In India, fintech platforms such as Paytm, PhonePe, MobiKwik, etc., have become the go-to choices for digital payments, with millions of users relying on them daily. These platforms have also started offering other financial services, such as loans, insurance and investment options, making them a one-stop shop for all financial needs.
How do fintech platforms provide lending services?
Fintech platforms have two options to offer financial services: obtaining licenses from regulatory bodies like RBI and SEBI or partnering with regulated financial entities such as banks and NBFCs to provide financial services.
Lending is a critical element of commerce and is in high demand among marketplaces to provide credit to users on their platforms. It offers several advantages, such as increasing average order values, creating new revenue streams and enhancing customer retention. But as per Digital Lending Guidelines (DLG), a marketplace can’t be its own LSP. So the marketplaces depend on fintech platforms as their lending service provider.
But as with every story, here is a twist. These fintech platforms are dependent on lenders for final approval and credit disbursement. Suppose a consumer is denied credit by the lending partner. In that case, they might be forced to look for alternative solutions outside the platform. This poses a risk of alienating consumers from the digital platform and integrated marketplaces, potentially leading to a loss of revenue and growth opportunities.
Therefore, it is essential for digital platforms to carefully choose their lending partners and ensure a seamless credit approval and disbursement process to maintain customer satisfaction and business continuity.
Plan Ahead or Fall Behind
One or two lenders aren’t enough
Imagine a scenario where a digital platform has only one lender with whom they are integrated. Suppose that lender suddenly shuts down or decides to end their partnership. In that case, the entire operation of the digital platform can come to a halt in just one moment.
Putting all your eggs in the two baskets can also spoil the party. If one lender with a small business scale facing a capital crunch chooses to freeze disbursal for some time. Another lending partner meets some operational challenges. Digital platforms have no choice but to announce downtime until the situation is fixed, leading to dissatisfied customers.
Diverse Network of Lenders
Working with multiple lenders, atleast more than two is an excellent strategy to diversify your risk, which provides maximum coverage and leads to higher approval rates.
Technology partnerships can prove immensely valuable, particularly during challenging situations.
Integrating various lenders through a gateway with marketplaces can provide a wide range of consumers with access to NBFCs or banks, regardless of their rural or urban location or whether they are part of B2C or B2B marketplaces. Consumers don't have to look for various platforms to meet their financial needs.
With specialized lenders providing financing solutions for specific needs, a digital platform can cater to individuals, retailers, and merchants alike. For example, by integrating with B2C and B2B lenders, digital platforms can maximize their potential and offer a comprehensive suite of financial services for individuals, retailers and marketplaces.
Paytm, one of the largest digital payment platforms, has integrated with various lenders to offer credit and insurance products to its customers. Another example is the digital lending platform, Lendingkart, which provides nationwide loans for small and medium-sized businesses. Similarly, MobiKwik has partnered with multiple lenders to offer various financial products, including personal loans, insurance, and mutual funds.
These examples demonstrate how integrating with diverse lenders can enable digital platforms to serve a broader customer base and provide a comprehensive suite of financial services.
A Closer Look at Potlee’s Multi-Lender Approach
Potlee is a multi-lender digital platform that can quickly enable checkout finance on a marketplace.
Streamlined Access to Multiple Lenders
The Potlee platform provides a network of diverse lenders, including banks and NBFCs, to the marketplaces with a single integration with the platform. This integration enables marketplaces to access a multi-lender ecosystem, eliminating the need to integrate with each lender separately and saving time and effort.
The gateway connects marketplaces to lenders, providing them with various loan products and services, including personal loans, consumer durable loans and EMI financing.
Single KYC Across Multiple Lenders
Consider a situation where a digital platform is integrated with multiple lenders with each lender’s distinct user journey.
- The user completes the first lender’s KYC journey and gets rejected.
- The user completes the second lender’s KYC journey and gets rejected.
- The user completes the last lender’s KYC journey and gets rejected.
So the user completes all the lenders' unique KYC journey before he or she gets to know if the limit is getting processed or rejected.
While the Potlee platform has a single KYC journey. It focuses on reducing the effort of a user to access multiple lenders. The user has to provide a standard set of KYC documents like Aadhar and PAN that most of the financial institutions would require. This simplifies the KYC process for customers.
Also the platform has uniform KYC experience across all the lenders, which means, even if a new lender (NBFC or a Bank) is integrated, the user experience of doing KYC will remain same.
Business Rule Engine
The inbuilt Business Rule Engine (BRE) is designed to provide customers with a smoother and more efficient loan application process. By pre-determining the eligible lenders through soft approval rules, only quality leads are forwarded to the lenders. This keeps the NPA minimum and saves lenders' effort by preventing non-quality leads from getting processed.
Our soft approval rules are a set of criteria that determine a user's eligibility for a particular lender based on various factors such as their geolocation, credit score, maximum write-offs, DPDs and more. By mapping these criteria for each lender, we can provide users with a list of the most probable lenders for their needs, ultimately resulting in minimum hard pulls from credit bureaus.
Adaptive checkout is an innovative solution to reduce cart abandonment and improve conversions in e-commerce. It offers buyers dynamic payment options based on risk profile and cart value, including pay later, credit lines and consumer durable loans. By presenting multiple payment options like EMI and bullet payments, buyers are more likely to complete the purchase and buy higher-value items.
In the End
A recent survey by the Reserve Bank of India (RBI) found that the adoption of digital lending in India has increased significantly, with the number of digital borrowers rising from 23% in 2018 to 46% in 2019. However, the same survey also highlighted that the drop-off rate for digital loan applications remains high, with over 60% of applications being abandoned at various stages.
The market faces the challenges of high drop-off rates for loan applications. A report by CreditVidya suggests that the drop-off rate for digital loan applications in India is around 75%.
A multi-lender digital lending platform can benefit borrowers by providing access to diverse and multiple lenders. Borrowers can compare and choose from various lenders and loan products, resulting in more competitive interest rates and loan terms. Digital lending platforms can also reduce the risk of default by partnering with multiple lenders and spreading the risk across them. Ultimately, this leads to a better borrowing experience for the borrower.
A digital platform with a Business Rule Engine (BRE) can simplify the user journey and help reduce drop-off rates. Multiple repayment options, including net banking, UPI, debit card and auto-repayment mandates, can make the process easier for users.
To aid customers in managing their credit lines, the platform can provide automated nudges to remind them of their credit cycles. By enabling marketplaces to offer financing services through its SDK, the platform can improve the overall customer experience.
Providing an intuitive user experience and streamlined features can help reduce the drop rate. Furthermore, automated nudges will lead to better customer engagement and reduce the likelihood of missed payments. Ultimately, these user-friendly features will increase customer lifetime value and improve customer satisfaction.