PremiumAs technology continues to revolutionize the banking and finance sector, several new and exciting developments have emerged in lending technology in recent years, especially since the incorporation of the introduction of digitization and science data in the fintech segment. With the rise of online portals and mobile lending platforms, which use sophisticated algorithms and data analysis to determine a borrower's needs and provide a more tailored and efficient service, the industry has made great strides forward.
Lease Rental Discounting is a method that allows individuals to get loans from financial institutions by pledging their rental payments as collateral. The bank will look at the business's long-term cash flow and determine the exact amount of the loan based on that information.
After that, the rent that was pledged will be used to repay this loan. This is an attractive option for businesses that need equipment but don't have the capital to make a large upfront payment. With the boom in the startup ecosystem and SAAS-based product offerings, Lease Rental Discount (LRD) is gaining prominence in recent times.
India being a very young country, millions of millennials are coming to the workforce every year. Recent advances in lending technology have opened up a world of possibilities for this segment. While most of the finanical institution do not entertain the first time borrower, a number of financing options have been introduced by Lending Tech companies that are tailored to the needs of younger borrowers, such as smaller loans with more flexible repayment terms.
These loans are designed to help millennials build their credit history and improve their credit score, even if they have limited or no credit history. By making timely payments, millennials can boost their credit score and gain access to better loan terms in the future. This is an invaluable opportunity for young adults to establish a strong financial foundation and gain access to the lending market.
Embedded credit is another trend in lending tech that has gained traction in recent years. This type of credit is basically when digital platforms add lending as a feature on their online portals. The reason this trend is gaining traction is because it avoids the hassle of the customers being redirected to a third-party page.
Additionally, because the interface of the website remains the same, it gives the customers a boost of confidence as they can access lending at the time of credit demand from the same portal that they trust. These Fintech companies use their super-efficient digital platform to provide contextual products like credit, savings, investments, insurance etc. throughout the journey of the customer.
With technology taking a major focus in the financial sector and helping it grow, one of the most important lending technology gaining traction in recent years has been data-driven customized Fit-to-Purpose loans. Because of the large digital footprint, Financial institutions have a large amount of structured, semi-structured and unstructured data accumulated.
With the help of AI & Deep Learning models, they are able to process these unorganized data to understand the behaviour of the customer, their spending patterns and their credit score potential. By leveraging advanced technologies such as artificial intelligence and machine learning, financial institutions can analyze the financial history and needs of the borrower to accurately assess their creditworthiness and identify the most suitable and contextual products for their needs.
It also allows the lending company to better understand the business’s loan recovery period and predict the risk relating to it well in advance. Customized loan services strive to create a more tailored and efficient borrowing experience for consumers.
Co-lending is increasingly becoming a trend as well. This lending model included banks and NBFCs coming together to provide credit access to the stakeholders. In India, NBFCs have the farthest reach to the most remote areas of the country and through co-lending, Banks get access to the reach of these NBFCs. This will increase the customer base and help provide financial inclusion to the marginalized sector of society.
Additionally, they have a secure and seamless online portal and understand the process of leveraging the increasing digital penetration in the nation. On the other hand, banks have a larger pool of funds for lending. With banks on board, the interest rates being offered would also be relatively low. This synergy between banks and NBFCs for credit lending would be extremely beneficial for the customers as it would allow them the best of both, banks and NBFCs.
The lending industry is undergoing a revolution, with a plethora of innovative trends transforming the way lenders and borrowers interact. From Lease Rental Discounts to AI-driven lending, the options available to both parties have grown exponentially. This indicates that the future of lending is looking bright and promising. The integration of technology and digitization within the financial sector has helped drive growth for this sector while ensuring smooth processes. In the coming years, AI-driven lending will take deeper roots where data segregation, analysis, organization and credit checks will all be conducted through AI systems, providing faster and more efficient services.
Author: Pravash Dash, Managing Director & CEO, Arthan Finance