How New Age Lenders Are Closing the Needs Gap With Digital Credit Underwriting Methods


Access to credit is one of the most significant The factors for the survival, growth and productivity of all Business. Many companies in India do not keep the financial information required for a good credit assessment and furthermore have limited reach with lending institutions due to lack of relevant knowledge. Likewise, from a lending institution’s perspective, lending to different types of businesses is a very risky proposition, as each business has its unique set of complexities. This interaction between the challenges of demand and supply leads to an enlargement of the credit deficit. In addition, ttraditional credit assessment methods have their own challenges, especially in unprecedented situations such as the current COVID-19 crisis. As physical distancing is becoming the new normal, digital paperless and contactless loans will gain in importance.

Opportunity seized by new age lenders

By leveraging cutting-edge digital technologies, data analytics and proprietary underwriting algorithms, new age lenders can assess vast volumes of data, both conventional and unconventional, potential borrowers. Such in-depth access to borrower information enables new age lending platforms to assess creditthe value of a the borrower accurately, even in the absence of financial documents. This activatees transparent access to credit and financing opportunities for those new to this field.

Fintech startups have been at the forefront of digital lending. In recent years, easy internet access and the rapid adoption of smartphones Have changed the way SMEs meet their business needs. Manual credit underwriting processes began to be replaced by digital underwriting due to the availability of rich and alternative data. Innovative and disruptive technologies led to greater precision in credit risk models. TThe Government of India and the RBI have too understandakFr several initiatives for digital India. The financial services industry is evolving rapidly from the traditional “one-size-fits-all” approach to a more “tailor-made” approach.

Alternative credit rating

The alternative credit rating is a popular model that goes beyond the traditional settings used by the office and helps to access a the digital footprint of the potential consumer to determine creditvalue. Lots of digital Credit institutions used some form of the alternative scoring model make credit decisions effectively. This model uses technology to assess various factors such as online shopping, bank balance, utility bill payment history, travel history, and spending habits of the loan seeker. For example, an The merging of e-commerce platforms and digital lenders to provide instant point-of-sale financing helps all participating entities – the seller, the aggregator, the buyer and the financier. This candidacy is made possible by the construction of sophisticated credit underwriting models based on dynamic platform specific data and assession of buyer’s behavior such as buying pattern, average ticket spend size, frequency of orders etc. The advent of digital banking and GST also helped in build a smart credit underwriting models. Interaction between these two sources and verification of information of external organizations leads to a high trust and reliability on the underlying models.

The biggest beneficiaries of the alternative credit scoring method are consumers new to credit. Ffirst-time borrowers are now able to benefit from loans regardless of the lack of rating data on traditional channels. Lenders can also use an alternative credit rating to increase their penetration into previously unexplored geographies such as semi-urban and rural areas while keeping the risk moo. The basis remains the same for other credit scoring methods – the capacity, intention and stability of the client in repaying the loans granted.

Credit subsidysolvency, unique customer experience, acceleration of the credit underwriting process, personalized customer solutions, realdata and user evaluation of time, elimination of human bias are some of the main advantages of the alternative scoring model.

Ecosystem based loan

Another innovative alternative fintech lending solution is ecosystem-based lending. Companies are invariably linked to larger supply chains, whether as suppliers or as customers. Digital lending platforms are now collaborating with large companies to use the internal organizational ecosystem that exists within these supply chains. This not only enables them to more precisely secure the borrowers of the supply chain cycle, but also to provide highly personalized services. and fast financing solutions where they need it. Here is an overview of the functionality. Since the lender is part of the ecosystem, the lender can use a cash escrow as a collection mechanism while also serving as an underwriting tool. This works in tandem with the buyer of the product or service, as the money used for the purchase is credited directly to the escrow managed by the lender. This construction improves exposure with a calculated risk for the lender while facilitating a transparent experience for the buyer. and seller.

Faster credit helps these businesses to grow and be dynamic, as these ecosystem loans can be used during the financial transaction between the parties involved in the supply chain, with the transaction also being the collateral. This form of financing promotes unit-level growth for companies and for supply chains, stimulating economic activity on a larger scale.

Strong support from the Indian government and regulators has boosted the digital journey of the Indian economy. This digital transformation is expected to continue with the adoption of open banking, AI-powered data intelligence, and distributed ledger technology. All this provided digital lenders the ability to serve borrowers with fast and timely credit.

Mudit Agarwal, Head – Credit, Capital float

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