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View from India: Account aggregation to be game changer

The pandemic has given e-commerce a shove, given the growing need for both big and small-ticket digital credit facilities. The core business of e-commerce companies is being supported by banks and fintech institutions and tech investments are high in this segment.

Consumers are being wooed with experimental lending options and innovative online credit choices. Finance lending platforms are integrating API (Application Programming Interface) strategy resources into their system. The consumer base is expanding to include a diverse mix.

Traditionally, banks handled the lending procedures on their own. “An increase in capital flow around 2017 raised fresh issues in the fintech and co-lending procedures that needed to be addressed. About 95 per cent of our customers are SMEs (small and medium enterprises),” said Prasanna Lohar, head innovation and architecture, DCB Bank. It made sense to automate manual processes involved in the recovery of loans. This also helped scale down operational costs and enhance customer experience.

As an upcoming industry trend, the lending facility from fintech companies-banks will be made available as a service. As banks and fintech companies will collaborate with retail outlets, new lending-payment models will emerge. They will create specific products for the market, as the customer base grows. “Over the last two years, we have diversified our portfolio. 'Buy Now, Pay Later' (BNPL), our model, has become popular in times of the pandemic as consumers are opting for short-term credit. In fintech, the recovery and collection process is being automated to increase efficiency,” highlighted Gaurav Hinduja, co-founder, MD, Capital Float. BNPL has gained tremendous traction with its flexible credit options.  

Digitisation in the fintech industry has helped lower human intervention. “Thousands of loans are sanctioned almost without manual procedures. This is being facilitated by several measures including video KYCs (know your customer). Technology is being increasingly leveraged to connect MSMEs (micro, small and medium enterprises) with the government-initiated schemes,” explained Abhishek Kothari, co-founder FlexiLoans Technologies Pvt Ltd.

Small Industries Development Bank of India (SIDBI) - the principal financial institution engaged in the promotion, financing and development of MSMEs - runs an incubation centre for fintech in the Indian Institute of Management (IIM) Lucknow. Titled SIDBI Centre for Innovations in Financial Inclusion (SCIFI) the centre mentors startups specialising in fintech.

“During Covid, we extended our strategies to bring last-mile consumers into the gamut of payment channels. We have launched a scheme for street vendors,” added Dr RK Singh, general manager, SIDBI. SIDBI has signed a memorandum of understanding (MoU) with the Ministry of Housing & Urban Affairs for a special micro-credit facility for street vendors. SIDBI is the implementation agency for the PM Street Vendor’s AtmaNirbhar Nidhi or PMSVANidhi. It will develop and maintain a customised and integrated IT Platform providing end-to-end solutions including documentation of all the processes and workflows for an end-to-end solution, through a portal and a mobile app, to ensure engagement and information flow between urban local bodies (ULBs); lending institutions; digital payment aggregators, and other stakeholders.

Various developments are slated to disrupt the fintech sector, the most obvious being account aggregation. This is expected to be a game changer in the coming years. It will offer an onboard experience, along with operational speed. Models will be created to hasten the repayment process handled by fintech companies.

Simply put, account aggregation brings together information from multiple accounts into one place. That would include loan or credit accounts; savings and current accounts; credit cards and investment accounts; government accounts, and income tax returns data. An open API facilitates the process.

“The success of account aggregation lies in the manner in which data is shared and standardised. The data will enable companies to reach out to customers at the right time. We look forward to a time when banks and fintech companies will team up with autonomous such as machines and IoT solutions to cut down manual operations,” reasoned Lohar. Account aggregation will be the way forward. Banks are integral to it. This will transform lending models.

Apart from banks and fintech companies, private lending channels would be another upcoming trend to watch out for. Through this thousands of solutions can be customised for customers, based on the data coming from e-commerce or retail companies. “Many smaller companies can be created from the data. This data source will push the boundaries of creative thinking. The data can be used to offer lending models with shopping brands to give customers flexible purchase-loan options,” highlighted Kothari.

Manish Chaudhari, chief strategy officer of Poonawalla Finance describes the coronavirus pandemic as an opportunity that urged the company to pursue the vision of digital first. “As we conceptualised an end-to-end digital solution it became a learning experience. Flexibility is its key takeaway. It’s been a challenge to digitally underwrite customer requirements and take it forward. With Covid, we imbibed digital into our DNA and have set up our processes accordingly,” said Chaudhari.

The level of digitisation is happening faster than before. This has resulted in a standardised input, besides bringing digital underwriting capabilities. Then comes the data and the manner in which it is used becomes the differentiator. This sheds clarity on customer expectations. The pattern of algorithms emerging from the data bring a value add to the ecosystem. In turn, it gives a seamless customer experience and creates a free flowing market. Tech providers have stepped into the retail lending scenario to offer digitised and paperless measures.  

“Covid-19 has accelerated the need to update technology systems in the financial sector. The fintech space has leveraged tech tools to bridge the gap between consumers and financial institutions,” observed Shashank Sharma, head strategic alliances, Scoreme Solutions Pvt. Ltd, In a nutshell, fintech companies have begun to innovate rapidly.

These insights were part of 'Next-Gen Banking & Fintech Experience in the New Normal', a webinar organised by Scoreme Solutions Pvt. Ltd.

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