How new-age loan models are revolutionizing the way Indians shop


In the 21st century, technology has advanced rapidly and digitalization is fully responsible for the overall transformation of businesses.

The ability to communicate with businesses has become fluid, thanks to the internet and mobile technology, causing businesses to change their operational procedures. The retail industry has undergone a massive transition and adopted a customer-centric strategy to improve business operations and put more focus on customers.

Changing consumer behavior

Customers are embracing digital channels due to the expansion of internet and smartphone usage. Between 40% and 60% of all loan purchase transactions are influenced by digital media.

Online research is the main tool for discovering properties on credit. Nearly 55% of customers consult online resources or credit product suggestions.

By the end of 2022, mobile is expected to impact six out of ten personal loan transactions and seven out of ten transactions involving other personal loans.

In addition, the demographics of consumers applying for credit for the first time are changing. Nearly 49% of consumers are under the age of 30, 71% are from non-Tier I cities, and 24% are female borrowers.

The emergence of new aging loan models

By international standards, credit card expansion in India is among the lowest in the world, at around 3%. Customers who do not have adequate credit cannot afford to buy medium and high priced goods. Thus, they seek simple and affordable financial services but frequently avoid using credit cards due to their high interest rates, fees and other hidden costs.

On the other hand, new-age lending methods work the same way and charge little or no interest. The expansion of e-commerce in India is a major factor in the emergence of next-generation lending deals in the country.

Deloitte analysis projects that new-age lending methods will own 11.4% of India’s retail sector by 2026, up from 7% currently.

Customers are increasingly using e-commerce as their primary method of purchase. Against this backdrop, toll-free IMEs and Buy Now Pay Later (BNPL) methods are rapidly gaining universal acceptance as the preferred payment method and permanently changing the way people shop.

Thanks to technology, the concept of microcredit has become increasingly popular around the world, including in India. Customers have the option of completing their purchases immediately but deferring payment in the future using toll-free EMIs and BNPL plans.

In principle, these schemes allow consumers to enter into a contract that binds them to future principal and interest payments, much like the EMI of a conventional loan but without the interest.

Customers now have the choice to purchase and spread out payments for major purchases, including furniture, laptops, smartphones and washing machines, without facing financial hardship.

The time for end-to-end “loan as a service” has come

Today, financial institutions are offering digital lending as a service and developing creative use cases around it due to the increasingly active and growing digital ecosystem and infrastructure.

Additionally, digital lending as a service delivered through digital infrastructure is a forward-looking business model for banks, NBFCs and fintechs, allowing them to integrate into the wider ecosystem to meet the clients’ daily needs and life goals.

Financial services companies are working towards an ecosystem-based model for their consumers by becoming ubiquitous.

What’s next for new-age lending models in India?

According to the FIS Global Payments Report Worldpay, new era financing concepts include no cost. The fastest growing payment options in India are BNPL and EMI, which are expected to increase their market share from 3% in 2020 to 9% in 2024.

Indian companies should follow the lead of their international counterparts and offer EMI-based pay later options to help consumers make expensive purchases.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)


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