SUMMARY
Fintech Startups Need To Create Trust When It Comes To Lending For SMEs
The Government of India’s focus on building India as the business hub of the world through ambitious projects like Start-up India, Digital India, Make in India and the roll out of GST has given tremendous growth impetus to several industries. Never before in India’s economic history has entrepreneurship garnered as much support as it is doing today.
While entrepreneurship is popularly equated to technology or digital companies, a significant majority of India’s entrepreneurs own and run Small and Medium Enterprises or SMEs. They constitute over 58 Mn businesses, making up for 45% industrial production and provide employment to over 60 Mn Indians and has emerged as the backbone of the Indian economy. However, the SME sector continues to struggle with funding because of poor credit availability and high cost of loans. While a lot of fintech startups are trying to solve for this credit access gap, can they overcome customer inertia and match the brand pull of big banking institutions?
To solve for this huge advantage banks have against the fintech startups, we need to take care of one of the most basic human emotions – trust.
Why Trust Matters To SMEs
Banking and financial interactions are some of the most intensive human exchanges involving serious deliberations with the borrower being deeply invested in the decision. Most borrowers are more likely to reach out to traditional financial institutions and money lenders as these institutions by virtue of human intervention are able to address their queries and doubts easily. In most cases, the representatives of these institutions are respected within the fraternity for their knowledge of business & market and are consequently able to put borrowers at ease by conversing in the local language.
While one may argue that the process of obtaining loans by visiting money lenders and bank branches can be time consuming and gives one no guarantee of actually being able to get funds, what it does effectively is create something much deeper – a relationship with the person that is based on mutual respect and trust. If you analyse this aspect, it can be easily spotted in the tag lines and brand communication of any bank. Each of them talks about being their customers’ trusted advisor.
While digital lending platforms capitalise on technology to create solutions that simplify risk evaluation and credit disbursement for potential borrowers, it is imperative that the experience is built in a manner that addresses the critical aspect of trust in the entire loan application process.
How Fintech Startups Can Address The Trust Issue For SMEs
There are typically four layers of emotions any borrower goes through during the process of taking a loan.
- They feel resource-less as they do not have access to funds.
- They are anxious to know if they would qualify for a loan.
- They are constrained for bandwidth to hustle to secure funds.
- There is a sense of urgency as they want funds quickly to begin or continue with their business operations.
Therefore, a typical on-boarding experience for borrowers on a digital lending platform should ideally be able to create a perception of trustworthiness by specifically addressing these four emotions. Let us take an example – the “terms and conditions” of a loan process leads to a lot of uneasiness for the borrower. One of the reasons being the language itself which is both non-colloquial and in English. This makes it a lot more difficult for these SMEs to relate to it.
Now, there are quite a few things one can do here, like presenting the Terms & Conditions in local language. Another way to tackle the same is to offer an alternative rendition of the legal document, which could be in colloquial language or a summarised version or maybe both.
Typically, an SME has around 14-16 questions about the loan process and product. It’s a universal fact that human beings crave for interaction and affection. The trick is to solve for these, without, human intervention.
Using Chatbots And AI
Chat bots and artificial intelligence have gained significant traction in creating meaningful and personalised conversations which can significantly help in addressing the concerns of borrowers enabling a seamless experience. This in-turn can be critical towards building trust.
A large majority of small and medium entrepreneurs are well versed with WhatsApp and Facebook and online lending companies are leveraging these for an instant connect. As Google CEO, Sundar Pichai has rightly highlighted –
“Looking to the future, the next big step will be for the very concept of the “device” to fade away. Over time, the computer itself — whatever its form factor — will be an intelligent assistant helping you through your day. We will move from mobile first to an AI first world.”
The focus of the entire product design of digital lending platforms and fintech startups, therefore, needs to shift towards interaction led rather than merely being transactional in nature.
There is another subtlety, the understanding of which paves the way for solving for anxiety. While borrower at the end of day worries about the money in the bank, however assurance that they would get the loan is as important, if not more. To achieve the same, one needs to build the entire onboarding experience in such a way that it makes SMEs furnish information which can be used on the fly to predict their likelihood to get a loan as well as terms. This helps them in being more engaged and eventually, solves for anxiety.
Innovative technological solutions have the potential to transform the way a country borrows and lends. It can significantly bridge the funding gap that sectors such as SMEs struggle with today. The opportunities are tremendous and factors like localisation and personalisation is key to create value. To create trust, fintech startups must prove that they care for the well-being of their customers. Doing this well, helps create loyalty and drive repeat businesses.
