Loans, cards may be issued online soon

Just like demonetization gave a fillip to digital payments, the current lockdown may make the lending and card issuing process totally digital. Since the lockdown started, loan and card issuances have come to a grinding halt as both require representatives to visit the applicant for paperwork. The drop in business is forcing lenders and card issuers to prioritize digital lending. “In the normal course of business, the process could have taken two to three quarters, as it requires banks to set up infrastructure based on the Reserve Bank of India’s (RBI) guidelines. But lenders and card issuers are planning to go live with it within two weeks,” said Adhil Shetty, CEO, Bankbazaar.com, an online marketplace for financial products.

You will soon be able to get unsecured (like personal loans) and consumer durable loans , as well as credit cards while sitting at home, with zero paperwork. If approved, the funds will be credited directly into your bank account or the card will be sent to your address. This will also make the entire process faster.

Changing processes

From the time you apply for a card or loan to the time you get it, there are multiple processes involved. At the application stage, the lender or the card issuer does a credit bureau evaluation. Then, representatives collect KYC (know your customer) and income documents and take your signature on the contract. For loans, there is the additional requirement of giving a post-dated cheque and allowing the lender to debit your bank account every month, through the NACH (National Automated Clearing House) or ECS (Electronic Clearing System) mandate.

Among these, the credit report evaluation has been digital for some years now. “The physical signature on the contract is not mandatory. The Information Technology Act only requires provable customer consent for contracts,” said Naveen Kukreja, co-founder and CEO, Paisabazaar, an online marketplace for banking products. Other processes may also go online now.

Video KYC: On 9 January, RBI notified detailed guidelines on video KYC or video-based customer identification process (V-CIP). “While RBI had already allowed video KYC, lenders had not started implementing it as there were some doubts. Those who did, had not prioritized it,” said Kunal Varma, co-founder and chief business officer, MoneyTap, an online lending platform.

According to the RBI notification, when lenders are doing V-CIP, an official needs to be present on the other end for verification. During the process, the customer has to show documents to the official over the video. It’s a real-time process that needs to be recorded and stored. The online process eliminates the requirement of physical signature. The same process applies for card issuances.

e-Mandate: Early last year, the National Payments Corp. of India (NPCI) started offering electronic mandate on UPI (Unified Payments Interface). It allows a lender or company to request the bank of the customer for recurring payment. Some big private and public sector banks now allow their customers to set up e-Mandates. Others are in the process of offering it to their customers.

Income documents: RBI leaves it up to the lenders and card issuers to decide how to source the income documents. “The simplest way is to ask applicants to upload income and income tax return documents. But there are some fintechs that retrieve the bank statement electronically with the applicant’s consent,” said Kukreja. The customer logs into his bank account using the fintech’s application, which can then access the bank account information.

The government has also opened the goods and services tax (GST) platform, which allows lenders to retrieve GST returns of self-employed customers, with their consent, if needed, said Kukreja.

Pushing for more

Financial institutions are also talking to RBI and the ministry of finance for other options to make loans and card issuance entirely digital. “There could be a scenario where the applicant’s video connection is not of high enough quality for V-CIP, and it may not work. Also, it requires a bank official on the other side of the video. It can, therefore, happen only during the bank’s working hours,” said Shetty. Intermediaries, banks and other financial institutions are requesting the regulator and the government to encourage banks to use the Central KYC (CKYC) and Aadhaar-based KYC.

Banks can use CKYC for low-risk customers. But it’s up to banks to decide whether a customer is low-risk or not, which is why CKYC has not taken off. RBI has allowed Aadhaar-based KYC for loans up to ₹60,000. Many digital platforms have been using it for some time. Financial institutions are asking RBI to increase the limit.

These measures would help lenders offer unsecured and consumer durable loans without any paperwork. However, mortgage loans such as home loans would still involve physical processes, as it requires valuation. With lending and card issuance going digital, it would reduce the cost for lenders, which they may pass on to customers in the form of lower processing fees.