We’ll discuss how Indian public sector banks are planning to join hands with digital lending platforms, and how this will impact the cost sourcing of loans.
Let’s dive in and stay informed!
Public sector banks (PSBs) are planning to set up a digital platform based on a unified cloud to connect with fintech companies for online lending on a revenue sharing basis. It will be governed by a new body called PSB alliance Ltd which is a company setup by all public sector banks, jointly offering important customer-oriented services envisaged by GOI.
Fintech companies will handle loan application processing, including data collection and initial KYC checks, using API and account aggregator. The finished application will be uploaded to the digital platform. Banks will access the application and provide credit based on their own evaluation criteria and share a commission or fee with the originating fintech company.
How OCEN is different from PSBs' joint digital platform?
An open credit enablement network (OCEN) is a standardised frameworks of APIs that allows for the sharing and exchange of credit information between financial institutions and other fintech players in order to make credit decisions more accurate and efficient. It is a form of digital public goods announced at the Global Fintech Festival 2020 by Government of India.
On the other hand, joint digital platforms offered by PSBs is a platforms for disbursement and reporting. The idea is that the fintech firms will onboard large corporate and their suppliers or dealers for supply chain finance (SCF) business. The platform will provide credit-related services such as loan applications assessment, disbursement and commission sharing.
Why is a unified cloud based digital platform required?
The digital platform will allow banks and fintech companies to connect with each other via a single integration reducing development costs. The platform will act as a central knowledge base for both parties and data sharing will become easy. This will lead to reduction in fraud cases as parties will be aware of defaults done by customers or any KYC issue related to customers.
What is there for PSBs and fintech companies?
- State-run banks can leverage the resources of multiple fintech firms, reducing the cost of sourcing loans and investing in expensive platforms or technologies
- PSBs and fintech companies can save cost of integration and provide a uniform customer journey
- Fintech companies can gain easy access to capital and increase revenues
Wait and watch for
- It is yet to be seen how PSB Alliance Ltd's initiative will materialize in India's highly regulated digital lending landscape
- A significant concern is the security and sharing of data between regulated and unregulated entities
- The revenue sharing model for stakeholders such as PSBs, fintech platforms, payment gateways, and payment aggregators