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Consider this - in a year, Indians on average make 300 million E-Commerce transactions and 8 billion digital banking transactions. By 2023, the digital footprint of financial services consumers in India will increase to 75% (from the current 50). These numbers can largely be attributed to the smartphone boom in the country, coupled with increased access to low-cost internet.
It’s no wonder then, given these circumstances, that retail digital lending has grown at a CAGR of 43% in the last seven years. In addition, FinTech disbursed personal loans increased from 1% to 41% in just two years!
And now, the sector stands to make as big an impact in the realm of business lending - think term loans, working capital, and Buy Now Pay Later use cases.Unlike B2C commerce payments, B2B commerce payments are recurring and have significantly larger order volumes.
The agility afforded by technology-based distribution and risk models allows for extreme nimbleness allowing FinTechs of all shapes and sizes to crop up and offer customized credit for B2B transactions.Ticket sizes for FinTech retail loans started off much lower than banks but are rising due to better underwriting models and increased lender confidence. Similarly, MSME loans too must start with low ticket sizes with shorter tenures, slowly building the ramp to full-scale business financing.
But here’s the roadblock - FinTechs have suffered high delinquencies on their portfolio. Delinquencies are now up to 8x as compared to other lenders like banks and NBFCs. This is what happens when one takes a siloed view of the lending process, putting the need for a robust risk engine on the backburner.
Ensuring on-time repayment begins even before the loan is disbursed. It involves leveraging real-time cash-flow data to eliminate risky borrowers, using Machine Learning models for precise credit assessment, and predictive analysis to prevent delinquencies.
In short, the real challenge in lending - whether it’s B2C or B2B - begins when it’s time to get money back. And leveraging the right technology, at the right time, is the only way to offset the risk that’s an inherent part of the process.