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Over the past decade, data and technology have been the driving force behind the lending and payments industry around the world. The Indian market has shown remarkable acceptance of this technology, being touted as the pioneer of technology-based lending and transparent payments with the strong UPI backbone. It is now a challenge to maintain this momentum by continually improving the overall end user experience. According to a report, India will contribute 2.2% of the global digital payments market by 2023 and the global value of these transactions is expected to reach $ 12.4 trillion by 2025. According to another study by the Bank of international regulations, the use of fintech is much higher in countries with younger populations, such as India, South Africa and Colombia. However, this industry is still far from reaching its potential and faces some challenges. There is a need to regulate and monitor fair lending practices on an ongoing basis. By establishing a robust digital lending structure, India will witness the growth of many small businesses through hassle-free credit and hence see a boost in building a $ 5,000 billion economy.
Here are some global trends the subcontinent can adopt to strengthen its digital lending and payments infrastructure:
Transparent point-of-sale financing
As customers increasingly embrace the culture of online shopping, point-of-sale (POS) financing is the way to go. It is a type of credit specially designed for consumers, allowing them to apply for a loan or credit for a particular purchase. These loans either finance the entire purchase or set an amount as the limit up to which the buyer can make purchases from a specific seller. These credits can be repaid by borrowers in the form of installments.
International companies such as Affirm and Klarna are revolutionizing the space with easy financing options that are trackable and offer hassle-free customizations. Affirm, a US point-of-sale loan provider, offers large loans and facilitates payments for up to 12 months with a fee rescheduling option. This revolutionary service allows customers to access a dashboard where if they are sure they are going to be late with their payment, they can log into their dashboard and reschedule the payment date at no additional cost or late penalty. If disrupting your credit score isn’t an option, then Klarna, the creative solution from a Swedish point-of-sale company, is a great alternative. With the introduction of a virtual credit card which they call ‘Ghost Card’, customers can simply enter their card details at the time of payment, which are linked to a Klarna account, giving them the ability to complete purchases in four easy installments, with the first payment due at the point of sale.
Adoption of neobanks
It is a bank without a physical presence, existing and operating only through online interfaces. It includes all financial service providers who use digital media to provide financial solutions and services such as money transfer, loans, payments and many more. As traditional banks operate on the basis of a strict structure, they fail to provide personalized services to consumers from different segments. However, neobanks are very flexible and customer-centric.
They leverage the scalable capabilities offered by machine learning and big data solutions to streamline decision making. The main reasons for its growing popularity are fast account creation, hassle-free international transactions, investments in international stock markets, user-friendly interface, instant reports and record keeping, among others.
For example, let’s look at Revolut, a UK-based neobank that offers banking services including GBP and EUR bank accounts, debit cards, no-fee currency exchange, stock trading, crypto exchange. – currency and peer-to-peer payments. Its mobile app supports ATM withdrawals in 120 currencies and spending in 29 currencies directly from the app.
Using cryptocurrency to boost SME financing
The crypto industry is growing at a rate of 100% and, as recent reports indicate, the market is worth $ 2,000 billion. By leveraging this sector, India can bridge the gap between bank lending and SME finance. To improve access to low-cost, risk-controlled global capital, crypto entries through KYC-certified investors – which have been approved by Indian or global stock exchanges – may be permitted on a controlled basis. In addition, GIFT city, a controlled conduit, is one of India’s favorite bridges to international markets and can be used to further the cause. For example, GST registered businesses can obtain funds against their issued electronic invoices and other information guarantees available in special accounts opened on this platform.
P2P loans allow the acquisition of loans between a pool of slightly risk averse individuals / institutions and small businesses through a transparent market. The UK and US have been pioneers in this field since 2005. In fact, UK industry turnover is expected to grow at a compound annual rate of 26.6% to reach 305.1 million of pounds sterling over five years to 2020-2021. On the other hand, there are very few P2P lenders operating in the Indian market due to the restrictions put in place by the central government to avoid creating a risk to the economy, borrower profile, approach bullish investors towards the segment, etc. the need for capital inflow into SMEs, India should focus on P2P lending to businesses through regulated intermediaries.
Integrate blockchain and smart contracts
For the online transaction ecosystem, blockchain has been hailed as a technology that will revolutionize the space. Maximize efficiency with exceptional features that include transparency, traceability and improved accessibility. The blockchain will be able to provide a high level of security when it comes to exchanging money and sensitive information, allowing users to take advantage of its transparency while reducing operational costs and creating an environment for online transfers. real time secure. India is the largest market for remittances, with over $ 62 billion sent to India from overseas in 2016. Yet according to the Foreign Exchange Management Act 1999 (FEMA), only one person / entity authorized under the legislation may carry out foreign exchange transactions. However, with the incorporation of blockchain and smart contracts, the use case of international remittances for blockchain technology will prove to be a promising proposition for the Indian market. India is the largest market for remittances, with over $ 62 billion sent to India from overseas in 2016. Blockchain currencies such as XRP, Ethereum, Bitcoin, etc. can transform the cross-border payments industry in India and deliver real benefits to customers, banks and regulators. However, all of this will be subject to adequate trust, credibility and regulatory acceptance. More importantly, these transactions will also need to meet AML and KYC standards, to ensure genuine transactions.