With new mergers and licenses being proposed consistently, buyers will undoubtedly have more alternatives. It is reasonable to say that consumer lending and finserve industry has been significantly affected adversely in the last quarter. However, the cheerful green shoots of recuperation are found in each industry, as they adjust to the new normal.
Increasing deregulation and pressure from apparently higher rates of NPAs post moratorium, alongside a requirement for a low-contact client commitment is disturbing the consumer loan market. Changes that artificial Intelligence and blockchain were to get long term, may now occur in a year or two. With the first quarter of 2021 gone and not a lot changing, here’s what we can expect in the rest of the year.
Changing Face of The Customer
As immigrants, even those working in software/tech companies moved back to their hometowns, the disruption led to behaviour changes as they begun working remotely. Amazon and Flipkart saw their Great Indian Shopping festivals being dominated by tier 2 and tier 3 cities. As younger (and older) consumers in developing areas become tech savvy, the need for access to consumer loans goes up. Even in urban centres, the demand for (short-term) digital loan is ascending as e-commerce across categories, increases.
Smaller Amounts & Lower Loan Tenures
There have been 2 key impacts on the consumer since the pandemic began. Firstly, the need for consumer electronics like laptops, washing machines and dishwashers has fuelled the e-commerce industry. This is because what was once being taken care of in a cubicle, or externally, had to now be taken care of at home.
A significant percentage of population has lost stable incomes. Both these factors will lead to an increase in small sized(less than 50k) consumer loans. This would also lead to shorter settlement periods of 3-6 months. While a market share would go to credit card customers and pre-approved customers who deal in large value transactions, it would create an opportunity for new, innovative lenders who can leverage AI-enabled underwriting models in real-time.
Smaller Players Leading The Way
The digital lenders would have to refocus and rethink their marketing plans to be in tandem with the demographical shift. Smaller fintechs have been knocking on the doors of larger financial institutions. They are creative, agile, risk taking, and hungry for growth. The primary distinction a fintech gets is “tech” gets to disrupt “fin”. Unfortunately, the first phases of fintech players were not as much fin-tech as they were tech-fin. Their financial range and expertise could often be questioned. The current phase will lead to fin techs building innovative financial products.
We are seeing new players reimagining credit in significant ways; shifting focus from credit segments to digitized onboarding, loan underwriting processes, and some inspirational financial products.
There are several regulatory twists in action right now. Healthcare loans, education loans, short-term checkout financing for new to credit, use of Computer Vision and AI in secured lending, refinancing, early warning signals and portfolio risk management – these are some of the many segments that will soon see a transformation. The AI, ML advances and data-driven practices would also mean a newer (and alternative) credit risk paradigm, and a more inclusive market.
Credit is one of the oldest industries in the world. Yet, in December 2021, we will have a very different product, competition and capability landscape leading the credit industry.