Market Trends of Digital Lending Industry
The Consumer Segment to Witness Significant Growth
- According to the latest Expectations & Experiences consumer trends survey from Fiserv Inc., a leading global provider of financial services technology solutions, almost two-thirds of people who have applied for loans in the past two years do so either partially or fully online, representing a significant increase from the previous year. A central portion of this growth is due to the increasing usage of smartphones and tablets.
- Digital lending startups have also started giving out loans for education and professional courses, expanding from mainly focusing on personal loans to consumer lending space. For instance, Bengaluru-based Zest Money is betting big on lending for professional education purposes. The company partnered with players like Upgrade, NMIMS, Great Learning, Acadgild, and Edureka to provide funds to entry-level- or mid-level executives wanting to acquire new skill sets.
- Millennials with a few years of work experience and no credit history (or the new-to-credit segment) find their loans either unapproved or at high interest rates. Moreover, in traditional banks, the time to decide for small businesses and corporate lending averages between three and five weeks, and the average time to cash is nearly three months. Such challenges are driving customers' digital behavior to mobile devices to access digital lending applications.
- Government regulations also augment digital behavior among consumers. For instance, in December 2023, the Reserve Bank of India (RBI) announced plans to subject digital loan aggregators to a regulatory framework to enhance transparency in operations. This move underscores the RBI's commitment to overseeing its regulated entities and the lending service providers it collaborates with, ensuring the smooth provision of permissible credit facilitation services.
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Asia-Pacific to Register Major Growth
- Digital lending has been available to credit unions for quite some time. However, with emerging technologies and the fast-paced nature of consumer lending, it is more important than ever that digital lending offers members more than a paperless process.
- In April 2024, the National Bank for Agriculture and Rural Development (NABARD) announced a strategic partnership with the Reserve Bank's subsidiary, RBIH, to streamline the processing of agricultural loans. NABARD is projected to merge its e-KCC loan origination system portal with the Public Tech Platform for Frictionless Credit (PTPFC) developed by the Reserve Bank Innovation Hub (RBIH).
- The rapid adoption of smartphones, internet access, and a shift toward consumerism in India helped fuel the growth of digital lending enterprises. Currently, there are 338 online lending start-ups in India that are trying to reduce the gap between lenders and creditors through a seamless process.
- Moreover, the Government of Japan is launching programs to inculcate cashless behaviors in citizens. The government launched an initiative to increase cashless payments to 40% by 2025. With the consumption tax increase from 8% to 10% on October 1, 2019, several discount schemes were implemented. These schemes subsidized the installation of cashless payment terminals for merchants and provided 2% or 5% discounts for consumers when purchasing from registered SMEs or franchise stores.
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