2020 has heralded a new world order – irrevocable and extremely distinct from the world we lived in pre-Covid. The pandemic has touched every single business across the globe and has forever, changed the way we do business.
One of the most significant changes being witnessed across businesses, is digitization. With social distancing and lockdowns in place, businesses are making efforts to enhance their digital capabilities by either investing in new technological advancements or ramping up their existing technology. Digital payments and workflow automation has moved online and several organisations are now focusing on building their digital presence.
India’s home lenders are not far behind. The retail lending space in India, before the onset of Covid-19, was poised for growth. A report by ICICI and CRISIL, published late last year, stated that the retail loan book was set to double by March 2024, amounting to approximately $96 Tn. It pegged this growth on 5 key pillars – easy access to information, increased competition that would reduce borrowing cost, regulatory reform and initiatives, increased penetration of digital lending and lowering of operational costs through data analytics and technology.
In the current scenario, the growth trajectory for retail lending and especially for home lending may seem slowed down given lowering of disposal income, reduction of discretionary spending in the face of job losses and pay cuts and reducing consumer appetite for debt. Home lenders are examining their business models and are looking towards technology to shape their lending initiatives. Banks and NBFCs are now becoming exceedingly cautious as real estate prices see correction and borrower repayment capabilities seem compromised.
However, technology has been a pivotal cog in the quick response and agile adoption to evolving developments, especially for home lenders who have had to deal with remote workforce, numerous customer queries and rapid success of government initiatives in face of extended lockdown pan India. The old adage of necessity being the mother of invention has now been validated. Post-Covid, the significant changes that the Indian home lending landscape stands to witness are as follows.
Social Distancing Will Pave The Way For Digitization
With social distancing now being the new way of life, traditional methods of collecting documentation, physical location checks etc., now stand obsolete. With Work-From-Home gaining momentum, lenders will feel the heat operating with a reduced active workforce in the field. This will give way to more technological advancements that can allow lenders to collect necessary documentation and conduct home visits via video or online channels. This will need lenders to implement a faster pace of technology adoption that is accurate, accessible and cost-effective.
Data Analytics Is More Relevant Now Than Ever
With business models being overhauled and the lending environment on caution, data analytics will now play a key role in the decision-making process. The current environment and evolving customer behaviour in face of unprecedented challenges, have provided data scientists with enough data to deep dive and seek alternatives to current underwriting and compliance criteria. Unsecured lending will have more checks, and in such a scenario, the universal view provided by data analytics on a person’s power to repay a loan, becomes increasingly significant.
Aided by the India Stack comprising Aadhar and PAN details, credit decisions will now be made incorporating an individual’s net holdings, digital footprint, geo-tags, social media information and several other digital channels that can help provide a holistic record of an individual’s creditworthiness.
Lenders will be looking at creating credit ecosystems based on data that is increasingly dependent on alternative data sources other than credit history, bank statements or tax returns, to validate their credit decisions and risk mitigation processes. Data analytics may also enable loans to be offered as pre-approved packages with predetermined criteria for approval, in the days ahead.
With most of its workforce and clients working remotely, lenders will have to make processes and information available to all concerned accessible. This comprises the need for a universal dashboard and view for decision-making as well as simplified channels of service delivery. This is where APIs or Application Programming Interfaces will come into play. APIs can effectively streamline processes, improve functionality and reduce costs. They can help quicken the decision-making process, leading to faster disbursals.
APIs also allow for easy flow of information between platforms and thus needs no data migration. As APIs are easy to integrate they provide Lenders easy access to updated information, ease of process accessibility across locations and allow 3rd parties platforms/startups to build innovative customer-centric platforms. It is no doubt then, that APIs will soon be the preferred platform of choice for financial services and specifically, for lenders. APIs will facilitate quick growth in a lending ecosystem where multiple new-age startups can develop innovative solutions.
Mobile And Internet Penetration Will Help In New Business
Mobile and internet penetration in India is growing at a pace faster than any other country in the world. Lenders will be using these channels more aggressively to share information and digitize the entire loan application cycle – from application to collections.
With mobile and internet penetration on the rise in India’s remote cities and towns, this presents a tremendous opportunity for lenders, especially at a time when pressure on new business income is paramount. This allows lenders to reach out to prospective customers, as yet untapped, to increase their loan book and expand their reach.
While the above are being witnessed in different stages across the Indian mortgage industry, there are several technologies that lenders are today experimenting with including artificial intelligence, machine learning, robotic process automation (RPA), data sciences and blockchain, in a bid to digitize the entire loan process end-to-end.
AI and ML have significant roles in easing out the complex credit appraisal process in home lending and can help cope with the reduced workforce and dealing with increasing customer queries through chatbots. RPA can help automate processes, especially those prone to human error and also aid in faster decision making while blockchain technologies can help lender reduce their costs, increase transparency across stakeholders and remove the need of intermediaries, thereby ensuring a seamless process for loan disbursal.
Covid-19 may have been challenging for business, but as we look back, we see that the pandemic has accelerated our adoption of technology and advanced our lives in many ways. In more ways than one, COVID will be considered as an accelerant to business and economy, in the years to come, that’s for sure.