Digital lending venture success secrets for the new-age CIOs

Maneesh Jhawar

Although in its nascent stages, Peer-to-peer (P2P) lending, also known as digital lending has been making waves in financial circles. An established industry in other parts of the globe including China and the USA, India opened up to this sector fairly recently. RBI finalized digital lending norms in mid-2017. However, many ventures have already started attracting customers to their digital platforms—online as well as via mobile apps.

The year 2018 seems to be the year of digital lending as several BFSI and fintech firms enter this new business in India. Many banks and financial service companies are looking at entering digital lending; HDFC Bank has introduced 3-minute digital loans, ICICI Bank has tied up with Paytm to enter digital lending business; State Bank of India (SBI) has funded LendingKart, a digital lending startup.

While digital lending surely promises rapid growth, it is not free of challenges. Being a new sector, it will have its own share of uncertainties and growth pains and there will soon be competition as several new players enter the field. However, in addition to the common business challenges, the entrants in the fledgling sector will also have three serious technology-specific challenges to overcome—Velocity, Quality and User Experience. Being digitally driven, these issues can prove lethal if not addressed comprehensively. Let’s explore these aspects one by one.

1. Velocity

Broadly, there are three types of software systems that enterprises employ. These include:

a)Systems that help in running a business process

b)Those that help companies to grow their businesses

c)Systems that transform businesses

In case of P2P lending, where the business model is driven by technology, the core lending application has a transformational role to play. The biggest factor that will define the success (or failure) of players in this space will be speed of operations and scale-up. Can an organization sustain and support the impending growth by being adequately agile to change and scale-up requirements? The speed-factor needs to manifest itself in everything—development of the core application as well as issuance of new releases, features, and updates besides customer support.

Going by China's example-the global leader in digital lending—the sector’s customer-base may expand at a break-neck pace very soon. In the year 2013, China reported an eight-fold rise in the total number of borrowers that touched 1,49,300. The growth continued through 2014, with total borrowers reaching 630,000 by the year's end.

From a CIO’s perspective, the software system that powers digital lending should therefore be scalable to meet the exponential growth that businesses will witness in a short time. Unless their core digital lending systems are scalable and agile, companies cannot succeed.

2. Quality

The parameter of service quality will prove sacrosanct in defining the success of digital lending in ways more than one. P2P lending business is in its infancy at the moment. However, as customer-base grows, there will be a huge influx of loan applications. As seen in the China-example, companies experienced an eight-fold growth in customer-base in a single year. The question a CIO of a digital lending venture needs to answer will be—Is my company’s digital lending platform rugged enough to support (and sustain) a gigantic growth without a service quality compromise?

Today, India has only a handful of players vying for digital borrowers (and investors). However, as new players enter the game, the market will turn highly competitive. As competition builds up, a digital lender with poor service quality or high latency may be left behind and fintech companies and startups will march ahead with speed.

Traditionally, lenders considered credit score as the key parameter in defining a borrower's creditworthiness. In case of digital lending, a borrower’s risk profile is defined based on aspects such as Aadhaar for identification, salary slips for working professionals, and the applicant's financial behavioral patterns determined based on information curated from online sources such as social media channels. As digital lending aims at extending its reach to that class of borrowers who have been under-served by traditional lenders thus far, the automated risk profiling exercise becomes extremely important from the risk mitigation perspective. The quality of the core software platform in terms of its ability to mine and analyze unstructured big data accurately and with speed proves critical in this context.

3. User Experience

For most customers, smartphones are fast becoming their preferred mode of internet access—for product look-up as well as transactions. With government providing a boost to digitalisation with policy moves such as Digital India initiative, demonetisation, UPI, and BHIM app, along with the phenomenal rise of e-commerce, the adoption of mobile apps for serious transactions is bound to grow in a very short time-span.

As user trends indicate, a vast majority of future consumers of digital-led businesses (including P2P lending) will be from rural India. Boston Consulting Group estimates that by 2020, 48% of India's internet users will be rural and of that, 21% will be women.

As the business model describes, a P2P lending platform is entirely self-service driven—without any human intervention. This means, the platform needs to provide an intuitive, user-friendly interface for both—desktops as well as mobile devices. The UXD( User experience design) capabilities of the platform will be crucial in the context of reaching out to rural customers. Scope for innovation in this area will therefore be immense. For instance, digital lenders may explore combining advanced technologies with localization features such as chatbots and intelligent voice response systems in regional languages.

Role of QA testing

CIOs experienced in leading core application projects would know that the primary constraints in accelerating project delivery pertain to testing. Efficient QA testing can help eliminate a lion share of hindrances providing speed and competitive edge to a P2P lender. Similarly, QA testing can assist in drastically improving the platform’s quality in terms of its technology capabilities and feature-richness besides the ability to deliver a seamless user experience across devices and OS types and versions. CIOs who can deftly manoeuvre through these areas, can help spell success for their organisations’ digital lending ventures.

The author is CEO & Founder of QualityKiosk