6 Trends That Changed the Digital Lending space in India

Digital lending is one of India’s fastest-growing segments. Here are the six trends that have changed this financial sector forever.

With the technological boom happening since the last decade, digital lending is undoubtedly the blue-eyed boy of finance in India. Customers today want faster lending solutions and quicker services. Electronic lending empowered by Fintech is making these changes possible. 

Primary consumer research elicits several fascinating findings and confirms India’s preparedness to implement digital lending. For instance, the MSME sector contributed to over 30% of India’s GDP and employed approximately 110 million people in over 60 million businesses.

Digital lending has been a key pillar in this. This has a significant impact on improving financial inclusion in India. Many of these digital lending platforms lend to individuals as well as MSMEs. These include personal use loans, buy-now-pay-later loans, and even minor house loans. The key benefits of digital lending are mobile access, less paperwork, and fewer eligibility checks than in a bank branch.

Take Amazon, for example. The brand primarily operates in the e-commerce and entertainment industry with its shopping service and OTT platform. But to provide a frictionless shopping experience, they introduced an EMI payment option in partnership with banks. 

Top 6 Trends That Transformed India’s Digital Lending Space

Here is a list of recent trends that have changed the digital lending space in India and continue to offer newer avenues even today: 

1. EMIs

EMIs or Easy Monthly Installments, as the name suggests, offer customers an easy or simplified solution to afford costly items but also helps brands to drive their sales numbers higher. 

For example, when a customer is asked to pay for an item up front, the aggregate cost might lead them to give second thoughts. Leading to lost sales. However, when they are given the option of an EMI, the smaller instalments make the item appear affordable despite the (sometimes) additional interests. 

Hence, many brands these days have started offering EMIs to their customers. Whether it’s online stores like Amazon, Flipkart, and Myntra that offer EMI to customers or companies like Shopify and Ola that give loans to their associates, brands have begun to understand the importance of hassle-free digital EMIs for mutual benefits.

What is more, traditionally, EMIs were associated with credit card holders, but now players like Amazon and Flipkart have partnered with banks and payment processors like VISA to enable EMI on Debit cards. A breakthrough indeed!

2. Buy Now Pay Later (BNPL)

Through the Buy Now Pay Later scheme, retailers finance their customer’s purchases for a given period. Here the customer can buy the product at no upfront cost but pay it back within the notified date. 

BNPL is a lot like using a credit card. You make the purchase and pay later. The only difference is that you might not always need a credit card for a BNPL scheme, and there’s usually zero to significantly less interest for payback within the stipulated date (like a 15-days cycle for small amounts). 

BNPL is a massive benefit for the customer over credit cards because a high outstanding balance on a credit card can bring down their credit score and affect their future financial investments.

Many popular brands offer BNPL services to their consumers. Some popular BNPL providers in India include Ola, Grofers, MakeMyTrip, and Lakme. These brands collaborate with banks or other fintech providers like GLaaS or ZestMoney to embed a BNPL payment gateway on their apps, websites, and so on. 

Just like instant EMIs, BNPL is also an effective tool to increase sales. A 2018 research found that Indian consumers have a growing affinity to the BNPL scheme. The research also showed that LazyPay had over 500,000 customers under the BNPL scheme, and another player, Simple, had about 2 million customers using their BNPL payment method. 

This indicates that the concept of BNPL has been well received in the Indian market and is an effective marketing tool with the potential to attract new customers.

3. Sachet Loans

Not everyone would like to take up the hassle of a personal loan for small purchases. That’s when sachet loans come in handy. These small ticket loans offer short-term money to customers right from the comfort of their homes. 

What makes them a more favourable option over traditional personal loans is that they are quickly accessible and have less hassle. Moreover, with banks and other financial services moving to apps and even WhatsApp to improve customer experience, the simplified process of applying for sachet loans has attracted the millennials and Gen Z. 

The concept is therefore also a massive hit among retailers too. For example, last year, fintech platform Instamojo took their sachet loan service to Whatsapp. In the first phase of their launch, more than 140 merchants applied for over 290 loans worth 19 lakhs. The lockdown period saw exponential growth in the popularity of sachet loans, and Instamojo saw a sharp increase of 25% in daily merchant sign-ups

Another feature that attracts people to sachet loans is the unbelievably low interest rates. Of course, the exact interest rate depends on the service provider. But again, if we take Instamojo’s example, they charge an interest rate of 1% instant payouts, 0.5 – 0.75% for same-day payouts, and 0.25%for next-day payouts. 

The low interest rates make it a convenient choice for customers, which increases their purchasing probability and churns in more profit for the brand.

4. Bajaj Finserv

Bajaj Finserv has revolutionised personal loans with hassle-free approval and quick payouts. However, businesses always need a source of dynamic cash flow to meet emergencies and limited-period opportunities. This is where Bajaj Finserv steps in with its world-class service.

While sachet loans, BNPL are apt for customers with lower loan requirements, business loans are usually higher. In this case, a service like Bajaj Finserv, with its working capital loans of up to 45 lakhs, will come in very handy for every business owner. 

These loans are available at low-interest rates and quick loan approvals within 24 hours. The application process is also straightforward, and it takes only a couple of documents to apply for the loan.

They also have a loan option called Flexi personal loan that’s gaining traction among businesses rapidly. Under this, you only pay interest on the amount you used from the loan and not the entire loan amount. You also get to prepay your loan to save on overall interest partly.

According to a 2020 report, Bajaj Finserv’s customer base grew over 40 million.

5. Co-branded Credit Cards

Co-branded credit cards are formed by a partnership between a brand and a financial service provider. These cards usually have several benefits for customers that make them prefer these over their regular credit cards. 

These benefits include free merchandise on spending above a pre-designated limit and unique rewards for loyal customers. Also, these credit cards do not usually charge transaction fees and waive any other surcharges that the customer would have been paying for with regular credit cards. This makes shopping a pleasurable experience for customers and increases their purchasing probability.

This benefits the brand by increasing its engagement. Sales number and customer loyalty. This establishes a win-win deal for both the customer and the merchant.

For example, the Amazon Pay ICICI Bank credit card was a huge hit, thanks to the partnered benefits of both Amazon and ICICI bank. 

The benefits include: 

  1. No joining or annual fee, 
  2. No limit or expiry date on the rewards earned using this card, reward earnings can be used to purchase over 10 crore products at www.amazon.in and at more than 100 merchant partners, 
  3. 5% cashback on transactions made at www.amazon.in for Amazon Prime members, 
  4. 3% cashback on transactions made at www.amazon.in for customers who are not Prime members, 
  5. 2% cashback on transacting at over 100 Amazon Pay merchant partners on using this card on Amazon Pay, and 
  6. 1% cashback on all other payments. 

Not a bad deal for customers, right?

6. Portable Card Swipe Machines

Portable card swipe machines are not a new concept, but they have contributed their bit to revolutionising India’s digital lending space. Cashless payments lead to the convenience of the customer who turns loyal to the brand. Going cashless also does not put a limit on their shopping and chances of higher sales increase. 

Since payments become faster with portable card swipe machines, it also helps you earn brownie points in customer service. Digital payments also allow brands to track their customers’ buying patterns and devise personalised reward and loyalty programs to increase their engagement. 

Modern card swipe machines can be the size of a stack of cards, even smaller, and may not even require inserting the cards to read the magnetic stripe or chip embedded. 

A simple tab with the card can instantly (and securely) finish the transaction without even requiring to use the ATM or Card pin. 

Final Thoughts

The digital lending space in India is evolving rapidly, and these trends are some of the most significant contributing factors to that. As a result, the finance space is headed towards a faster, hassle-free, and convenient future with the highest ROI for each consumer segment. 

If you want to scale your business with an accessible digital lending option embedded at the payment gateway, get in touch with us today.

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