How Fintechs are Embracing the Changing Demand of Small Personal Loans

Fintechs have revolutionized the small personal loan market by simplifying the process of borrowing and lending money. 

According to data released by credit agency CRIF High Mark, the small loan market has shown enormous growth in the last 3-4 years. Between the financial year 2017 and 2021, the number and amount of personal loans that originated per year have tripled. 

The rise of Fintech is attributed to changing customer expectations. Consumer perceptions of financial services organizations have shifted dramatically in the last 5 to 10 years. Many customers expect financial institutions to respond promptly to their needs and offer tailor-made products to suit their specific financial goals. 

Customization is a trend seen across all industries, and it has crept into the financial sector too. In an era where retail products can be ordered and delivered the same day, it’s no wonder that people want their financial transactions, such as loan processing, to happen in real-time. They expect decisions about their loans, mortgages, insurance coverage, and other financial needs to be made in minutes, not days or weeks.

Following the lockdown, a 2020 Deloitte analysis revealed considerable changes in customer behavior, with 96 percent of respondents preferring to use digital transactions to meet their day-to-day funding needs, like digital payments or taking out a small personal loan

In addition, rather than interacting with financial consultants, 72 percent chose to trade online for insurance, loans, and mutual fund products. These statistics reflect a dramatic shift in consumer perceptions toward greater adoption of digital platforms for everyday financial transactions and wealth management. 

Consumers also want transparency and complex financial matters explained in clear, relevant terms that make sense within their day-to-day lives and align with their overall financial goals. Therefore, they expect loan terms and conditions not to be that complex. Consumers today are more mindful and decisive of their options, thanks to the internet. 

In the face of increased competition from Fintech, many banks have been pushed to expedite their digitalization to attract customers. It has been a moment of innovation for Fintech since they have developed quick and inventive solutions for consumers. As a result, there has been a shift in consumer perception of loans. People have become more open to taking loans to meet their daily needs. As financial literacy has increased, people consider taking small personal loans as an alternative to high credit card debts. It is because these loans provide benefits that are way better than credit cards. 

Some significant changes in consumer behavior on loans and how Fintech is adapting to it includes:

1. Consumers want Instant approval for their small personal loans

When it comes to accepting or rejecting loan applications, Fintechs are extremely fast. They examine your credit report and assess your eligibility based on several factors to decide whether you will be a reliable customer. 

Most fintech companies use risk-assessment algorithms to evaluate your credit profile. Your income, current employer, age, and credit score are the significant characteristics that Fintechs consider when approving or rejecting your application. The loan is disbursed quickly, in minutes, once your profile has been verified.

2. No more tiresome process of identification and verification

The days of applying for a loan and having a bank executive come to your home or office to verify your documents are long gone. Fintechs have transformed everything into a digital format, including the verification procedure. 

You can not only apply for a loan online but also upload your documents and any other essential information. Your documents will be digitally verified, saving you time and effort. The verification procedure is completed in minutes, owing to seamless and intelligent systems. 

3. People want flexibility in their loan tenures and amounts

Most banks and financial organizations that offer personal loans have a benchmark disbursal amount of minimum Rs. 50,000 and a 12-month repayment period (with a maximum of 60 months). 

However, the total amount varies from bank to bank, with most banks quoting Rs.25 lakh as the highest figure. On the other hand, Fintechs offer personal loans starting from Rs.20,000 with terms ranging from three months to 60 months. Fintechs draw more borrowers than traditional banks and financial institutions due to their flexible repayment terms and loan amounts.

4. Fintechs make loans accessible to all, even to the employees of unlisted companies

One of the most common reasons for personal loan denial is applicants being employed by businesses that aren’t listed. Most of the country’s central banks have a list of companies in their database, and only these employees are preferred. 

Fintechs, on the other hand, are less picky about whom to grant loans. As a result, Fintechs approve loan applications if they are satisfied with the credit profile, even if the borrower has recently found employment at a start-up that is not listed in the large banks’ database.

5. Rise of Innovative loan solutions

One of the most crucial features of Fintechs is the availability of loans to those who are often excluded from the official lending ecosystem. According to CRIF, the number of personal loans disbursed has more than tripled between FY 2017 and FY 2021, reaching Rs 644.6 lakh crore in March 2021.

Simultaneously, the loan size has decreased by 40 percent, from Rs 2.4 lakh to Rs 1.5 lakh. It demonstrates a significant increase in small-ticket loans, bringing more people into the formal loan system.

6. Digital wealth management

Technologies like Robo investors have revolutionized wealth management. They analyze an investor’s financial behavior to obtain essential insights and create more detailed risk profiles. Risk assessment is crucial when Fintechs grant loans at an unprecedented rate, thanks to these innovative solutions.

Through digital banking, people can now carry their banks with them on their phones. These customer-friendly banks have made banking simple, from account opening to payment reminders. Digital payments have also had the fastest growth in the fintech sector, owing to regulatory measures and the need to transact online during the pandemic. 

It is predicted that digital payments will grow from Rs 2,162 trillion in 2019-20 to triple in size to Rs 7,092 trillion by 2025. Consumers today have a plethora of options in digital transactions, including mobile payment apps, digital wallets, and UPIs.

Take Away

Technology has transformed the financial landscape, making it more customer-friendly, efficient, and transparent. It has also helped create a more vibrant ecosystem by attracting demographics who would, otherwise, be excluded from formal financial systems. The change, without a doubt, can be attributed to tech-enabled easy-to-use products and services. 

Blue-collar workers, young investors, and small firms are all included. Technology has established a highly viable alternative that is adaptable to shifting customer wants and the economic sphere.