The COVID-19 pandemic of 2020 changed the world as we know it and, along with it, the state of our financial system. Right from an era where we were required to physically visit the bank branch for opening an account to now when an online savings account can be seamlessly opened from our mobile phones, a lot has truly changed.

Along with the added convenience, one additional aspect of global financial systems which has gained a tremendous boost in India is the widespread adoption of digital lending.

While the digital lending industry witnessed tremendous growth globally, it particularly gained a lot of footing in India, begging the question as to what propelled this rapid growth.

Thus in today's blog post, we will take a closer look at the current state of digital lending in India and try to understand the various factors which significantly contributed towards its growth. Thus, without further ado, let's get started.

What Is Digital Lending?

Before we begin to explore the various factors which propelled digital lending’s growth in India, it is first important to understand the essence of this rapidly evolving industry and how it is different from traditional personal loans lending.

At its core, digital lending can be understood as a process or methodology wherein lenders leverage state of the art digital technologies such as artificial intelligence and machine learning to automate and significantly reduce the turnaround time of loan origination. Right from using a suite of APIs to intelligently capture customer information to automatic credit assessments and finally arriving at an underwriting decision, the entire lending value chain is intelligently automated, thus essentially streamlining it.

In contrast to traditional lending methodologies, which rely on legacy infrastructure to complete a majority of the loan origination and processing tasks, a digital lending system leverages advanced processes to better serve the customer.

As a result of adopting digital lending, not only can lenders onboard customers faster and instantly process their loan applications but simultaneously orchestrate guaranteed disbursements within 48 hours, such as in the case of the ZinCash personal loan app.

Why Is Digital Lending Growing?

Now that you have a clear understanding of the digital lending ecosystem and how it is different from traditional lending channels, let us explore the myriad of factors which are continuously contributing towards its growth.

1.      Government Push and Regulations

Since 2014, the Government of India has been steadily spearheading its agenda of a “Digital India”, one of whose pillars is digital lending and payments. In order to do this, the government has not only heavily invested in the latest infrastructure but also constituted new rules, regulations and licences, all of which combined have made it considerably easier for lenders to adopt the digital lending ecosystem and offer their customers a suite of digital financial products and services.

2.      eKYC

One of the pertinent challenges of digital lending, which has the potential to hamper the progress of any lender, is their inability to accurately verify the identity of the end customer. While the introduction of Aadhar Card and interlinked PAN cards reduced the burden of verification by a certain degree, there was still the challenge of accuracy.

In order to address this, the RBI or the Reserve Bank of India introduced the video KYC feature, which allowed financial institutions of all scales to instantly verify the identity of their end customers with a high degree of accuracy. This not only reduced the onboarding time of a customer but also massively reduced the chances of fraud from occurring.

3.      Digital Payments and UPI

While at first glance, this point might not be abundantly evident, however, one of the primary proponents of digital lending's success in India is the widespread adoption of digital payments.

Ever since the formation of the NPCI and the UPI rails, citizens across the country have adopted digital payments at a rapid scale which further gave a tremendous boost to digital lending. The reason behind this was simply because, as customers now had the opportunity to seamlessly spend via digital platforms, they gained a greater sense of trust over digital lending, which was earlier viewed as a scam. While trust gain among customers was slow at first, with time, it amalgamated into a significant force which catapulted the growth of digital lending in India.

4.      Internet Penetration

Last but not the least, over the past couple of years, internet penetration has been steadily expanding across the country, meaning more people now have access to stable internet connectivity as compared to 5 years ago.

This increased internet connectivity has not only contributed to the steady use of digital-first financial instruments but also the adoption of digital lending. The reason behind this simply being, as customers gained access to steady internet connectivity, they can now seamlessly download applications like ZinCash and complete their applications for personal loans.

Not only will this save them time as visiting the lender's office is no longer required, but they will also instantly receive the funds in their account, all of which is possible due to the presence of steady internet connectivity.

In Conclusion

As India traverses its way into 100 years of independence, several innovations like digital lending are quickly becoming favorites among consumers, thus demonstrating the immense potential the country harbors.