Data & Digital: Building Blocks Of India’s NBFCs Ecosystem

The Indian financial ecosystem has seen significant growth and digital transformation in the last decade. Traditional financial services are now accessible through robust and integrated digital channels. On the global stage, the country’s Digital Public Infrastructure (DPI) is grabbing eyeballs. Many countries are taking inspiration from India’s digital prowess to enhance their own financial ecosystem. 

NBFCs have been an important part of the BFSI industry in India. NBFC credit is around INR 18.6 Lakh Cr in retail lending as of July 2023. Digitalisation has penetrated the entire spectrum of the financial services sector and new-age NBFCs are leading this wave of tech and digital adoption. 

Harnessing the power of India’s expanding digital ecosystem, implementing AI/ML-based lending models for intelligent data-based decision-making are key advancements powering digital NBFCs, especially in the MSME credit domain. 

The customer-focused approach of a digitally enabled NBFC ensures timely credit to MSMEs and empowers borrowers with an end-to-end digital loan journey. Traditional NBFCs, with limited use of technology in their operations, are faced with challenges of customer acquisition, speedy disbursals, continued customer engagement, risk-reward decisions, etc. 

Tech and digital enhance multiple aspects of the business for the New Age NBFCs. 

Embracing Data Analytics For Credit Decisions

Traditional NBFCs are highly dependent on the customer documents available to them, credit history, and the bureau report to make judgement-based assessments.  

As the financial ecosystem gets interconnected, digital lending NBFCs have started considering a wide range of data sources, including digital financial transactions to assess creditworthiness. 

The availability of data and its intelligent use sets new-age digital lending NBFCs apart from their traditional counterparts. Digital NBFC lenders use machine learning algorithms to capture interactions between numerous explanatory variables. With data analytics, digital NBFCs are segmenting their customers into cohorts based on the risk associated with each, and offering cohort-based pricing, targeted communication, and collections efforts to manage delinquencies. 

With the granular level of analysis and valuable insights into customer risk profiles, the availability of data and the use of data analytics are enabling NBFCs to make more informed lending decisions. This results in reduced processing time and enhances overall operational efficiency.

Enhancing Customer Experience with Digital 

Traditional NBFCs rely on offline channels such as physical branches and paper-based documentation, restricting their ability to reach and expand their customer base. Loan applications are lengthy and require multiple documentation from the customer for credit assessment, thereby, increasing the overall time to take a credit decision. 

Account Aggregator ecosystem, e-KYC, e-NACH and e-signatures automate the processes to make the loan journey faster by leveraging digital mediums and offering flexible repayment models through digital payment modes. 

Digital lenders integrate various open APIs at each step of the loan journey – right from onboarding to credit underwriting, loan fulfilment and loan collection. This facilitates faster, paperless transactions, and workflow automation. 

This reduces errors, results in efficient utilisation of man-hours in other critical processes and offers an overall seamless journey at both the backend and the frontend customer-facing operations.

By removing the inherent challenges faced by a customer in the first step of the loan application process, digital NBFCs are enhancing the customer experience and customer stickiness. 

Improving Organisational Efficiency With Data 

Customer data can be used to build scorecards, which help in objective decision making and customer segmentation. This also facilitates customer value management by identifying eligible customers and offering them a loan with fast-track digital underwriting, enhancing customer experience, and reducing turnaround time. 

This also improves operational efficiency by reducing processing time. Digitization allows simplifying tedious processes such as evaluating credit risk scores and reviewing all applications with manual effort. It also allows using past data intelligently for quicker decision making.

Collections teams too are now segregating customers into early delinquency, mid-delinquency, and defaulters, and channelling their efforts accordingly. Digital loan applications, partner management portals, and customer-focused apps have made sales teams more efficient and responsive, reducing the overall loan lifecycle process.

Data is a productivity enabler for NBFCs, and data science has permeated almost every backend process, resulting in objective decision-making and assessment. Today, digital NBFCs can use key data points in a candidate’s resume to assess the candidate’s skill set and fitment in the organisation. 

With the integration of analytics tools, the HR teams can easily predict the longevity of a candidate within the organisation, resulting in a crisper selection process and a reduction in time spent by HR and hiring managers on interviewing candidates. 

Traditional NBFCs, however, are faced with the limitations of legacy infrastructure, accessibility challenges, risks associated with manual handling of data, and restrictions on capacity building, resulting from a lack of data and the systems required to nurture it. 

Unlocking New Frontiers For NBFC Lending With Data & Digital

NBFCs have embraced technology for faster loan approvals, reducing processing time from weeks to days and hours. Digital lending NBFCs, for example, offer their customers a seamless digital experience through end-to-end digital loan processing and repayment options using digital modes, unlike the predominant traditional modes of repayments. 

By harnessing the power of data, NBFCs have gained a competitive edge in identifying and assessing creditworthiness. Early warning systems are used to identify borrowers at risk of default, while predictive analytics helps in predicting which borrowers are likely to default. 

Finally, India’s expanding digital ecosystem provides the necessary impetus to India’s NBFCs as they future-proof themselves digitally while ensuring the highest levels of governance.