The Digital Payments landscape in India has been revolutionized by the regulators and the banks’ proactive initiatives, e.g., IndiaStack and UPI. It is quite surprising that India has emerged as one of the most exciting markets for digital payments across the world. Last year, home-grown payment networks (RuPay and UPI) took a lion’s share of the total digital transactions, ~65%, showcasing how for once the Government efforts have been in the right direction for achieving targets.
Popular Payment methods are e-wallets, UPI, biometric payments, BharatQR code, and sound-wave-based payment technologies. One of the primary reasons can be attributed to the forward-thinking of central & state governments and Reserve Bank of India for successfully bringing a digital payment revolution in India. Buoyed by the success of Virtual Payment Address – UPI (it’s like your e-mail id), Google wrote to the US Federal Reserve, about UPI model adopted in India and recommended creating similar open-payment architecture in the US.
As India shifts from Cash oriented society to Cashless, the biggest hurdle so far has been adoption of digital payments infrastructure on the merchant side. With new initiatives like UPI 2.0, MDR cuts by the RBI, and Near Field Technology schemes have been silently but swiftly changing the merchant payments landscape in India.
Digital Lending FinTechs largely caters to the unmet demand from Indian MSMEs as well as consumers for credit. Many banks in India have so far focused on entities / individuals with good credit history. In age old traditional ways banks approved only ~25 to 40% of the loan applications. However, with access to more data for credit scoring such as transaction, behavior, app-based data, location information, social data, and more, these new lending models aim to increase the approvals to 50%. Unbelievably, India now has over 338 lending startups. The acquisition of Mumbai-based consumer lending platform PaySense by digital payments provide PayU at a valuation of $185 million, further brought the spotlight to the potential of digital lending in India.
New business models of digital lending have emerged, such as DMI Finance offering FinTech startups API access to sandboxes, thus helping them develop bespoke financial products and Apollo Finvest positioning themselves as PaaS (Platform as a Service) by enabling partners to offer digital loan products to their end-customers through APIs. The use of identity, authentication, credit score, job eligibility, and social data to generate ratings for various use cases is likely to draw more attention in the near term.
Account Aggregator Automation In a well-implemented account aggregation scenario, an individual borrower should be able to provide consent to a lender through an account aggregator to access various categories of financial data held at multiple custodians (banks, wallet providers, Aadhaar / UIDAI database, DigiLocker, mobile data). Lets examine how the borrower requests the lender for a credit line works. To assess this viability of borrower, the lender requests borrower’s data held at various other custodians (Credit Bureaus, FIs, mobile carriers, wallet providers) to be passed on to them via a data access fiduciary (account aggregators in the case of financial services). With the borrower’s consent, the fiduciary requests and fetches data from one or more custodians and passes on the acquired and aggregated data to the lender. The lender may then combine this data with various other data sources such as public data, economic data, and other such sources to apply state-of-the-art credit decision models and forecast the likelihood of default with much better accuracy and confidence.
The IndiaStack initiative and growing API-based data availability have fundamentally transformed every step of the credit value chain. Near end-to-end digital lending has become a reality, with loan approval turnaround times as short as one day. No doubt there are about 338 companies operating in this space alone and large number of applications from Chinese FinTechs are pending for approval with the RBI.