Digitization of currency: To begin with – while demonetization happened last year, the second order impact on the consumer economy manifested itself in 2017. Use of digital currency became more widespread and consumer lending business, use of cash saw widespread decrease. In our own company, where we never used cash collection, even the request for cash payment reduced from over 30% to less than 5%. With user friendly UPI payments becoming more mainstream with apps such as Bhim and Tez, the flight to digital economy for small ticket transactions has well and truly arrived.
Jio and explosion of 4G and digital footprint and smartphone revolution: As a company that relies on mobility solutions, high bandwidth and digital footprint as a core part of business model, the proliferation of high quality budget smartphones by Chinese manufacturers such as Xiaomi and the enabling network infrastructure by Jio (and Jio induced for others) have created a quantum leap in addressable market for companies such as hours. Suddenly – our ability to serve tier-4 and tier-5 centers is not only possible but also profitable.
Convergence of payments and lending: Multiple partnerships between payments and lending companies have exemplified what can be collaborative model going forward where payment companies rich in transaction data can monetize the same for lending and improve their business economics. For many lending institutions, such a partnership helps lower acquisition costs and improve risk scoring algorithms. The trend will further strengthen in 2018 where companies with transaction data will work closely with lending startups to enable loans through alternate lending models (e-commerce companies, payment companies, travel companies etc). On its part, lending startups are incorporating payment features into their model with products such as pay later products.
“New to credit” lending becoming more mainstream: Thanks to the proliferation of consumer lending fintech startups, the new to credit segment is becoming more mainstream. What was once a niche segment is now becoming a more profitable segment thanks to use of alternate lending techniques that leverages data from digital footprint to social footprint to web footprint to make decisioning. The growth in terms of volumes and in terms of credit quality is forcing larger lenders to cater to this segment through partnerships. Such partnerships on the back of risk-reward sharing is reducing cost of capital for startups while giving mainstream lenders to target the excluded segment in a big way.
Initiation of credit-led financial inclusion to rural segment with government support: Multiple governments in India are working towards credit inclusion in India by building on alternate lending methodology leveraging data sets they possess. Andhra government have taken the initiative in the state whereby government is making / has already made a serious push towards data digitization (farm produce, land holding, past production data, weather etc) and using the same to enable loans to rural / farming community across two districts in the state (to be launched soon).
Further strengthening of policy and regulatory support: Government and policy holder continue to develop policies aiding in financial inclusion including revised eKYC policy, cKYC registry, eNACH implementation across banks, seeding of aadhaar and mainstreaming of India-stack, rationalization of pricing for digital payments – all of which have aided in reducing cost of service to benefit one and all.
A lot of things such as India Stack, 4G reach and adoption, quality budget smart phones and Digital India came together in 2017. 2018 will be the year when Consumer Credit will see a healthy explosion with alternate lending becoming more mature and mainstream.