Digital lending is that segment of the fintech sector that has observed exponential growth in the last decade and is expected to cross the value of a hundred billion dollars in the forthcoming years. They have come a long way in paving a path of financial ease to every potential borrower who can now get personal loan in a jiff.

Initially led by the NBFCs and neo-banks, commercial mainstream banking organizations followed suit later because the digital lending system simplified the entire process, almost made it paperless, and eliminated many error factors and anomalies. The format works in favor of borrowers as well as lenders. No wonder it is the fastest-growing business trend in India to get loan online through instant apps.

Reasons for the digitized approach of lending organizations:

One prominent advantage of digitized lending is the automation of the decision-making process. Using customized models and industry best practices has eased the handling of bulk customer data and the integration of the best technologies to bridge the gap between customers and lending institutions. In the traditional banking system, when the customer needed instant small loans, the application and approval process was time-consuming and made the customer’s experience not likable. However, this setback is no longer a part of the system as customers can easily apply for instant online loans and get them approved quickly.

Comparison between digital lending intermediaries and commercial banks:

  • Digital lending companies provide short-term loans to customers through urgent loan app platforms with instant applications. Unlike traditional banks, they do not require a rigid banking relationship or specified criteria to be fulfilled, such as the standard CIBIL score. Therefore, the application process is quick, and the assistance provided is quicker, provided the applicant has an online bank account.
  • These lending organizations are a savior for so many MSMEs who cannot apply for funds from commercial banks for not being able to fulfill the stipulated terms and conditions. These enterprises were in dire need of funding, especially during the post-pandemic period and digital lending companies came to their rescue.
  • Peer-to-peer lending is another sub-divisional branch of digital lending intermediaries, which was constituted to assist the unorganized business sectors. Loan conditions and financial products can be customized on mutual agreement and may not be algorithm-driven.
  • A wide range of loan options is available in the digital lending environment, from short-term personal loan emergency such as education or car loans to small housing loans. The accessibility of the service, flexible loan terms, and minimum paperwork make it an ideal source of funding compared to the conventional banking system.

Let us list down some of the advantages of these digital lending companies in the country:

  1. A huge part of the process is automated because authentic records of the potential borrowers, such as GST filings, credit ratings, tax returns, etc., are now available in the database. So, a lot of manual work is eliminated, reducing the workforce cost.
  2. Handling millions of customers at a time is possible because of the availability of cheap technologies and data processing services. We all know how time-consuming and hectic it is to get the banking job done from the outlets, standing in long queues.
  3. Multiple digital lending institutions work in sync with each other, forming a multilevel network. They get associated in one place and perform several processes on diverse levels.

Although the lending institutions have the backing of the Indian government, they also need to focus on skill upgradation, system audit of technological tools, and systemic control to maintain the merits of these organizations in the long run.