immediate capital based on their outstanding invoices, enhancing cash flow. POS financing allows customers to finance purchases directly at the point of sale, making larger purchases more accessible. Lastly, P2P lending connects individual borrowers and lenders through online platforms, democratizing access to loans and investment opportunities. Each of these products caters to specific financial needs, reflecting the diversification and innovation in modern lending.

4. Tighter regulatory landscape

In 2024, India's lending regulations are undergoing significant changes, reflecting a move towards greater transparency, enhanced consumer protection, and financial inclusion. Key amendments include stricter norms for digital lending to curb unregulated lending activities, especially in the fintech sector. The Reserve Bank of India (RBI) is implementing more stringent guidelines for Non-Banking Financial Companies (NBFCs) and banks regarding loan recovery practices and customer data privacy. Emphasis on KYC (Know Your Customer) norms and anti-money laundering measures has increased. These regulatory shifts aim to foster a healthier, more secure lending ecosystem, encouraging responsible lending practices while protecting consumer interests in the rapidly evolving financial landscape.

5. Hyper-personalization and customer centricity

Technological progress has led to a significant transformation in the financial sector, introducing digital-first borrowing methods that offer unprecedented ease and reach in the lending domain. Loan applications are now predominantly conducted through mobile applications and intuitive web platforms. Today's borrowers seek fluid, mobile-focused experiences, mirroring the current trend of instant digital interactions. These organizations place a strong emphasis on customer orientation, employing data analytics to customize services and enhance user convenience.

It's crucial for lending firms to personalize each step of the customer journey, encompassing everything from the initial contact and onboarding process to loan origination. By actively improving customer interaction, the lending sector can forge stronger relationships and foster long-term growth. Thoroughly understanding customer preferences can significantly improve client experiences, ultimately benefiting the financial outcomes of lending institutions.

Future Outlook

Several pivotal trends and innovations are shaping the future of lending. In an era of tightening global financial conditions, the rise of digitization is providing the necessary agility and precision for the sector to address current challenges. An emerging trend is the implementation of stricter lending regulations, leading the industry towards more robust compliance measures and adaptable approaches.

Technological advancements, particularly in artificial intelligence, machine learning, and fintech, are driving significant transformations. Changing economic circumstances play a crucial role in credit decision-making, highlighting the need for more dynamic, data-informed risk assessment methods.

There's an increasing focus on personalization and customer-centric approaches, reflecting the evolving preferences of borrowers and the necessity to address diverse financial needs and expectations. Ultimately, the future of lending is moving beyond traditional financial services. It is developing into an integrated experience aligned with customers' lifestyles, ethical standards, and financial goals. This convergence of technological innovation, regulatory changes, and evolving consumer demands is paving the way for a lending environment that is more responsive, secure, and focused on the customer.