India’s 950 million mobile population comprises 840 million debit card users – information that lenders can analyze before extending credit.
BFSI companies always seek to lend responsibly and fairly, while at the same time protecting themselves and their customers from risk. To do this, they often sift through vast amounts of data to analyze a customer’s credit history, which includes individuals and companies, before making calculative decisions about lending and the lending terms.
However, it is not often easy for them to check whether a loan that a customer has applied for is suitable for them and whether they can afford to repay it. They need to understand the credit footprint of the customers applying for credit before providing an unbiased assessment – a task that can be very challenging given the changing dynamics of the contemporary world.
At a recent industry event, Archana Jaganathan, Director for Decision Analytics at Experian India spoke about the ‘Changing Face of Consumer Lending’. While sharing her insights about the trends prevailing in this domain, she said that there existed a wealth of information that lenders could leverage, if they knew where to look.
Here are her viewpoints based on data gleaned from Experian India’s internal resources. Around 45% of the adult portion of India’s 1.3 billion population is part of Experian’s credit bureau.
Currently, the customer journey is moving towards digital platforms with most seeking instant gratification. As a result of this, several innovative fiscal products have entered the market.
India has witnessed a huge penetration of mobile devices with almost 950 million mobile users currently. This provides availability of their digital footprint since majority of them use mobile data for connectivity.
Additionally, India also has a vast unpenetrated market, which is new to credit products. Experian refers to this as the next 300 million opportunity in the Indian fiscal pyramid. These cash earning population can be broadly be classified as the rural and urban poor, who rarely have any verifiable or reliable income sources. Lacking access to formal credit, they often end up taking loans from the local money lenders at higher interest rates.
The other segment is the highly fragmented urban self-employed category. Almost 70% of these comprise people who might not have the right income documents or understate their actual income. Since both these sectors are not part of the formal banking or credit systems, they pay high interest rates on loans.
When one comes to the urban salaried class, it includes the 17 million odd professionals entering the workforce annually. Since they do not necessarily have a credit footprint, lenders are wary about lending to them due to lack of information.
India’s burgeoning mobile population serves as a beacon in this scenario.
It has a mobile user network of 950 million and growing and another growing debit card user base of 40 million. And there is the vibrant social media user, which is at 270 million. All of these present a wealth of information to lenders.
The only element holding back digital and financial literacy is the ability of low-income individuals to understand the benefits of mobile-based banking and how it can benefit them. Post demonetization, various financial institutions have undertaken various interventions to drive India towards a cashless economy. How successful this has been will be evident only in the next couple of years the success of cashless transactions. Till then, BFSI companies can continue with their financial literacy training camps, emphasizing on their security and data privacy protocols.