The report provides insights on the decision making journey of the Indian loan seeker and lists the imperatives for industry participants in the lending ecosystem to capitalise on this opportunity.
A Boston Consulting Group (BCG) report suggests that digital lending in India will become a $1 trillion opportunity in the next five years.
The report elaborates the growth opportunities in the Indian retail lending market and digital lending globally. It provides insights on the decision making journey of Indian loan seekers and lists imperatives for industry participants in the lending ecosystem to capitalise on this opportunity.
According to the report, four fundamental drivers that pushed the space are internet giants that changed the way consumers behave, rapid growth in technological advances including the proliferation of smartphones and consequent increase in the consumption of data. Also the digital market lending prospered under supportive regulatory conditions across the globe.
The lenders have created innovative models such as peer-to-peer (P2P) lending and “value +” lending, fueled by demand from messaging service providers, telcos, cab aggregators and online marketplaces. These factors played out in India as well.
“Jan Dhan Yojana and the India stack have made end-to-end digital lending a reality. India has leapfrogged many advanced economies by setting up open architecture layers such as Aadhar, UPI, Bharat Bill Payment Systems; and systems such as GSTN, TReDS and GeM which will go a long way in boosting digital & data-enabled lending in India,” said Alpesh Shah, Senior Partner and Director at BCG India.
He pointed out that innovative operating models such as the Point of Sale transaction based lending, invoice discounting exchanges and bank-led digital models have sprung up in India, as a mark of the maturity of digital lending space.
The report details the insights from an exhaustive quantitative study covering consumers of personal loans, auto loans, home loans and SME loans that validate India’s readiness to adopt digital lending.
“Almost 50% of loan seekers with internet access applied for or purchased a loan digitally over the last 12 months – this shows that consumers across loan types are now ‘digitally ready’. Interestingly, digital loan ticket sizes are comparable to physical loans,” said Prateek Roongta, Partner and Director at BCG India.
The report further mentioned that the digital loan seeker used to be metro-bound, millennial, male, which is no longer true. Digital acceptance cuts across demographic factors and geographical locations. Consumers typically search for price and eligibility, with search engines and lender sites seen as the most influential in the loan purchase decision.
“However, consumer journeys are still hybrid – neither only digital, nor just physical. A typical home loan journey may involve as many as 14 online digital touchpoints and 7 or more offline touchpoints,” said Roongta.
Given the high level of acceptance for digital lending in India, the report states that the space is likely to witness significant disruption in the next five years.
The authors list several predictions which will alter the digital lending landscape, including, the emergence of new digital attackers funded by lenders of today, as well as the rise of non-traditional lenders and the continued prominence of fintechs.
Partnerships will fill capability gaps and industry data platforms will become a reality. As more and more consumer data becomes available, data analytics will disrupt the value chain, revolutionising underwriting and enabling credit for all.
Technological advancements will transform the face of front-end consumer experience, as well as enable full-scale digitisation of operations.
Fueled by these shifts, lenders will witness a dramatic shift in power bases. The report explains that a confluence of these factors could drive over $1 trillion being disbursed digitally in the coming five years – with annual digital disbursements increasing five fold from current levels.
Vikas Agnihotri, Director Sales, Google India which contributed in the primary consumer research conducted by GFK for the report said “Improved connectivity and smartphone usage have exploded in India, this combined with the Indian government’s drive to get everyone a bank account as well as NPCI’s pioneering work in setting up the UPI payment network and infrastructure — allows for a lot of new innovative approaches for the digital lending Industry. We believe India is at a cusp of significant wave of change lead by fintech, and represents a huge opportunity for the lending ecosystem to innovate and invest in newer models to reinvent lending in the country.”
So what should the industry do to capitalise on this opportunity?
The report outlines a 10-point winning agenda for industry players: Re-imagining consumer journeys, leveraging data to drive personalisation, creating a data mindset, developing a future-ready tech platform, developing a sandbox to spur innovation, partnering with fintechs, leveraging industry wide platforms, building a digital ready organisation, employing agile ways of working and managing the cultural transformation.
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