What are the different digital lending models available to customers?

 Digital lending has become widely popular since the beginning of the pandemic when banks and other financial institutions were under lockdown. Both startup fin-tech companies and large tech corporations were able to grow during this period. Even though the lockdown has been lifted and banks have started normally operating again, many people still prefer getting loans and credit from digital lending platforms. Here are the different lending models that customers can look out for.

 

Check out these different digital lending models available on the market:

●       Online lending applications: These digital lending platforms offer their services through online channels or mobile applications. The entire process is digital and automated on these lending applications. Thus, customers do not need the help of any person and can follow the instructions mentioned in the lending application to apply for a digital loan. Many startup fin-tech companies fall in this category and they provide small loans to people for their needs.

●       P2P Platforms: These types of digital lending platforms are more common in the market. A P2P digital platform helps to connect the individual, who is looking to apply for a loan, with the financial lending institution. The platform plays a key role as it becomes a medium for both parties to engage with each other. These platforms also provide additional services like credit risk assessment, payment options, recollection services, etc.

●       Social media and e-commerce platforms: As digital lending became more popular, social media applications and e-commerce platforms also introduced credit systems within their frameworks. Although it was not their main business model, they used their large networks and distribution channels to attract people to use their lending and credit systems although their credit risk assessment and other processes are similar to the online lending platforms.

●       Lender searching platforms: One can also find digital platforms that are dedicated to helping individuals get a suitable digital loan from the correct lenders. These platforms use various algorithms and models on the individual's financial data and then match them with the appropriate financial lending institution. The platform generally charges a fee from both parties for providing this service.

●       Mobile network money lenders: These digital lending platforms are similar to social media and e-commerce credit platforms. The mobile network company collaborates with a lending partner for giving out digital loans to its network users. The mobile network company provides this service to all its users where they can conduct transactions and apply for credit from the mobile network application.

●       Supply chain lender: This lending method is available only to businesses and small companies. They can avail of a loan from their distributors for the purchase of required goods in advance. This helps them to avail goods for their inventory even if they lack some funds for the complete payment of the delivery. They should ensure that they pay back within the allotted timeframe or their next delivery of goods can be put on hold by the distributor. These are some of the different types of digital lending models available that provide credit to people and businesses.

 

Solutions that are helping banks reach out to the unbanked customers

 

India is a vast country that is still in its development phase and a large part of India still lives in semi-urban and rural localities. Moreover, many remote areas do not have proper access to crucial features like banking services. People living in these areas found it hard to get loans because their lack of credit history and uncertain income source failed them in the credit underwriting process.

 

But governments, banks, and other institutions have taken the initiative to implement solutions like alternative data for lending that will help to provide these unbanked populations access to banking and other financial services. Here are some of these steps that are being taken.

 

Removal of strict guidelines related to credit and bank accounts

 

Many banks have removed features like the minimum balance compliance, monthly charges for access to various services. They have also introduced schemes like zero balance accounts that are catered specifically to people from remote areas so that they are encouraged to open bank accounts. Governments have also eased restrictions on loans, the credit underwriting process while also introducing low-cost insurance services to secure the future of these unbanked individuals.

 

Introducing online credit and banking services

 

With the widespread reach of the internet and the easy availability of smartphones, banks and financial institutions are now providing all their services through online channels. These can be accessed through the respective banks' mobile applications or websites. Moreover, banks and other financial institutions are not charging any additional money for providing these services. This feature helps many people to open bank accounts remotely, have access to them, apply for loans, and receive the amount after the loan underwriting process, even if they do not have the bank's branch in their surrounding area.

 

Implementation of alternative solutions for credit and loans

 

The use of alternative data for lending also helps banks and other financial institutions to check the creditworthiness of the individuals even if they lack a proper credit history. This gives people the opportunity to get credit and use it during an emergency. Banks and governments have also made it easier for unbanked customers to avail their first loan from these institutions. Apart from simplifying the loan application, credit underwriting process, and easing the eligibility criteria, many schemes help people from remote areas to get loans for personal or work-related purposes.

 

Increase financial and credit literacy among the masses

 

A large population from rural areas, especially the unbanked people, previously had a deep mistrust of governments and banking institutions. This fear made them believe that these parties will run away with their hard-earned money. But a lot of such misconceptions have been cleared due to the financial literacy campaigns run by the government which gives people an idea of the benefits of using banking services. Moreover, as more people learn about the loan underwriting processes and other bank formalities, they are beginning to understand which factors led to them getting rejected previously. It helps them to build up trust among the banks and other financial institutions again.

 

These are some of the solutions that have helped banks and other financial institutions to reach out to the unbanked people and make them a part of the country's growing economy.