First off, wish you all a very Warm and Happy New Year!!

While 2019 brings with it hope and promises of a bright and dynamic future, 2018 saw the Indian Banking and Financial Services industry experience it’s fair share of highs and lows. While there have been significant regulatory challenges in relation to Aadhaar-enabled onboarding and modification of eKYC procedures raising the cost and acquisition for banks and FIs, the rise of digital payments and the ever expanding volume of digital transactions bodes well for the future of digital banking in the country.

2018 is also the year when digital lending exploded on to the scene, especially MSME advances – accounting for nearly 17% Y-o-Y growth and as data shows, there is still a huge market and opportunity left untapped.  According to a recent BCG study, digital lending to MSMEs is projected to increase between 10 and 15 times by 2023, to between 6 and 7 Lakh Crore (80-100 billion $) in annual disbursements. Almost 60% of MSMEs currently borrow through informal sectors, and it is expected that rapid digitization will allow and access to easier and cheaper credit facilitated by digital platforms could help formalize up to 85% of MSMEs.

As we move towards the New Year, we take a look at the significant opportunities that lay ahead and how technology will be the driving enabler for customer acquisition and market growth.

Data – the driving force behind Digital Lending

Lending to SMEs is expected to grow at 23% CAGR until 2023, and data driven decisioning will be the driving force behind this growth. The opening up of alternative data sources and the ease of access to APIs have made credit assessment robust and easier for lenders and customers. Initiatives like GST(N) and Bharat Bill Pay System (BBPS) can be utilized to harness the digital footprint of the prospective customers as well as set up a formal assessment system in place.

The increase in internet penetration, the dramatic reduction in data cost, increasing mobile data consumption and demonetization have all contributed in one way or the other towards the digitization of SMEs.

The last few years have seen a huge number of new digital data sources which will have a significant impact on how customers are onboarded and credit applications are evaluated for financial and regulatory risk.

There are over 70 data sources available for underwriting which altogether represent over 6,000 data points for analysis and evaluation. Coupled with robust business/underwriting rules informed upon by historical experience, we foresee a strong and robust growth in this sector in the year ahead.

Top Trends in Digital Lending in 2019

We can broadly classify the Lending journey under 4 main headers –

  1. Sourcing
  2. Pre-sanction/Pre-Approval
  3. Underwriting/Risk Evaluation
  4. Collections/Repayments/Account Services


Each of these have their own digital building blocks to enable these functions. While Data remains the backbone on which the entire platform/solution is run, the way it is captured/used will see significant variation across products/services. Here are the top 3 trends that we foresee in Digital Lending:

  • Rise of Alternate Data –

So far, most of the data banks that are currently available look at structured/formal sources of data such as GST filings, Bank Statements, National ID card, CIN etc. However, since a huge chunk of the MSME segment still hasn’t matured in the digital/formal banking space, the rise of alternate/surrogate data models such as SMS, geo location, call logs etc will play an important part in filling the data gap that is otherwise not fulfilled by the formal data banks. We already foresee a combination of alternate data sources coupled with standard data banks as a huge value-add for FIs wishing to service this area but not able to do so due to the lack of structured data available in this segment.

  • Evolving beyond Bureau Scoring

Currently, the lending landscape in India relies on private firms/credit bureaus specializing in credit scoring and risk modeling who provide entity and individual credit scoring based on different financial parameters as an important indicator of credit worthiness and risk profile. One of the reasons they are widely regarded as salient data points and as standards of reference is due to the large volume of data they can tap into to create complex financial/mathematical models to compute credit scores.

However, such dataset might not always be strictly relevant to certain banks and FIs due to them servicing an alternate demography or having their own set of parameters for evaluation which might not mesh with the existing methodology used by bureaus to compute such scores.

Hence, we foresee banks and FIs building their own credit models, which can either exist independently or add a layer on top of existing bureau scores. This can be done by:
Accessing their own volume of customer data
Utilizing their own learning/experiences to build models that approximate/emulate their own business rules/decision criteria

  • Creation of India Stack for Lending

The current technology stack in the market consists of numerous API service providers, aggregators and digital process enablers providing a wealth of opportunities to build innovative services and products. However, for prospective FIs evaluating lending solutions on the market, this might be a problem of plenty. While there are numerous API providers in the market, we are yet to see standardization across formats or benchmarking of performance parameters etc. We foresee a strong case for the democratization and strengthening of the existing stack and creation of an India Stack for Lending that would bring about such standardization. We can already see the first signs of this happening with the soon-to-be-launched RBI Public Credit Registry, which will open up the central bank data for all to access and use.

How can we help?

It’s not enough to foresee the trends but also to be ready to seize the opportunity. We, at Decimal Technologies, have been working hard to make our vision of #digitisingBFSI a reality. In this regard, we have built an end-to-end Digital Lending Platform to be future-ready, with integrations for alternate/surrogate API providers to capture and analyze alternate data. Our fully configurable and GUI-enabled Credit Scoring Engine allows you to not only configure your own business rules but build your own credit scoring model as you see fit. Lastly, we are working with a wide range of API partners to bring about standardization of API frameworks and building connectors that can integrate readily with services so that you don’t have to worry about the nitty gritties of the underlying stack and rather focus your energies on credit, risk, disbursements and collections. Drop us a note to know how we can help power your Digital Strategy in the year ahead. ☺

The Wall Street Journal

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