India is the world’s sixth largest economy, with a young demographic and a growing middle class that is steadily becoming a digitally enabled population. Their aspirations are driving a wave of change in behaviour. The number of millennials availing credit cards or loans has grown by 58% between 2016 and 20181 perspective highlighting significant potential for credit in a country with a population like ours. This is driving the need for retail loans, an increase in EMI-based transactions and thus powering India’s consumption growth story2. Yet, India ranks significantly lower than other economies in terms of credit penetration.
The access to credit cannot be measured merely by having a bank account or the capacity to make digital payment or loans taken. While only 13% of all payment cards are credit3, this is mainly concentrated in tier 1 cities4. On the other side, 220 million of all debit cards holders who are spread across the length and breadth of the country are eligible for credit facilities5. With the onset of the pandemic, individuals are delaying their expenses6. Accounting for all these factors, the number of prospective customers opting for credit in India is huge.
It can be said that access to formal credit is impeded by the advertent documentation required by banks to process credit for potential borrowers, including credit bureau records and income proof. Non-salaried individuals therefore find it difficult to get access to formal credit due to insufficient data on their lending history. However, as internet and mobile penetration have increased, there has been an inflation of accessible information on individuals. Coupled with emerging technology by financial institutions and innovative on-ground solutions by fintechs, it is becoming easier to evaluate customers for credit digitally.
To fill the gap in credit issuance, alternative lending platforms are targeting this untapped demographic and digitizing the appraisal and disbursal processes. Innovative business models for lending are designed for retail customers and business owners who were earlier unsuccessful in accessing credit from traditional banks and institutes.
Traditional banking varies from these new lending platforms as the latter are more digitally driven, with flexible products and solutions to suit the income and behavior of the borrower, putting fintechs at the forefront of digital loans. Some financial institutions and fintechs have begun using artificial intelligence and machine learning tools to get early signals on asset performance.
On the regulatory front, the RBI has taken progressive steps by firming up the Video KYC guidelines, enabling banks to perform KYC remotely. Fintechs like IDfy and Hyperverge have built ready APIs to enable Video KYC, and in partnership with Visa, are allowing banks to support instant credit issuance and provision credit at the point of purchase – instantly.
We believe the future of credit will not be restricted to the form factor of a card – it could be in the form of a credit line on the phone, instalments linked to your debit cards, loans disbursed on a prepaid card and so on. We are therefore partnering across the fintech ecosystem to drive new credit form factors – for instance, we have partnerships with players like Innoviti and Jocata to drive EMIs on debit cards at the point of purchase. These solutions help us democratize credit access to all end points of consumption.
During Visa Everywhere Initiative (VEI) in India, a one-of-a-kind global innovation program that tasks start-ups to solve payment challenges of tomorrow, we encountered many fintechs who are trying to bridge credit access for a new set of customers across segments. Addressing the current demands of the market, their products and solutions were nearly ready to go live. We therefore decided to extend our relationship with them beyond VEI and provide quicker access to our network of partners, technology stack and global expertise to fast-track the formal introduction of these solutions to the market.
We intend to and have partnered with some fintechs that are building lending solutions across the market spectrum using alternative data sets. Enabling lending on prepaid solutions, StashFin and SlicePay will provide customers with prepaid cards co-branded with multiple issuers. InstantPay, on the other hand, will also allow customers access to a digital account to spend, save and track money, as a neo-banking platform, using prepaid cards. Our partnership with SmartCoin Financials will be streaming a new line of business by providing consumer loans to the underserved middle- and lower-income groups with instant digital disbursements. We are also partnering with fintechs for BIN sponsorships to issue credit cards such as with RedCarpet, with whom we will issue credit cards to new-to-credit (NTC) customers and underpenetrated segments for quick and easy access to credit.
Consequently, traditional banks will be able to get a view into this new customer’s credit history and upgrade them with products & services, thereby also opening a new customer base for them.
As India moves towards a more accessible and digital India, partnerships between new-age innovative fintechs and established trusted banks will be the harbingers of digital transformation in India. By having an operationally light and fully digital infrastructure, players can provide credit-eligible customers with relevant products while creating better experiences. Progressively, it is possible that millions of more Indians will have access to simpler forms of credit through a formal system than from the informal channels they resort to today.
- Arvind Ronta, Head – Products, India and South Asia
1 Borrowed joy: Decoding the digital credit boom of India
2 RBIs Trend and Progress of Banking Report 2018
3 RBI data - May 2020
4 TransUnion CIBIL Industry Insights Report
5 EMI facility on your debit card? - Business Today (27 March 2019)
6 84% respondents said they are cutting back on expenses to sail through the crisis - Mint (02 June 2020)