Synopsis: In today’s article, we will provide a succinct review of the credit sector and how it is being transformed through the influx of smartphones and tech-based lending platforms, thus benefiting the credit-deprived masses of India.

It is common knowledge that, traditionally, banks have been the go-to lender for all loan requirements. From personal loans to business loans, banks have been providing credit to individuals, businesses, and the government. And yet credit penetration remains a key challenge, especially for MSMEs that are facing a colossal credit gap of Rs. 20-25 lakh crores.

While the government has been making rapid strides in financial inclusion on the payments front, through its Pradhan Mantri Jan Dhan Yojana (PMJDY), this progress has been missing on the credit front.

However, with policies like India Stack and the Account Aggregator, digitization is being ushered into the lives of the common man. Armed with smartphones and cheap data, customers are now increasingly opting for digital lending solutions for their credit needs.

But how are smartphones enabling lenders to penetrate the deeper pockets of the Indian economy? Let’s find out.

Current Credit Scenario

Small businesses continue to be saddled with the challenges of financial deepening. As per IFC’s estimates, the total addressable credit demand of MSMEs approximates Rs. 37 trillion, while the banks and NBFCs have been able to service only Rs. 10.9 trillion from it.

This humongous credit gap exists despite RBI’s prescription of priority sector guidelines, which are designed to give a fillip to credit deepening. Traditional lenders are especially failing to underwrite the credit risk of small ticket-size loans that the MSMEs generally require for their operations.

Additionally, a discernible credit gap exists even in the retail segment. A recent CIBIL report estimates that the retail market continues to be severely underpenetrated, with banks servicing only 33% of the existing credit-eligible retail customers. CIBIL further estimates that only 8% of the 400 million people aged between 18-33 years in rural and semi-urban areas have access to credit – a sizable upcoming credit demand. And this demand is now being increasingly met thanks to the smartphone revolution.

1. The Smartphone Inundation 

As per the latest NFHS-5, over 93% of Indian households own mobile phones, thus making them the most-possessed household item in our homes. This smartphone penetration is fairly uniform, with urban and rural households owning 96.7% and 91.5% share, respectively. 

Today, over 700 million Indians possess a smartphone, a significant rise from 100 million in 2014. And this growth is expected to continue unabated with the easy availability of low-cost smartphones. 

With prices under Rs. 10,000, many households are now in a position to buy a smartphone and thus have internet access. What makes this ownership trend even more interesting is that the new smartphone owners also overlap with the rising consumer class, which is progressively becoming tech-savvy.

2. Cheap Internet Access Worldwide

With the average cost of 1 GB of mobile data approximating only $ 0.17 (Rs. 13.5), India features among the top 5 countries with the cheapest internet access. With smartphones equipped with faster and cheaper internet connections, consumers can now easily access digital financial products through lending apps to avail of small-ticket loans. Financial literacy has also improved on the back of the proliferation of faster and cheaper internet connections. 

3. Financial Literacy 

The successive reduction in per capita internet tariff rates has enabled Indians to stay online and access information about the various loan products offered by digital lenders. The young demographics are an added advantage as it increases the likelihood of consumers adopting digital lending products. 

The Global FinTech Adoption Index 2019 has estimated the FinTech adoption rate of 87% for India. 

4. Financial Inclusion 

With a surge in smartphone ownership among the vulnerable sections of society, including women and SC/ST/OBC entrepreneurs, the government has been able to make inroads in the financial inclusion domain. This is because it becomes more feasible to open access to credit services through mobile-based loan products. 

This is crucial in the case of women who are usually subjected to mobility restrictions. As a result, digital lending has escalated the integration of women and backward classes into the formal economy.

5. Mobile-based Apps

New-to-Credit consumers are rapidly turning to digital avenues for their credit requirements as they are coming online, in part supported by growing smartphone and internet penetration. 

According to Statista, the digital lending market is projected to grow to $350 billion in 2023 from $100 billion in 2019. New-age digital lending platforms have been offering customized solutions to borrowers looking for loans with quick turnaround times.

How are Lenders Leveraging Smartphones to Enhance Credit Uptake? 

FinTech companies have been bridging the digital divide by promoting broad-based customer participation in the credit market. Customers today can apply for personal or business loans from their smartphones, without sharing any contact with a bank employee. 

Such digital lenders utilize advanced technologies, including AI, big data, alternate data, and machine learning, to provide a seamless end-to-end process of availing instant credit.

In addition to serving as a vehicle of access for new-to-credit customers, smartphones also enable lenders to evaluate the risk profiles of the borrowers. Lenders gain behavioral insights into the potential customer’s financial habits after analyzing their mobile data and transaction history.

Such data access ensures that lenders get a holistic picture of the borrower while determining his/her creditworthiness for a loan sanction. Infact, as per a study, by using mobile phone data, lenders can become better at predicting the risk of default on loan repayment. This study found that individuals in the highest risk quintile were 2.8x more likely to default on repayment.

Best of all, by skillfully analyzing their customers’ data through API-driven models, digital lenders can disburse credit within days, if not hours. With offerings like Buy Now Pay Later (BNPL), digital lenders have been rewriting credit history as consumers can now access digital credit at the point of purchase itself.

Additionally, many new-age startups are entering co-branding and co-lending partnerships with banks to offer credit cards, which can be accessed through their apps.

Smartphones – The Gateway to Credit Democratization

The availability of low-cost smartphones and cheap data packages has opened up the gates for banking the unbanked and funding the unfunded. Consumers from the deepest pockets of the country can now enjoy access to loans at their fingertips. Their smartphones are slowly transforming into their first touchpoint to banking.

Apply Today at Protium for All Your Credit Needs

At Protium, you can get loans for your business needs as well as for personal expenses. We provide end-to-end digital disbursement of loans within 3 days without any requirement of credit history. Apply for a business loan online or call us at 8828827800 for more details!