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Photo: iStock
Photo: iStock

AI, machine learning to support digital lending landscape in post-covid era

Technology will boost innovation and risk mitigation in digital lending space

Covid-19 has become a major part of our lives. It has not only disrupted our lifestyle and how we do businesses but brought unprecedented challenges to the economy. While the world gradually finds a viable path to normalcy, it is interesting to see how the crisis has also created opportunities for innovation, learnings and behavioural shifts. Digital transformation has accelerated, businesses have amplified their technology investments on cloud-based products and services, and digital sales have gained momentum with traditional retail stores going online for the first time. The lockdown expedited the digital-first approach helping the country’s Digital India vision move a step closer to reality.

Among other sectors, digital payments have experienced a significant boost. Areas such as online grocery stores, online pharmacies, OTT players, EDTechs, online gaming, recharges and utility payments have seen an uptick in digital payments due to a growth in their adoption. But even after the lockdown measures are eased and markets get back to their routine, cashless transactions are poised to gain more prevalence. This is because covid-19 has encouraged people to follow various safety measures like social distancing and made them more cognizant about transmission of the virus through human touch and cash exchange.

Many industry reports cite that the pandemic has acted as a catalyst in the growth of digital payment platforms. In countries like the US, digital payments is expected to reach $4,769,370 million in 2020, which is a year-on-year increase of over 15%. In India, the finance ministry, the National Payments Corp. of India (NPCI) as well as the Reserve Bank of India (RBI) have pushed for digital payments to make payments contactless, urging banks and financial institutions to promote digital transactions. However, the adverse effects of the pandemic are trickling down to major sectors of the Indian economy, with auto, retail, manufacturing, hospitality and aviation bearing the brunt of the lockdown and affecting payments linked to these sectors.

In such a scenario, consumers will become more mindful of large spending, and digital lending will gain momentum with people’s disposable incomes being affected. As consumers cope to maintain their lifestyles, there will be a surge in micro-credit. Microfinance lenders must be equipped to address the credit requirement, while offering affordable and convenient repayment solutions to ease the impact of the crisis. Digital disbursement of buy-now-pay-later solutions will gain traction as micro credit helps in easing cash crunch. With a minimal burden on interest, if repaid within a specific time frame, digitization of short-term credit processes such as eKYC and V-CIP (video-based customer identification process) will only aid the upsurge in the trend.

Being seamless and digital in nature, it will offer people the convenience to cope with salary delays. Using micro credit, customers can clear their utility bills and even use the solution during medical emergencies. Leveraging technologies such as artificial intelligence, machine learning and big data analytics, automated loan offerings and contactless lending services will act as enablers of timely digital disbursements.

Apart from maintaining the current lifestyle, micro credit will be crucial for low-income groups employed in the informal sector, as they are one of the worst affected by the pandemic. This has put an impetus on financial inclusion, now more than ever, and made financial institutions rethink their operations. Many customers cannot access traditional credit because the unit economics necessary to serve them are not accepted by the banks. With the economy on a slowdown and credit slated to rise post-covid-19, it will become more difficult for small merchants and consumers to garner loans. However, digital lending platforms with the principles of financial inclusivity will emerge as the heroes. By leveraging the right technology, they will be able to verify creditworthiness and drive financial inclusion .

Lastly, technology will act as an enabler for innovation and risk mitigation as it will be a key priority for digital lending companies. Focus on data science and analytics will remove the risk of fraud and delinquencies. It will also be a driver to navigate consumers through credit complexities created by covid-19. Once the pandemic is over, it will become extremely important to ensure that fintechs can provide the services the consumers need. Hence, implementation of automated processes to gain insights into eligibility and enabling of rapid processing will become key to their success.

Prashanth Ranganathan is CEO of PayU Finance

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