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Digital Lending

A $1 trillion opportunity over the next 5 years

Around the World, lending models in the last few years have seen frenetic activity. Initially, the juggernaut was led by fintechs but a few traditional lenders have followed suit. There are a few fundamental drivers which are all coming together to turbocharge this space.

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First, consumer behaviours are changing dramatically, shaped by experiences offered by internet giants. Second, there have been some rapid technological advances, led by the ever-increasing penetration of smartphones as well as the proliferation of data. Third, the regulatory environment, is increasingly getting favourable with laws increasingly providing an impetus to the digital lending market. Finally, there have been some remarkable innovations in the operating models of lenders. These factors have played out similarly in India as well, resulting in an exponentially growing market.

Primary consumer research brings several interesting insights to the fore and validates India’s readiness to adopt digital lending. Almost 50 per cent of loan seekers with internet access actually purchased digitally over the last 12 months. Consumers are ‘digital ready’ across different product types. Digital behaviours are also not bounded by demographic factors; the old for instance demonstrate very similar behaviours as the young; digital behaviors are similar across genders as well as city tiers. Consumer journeys however are ‘phygital’ or hybrid; neither only digital nor only physical. Search engines and lender sites are the most important sources of research; consumers typically look for prices and eligibility. Interestingly, digital loan ticket sizes are comparable to that of physical loans.

Digital lending presents a large opportunity in the Indian context. It is estimated that the total retail loans which could be disbursed digitally in the next 5 years could be over $1 trillion. Annual digital disbursements 5 years hence would be nearly 5X that of current levels.