How Digital Lending Is Transforming the Future of the Loan Industry
5 min read | 3 months ago
Digital lending is revolutionising the future of the loan industry. In today's world, you can avail of a loan at home with just a click on your mobile or computer. This is all because digital lending is transforming the loan industry in India and across the world. As per a survey by the Fintech Association for Consumer Empowerment, digital lenders' disbursement increased 2.5 times to Rs 92,848 crore in FY 2023. The data clearly indicates that digital lending is an emerging trend and is going to benefit millions of individual consumers and businesses in India.
So, what does digital lending offer to you? Let's take a look.
What Does Digitalisation Have to Offer?
Digital loans are quick and easy to apply for. You can apply for the loan online in just a few minutes without having to visit the bank or a lender's office. This will save you time and effort. You can complete the loan confirmation process without even leaving your own house.
These loans also ensure easier access to loans. You are no longer restrained by working hours to get the loan you want. You can apply for the loan at any time, online, even at weekends or holidays.
It is worth mentioning that digital lending can also be more inclusive than traditional lending. Digital lending has the potential to promote financial inclusion by serving those who are financially backwards or excluded. This aspect is particularly significant in India, where a lot of people are still deprived of formal financial services.
Digital loans in the context of business banking mean accessing finance with no requirement for collateral or long credit history. For this type of lending, creditworthiness is evaluated using alternative data sources: this means that even a small company or just a startup can be eligible for the loan. At the same time, quick disbursements allow businesses to utilise such loans in cases of different opportunities which need financing as soon as possible or when a financial crisis appears.
But now the question is whether digital loans can cater to all your needs. Well, let's find out.
Type of Digital Loans Available in the Market
If you search for digital loans available in the market, you will find countless options from banks, popular NBFCs and LendTech platforms. However, if we roughly categorise them, there are two categories of loans offered by the market. What are these? These are digital personal loans and digital business loans.
Digital Personal Loan
Digital personal loans are unsecured loans that you can apply for online. You don't have to provide any collateral or security to apply for this type of loan. The loan amount can range from a few thousand rupees to lakhs, depending on your eligibility. And what's the best part? Many leading banks may even offer up to Rs. 10 Lakh through digital loans. So, you can use these digital personal loans for high-expense purposes, such as home renovation, medical expenses, education, or debt consolidation.
Digital Business Loan
A Digital Business Loan is a type of short-term loan that can be used to finance working capital, pay for inventory expenses, or buy new equipment. You can apply for it online by sharing your business and financial information. One of the benefits of digital business loans is that they are, in general, fast to disburse and come with flexible repayment structures and competitive rates, which can be beneficial for any business looking to expand their operation. With digital loans from banks like Unity Small Finance Bank, you can avail of a loan of up to Rs. 30 Lakh for a flexible tenure of 36 months.
The digital lending sector is growing immensely, and you can feel its impact on the loan industry if you are observant enough. But if you haven't, we'll make it easier for you to understand it.
The Current Impact on the Loan Industry
Digital lending has greatly supplemented the traditional loan industry, making it more inclusive, accessible, and efficient. Digital lending has helped to bridge the gap between borrowers and lenders by offering quick and hassle-free access to finance. Moreover, digital lending has reduced the cost of borrowing by eliminating the need for physical infrastructure, paperwork, and human resources. And the impact does not stop here. Banks and traditional lenders are now facing stiff competition from digital lenders, who can offer loans at lower interest rates and with faster processing times. Therefore, more and more banks and lenders are joining the digital lending race to get ahead of the competition.
So, now the question is, what is propelling the growth of digital lending? We'll discuss them with you.
What are the Factors Boosting Digital Lending
There are 5 primary factors which are boosting digital lending in India.
Financial Inclusion
Financial inclusion is a topic continuously discussed by both the Indian government and the RBI. According to the data of CEIC, credit growth in India is considerably lower than that of other countries. Therefore, both RBI and the government have stressed that adopting financially inclusive steps is crucial to boost credit-led opportunities in India. Thanks to this, many new aspects have become a part of our daily lives, including UPI and digital loans.
Adoption of Advanced Technology by Lenders
Another factor boosting digital lending is the adoption of advanced technology by lenders. Digital lenders use advanced algorithms and machine learning to assess creditworthiness and make lending decisions. This allows them to process loan applications faster and more accurately than traditional lenders. Plus, with the adoption of e-KYC, the process of loan verification has become even more seamless.
Cost Optimisation
Cost optimisation is a crucial factor in any business, including banks and the lending industry. Optimising costs and reducing costs on physical infrastructure, paperwork, and workforce can allow businesses to allocate funds for business improvements. In the lending industry, this has enabled businesses to offer digital loans at a much lower interest rate and processing fees. Plus, this directly benefits the lender by boosting their customer market share.
Need for Better Customer Experience
The need for better customer experience is also driving the growth of digital lending. Digital lenders offer a seamless and convenient loan application process, which is more customer-friendly than traditional lending practices. This has helped digital lenders to gain a competitive advantage over traditional lenders.
Covid-19 Pandemic
The COVID-19 pandemic has acted as a catalyst for the growth of digital lending. In 2020-2021, we saw the pandemic bring the traditional lending industry to a standstill, making it difficult for borrowers to access finance in times of crisis. During this time, digital lending emerged as a viable alternative, offering quick and hassle-free access to finance. This trend continued, and we saw digital becoming the new normal in our lives.
Conclusion
Digital lending is completely transforming the loan industry in India. It offers several benefits to individual consumers and businesses, including convenience, accessibility, and affordability. The growth of digital lending is being driven by several factors, like the increased need for financial inclusion and better customer experience. Whether you need a personal loan or a business loan, digital lending is a convenient and accessible option that many are turning to. As per data, the digital lending market is expected to grow by $1.3 trillion by 2030 in India. So, if you ask us, the digital lending market is definitely set to dominate the market in the near future.
FAQs
1.What is a digital lending?
Digital lending is a process of obtaining a loan through online platforms using digital technologies.
2. How is digital lending different from traditional lending?
Digital lending offers faster loan processing, lower interest rates, and a convenient application process compared to traditional lending.
3. Are digital loans safe and secure?
Yes, digital loans are safe and secure, as the loan application process involves stringent verification checks and the use of encryption technology to protect sensitive information.
About Unity Small Finance Bank
Unity Small Finance Bank is committed to making banking simpler and more accessible for everyone. Our services include Savings Account, NRI account, Current Account, Fixed Deposits, and Personal Loans offering flexible tenures and attractive interest rates. We also offer financing options like MSME Loans and Microfinance to support businesses and underserved communities. Learn more about Unity Small Finance Bank here.
