What is a Fintech Loan and How Does it Work?

Fintechs are playing a pivotal role in revolutionizing credit ecosystem by creating alternative lending channels that offer significant advantages to both Bank and borrowers. Fintechs creates seamless customer on-boarding and credit disbursement processes with tech-enabled, mobile-friendly platforms that can replace physical interactions with remote loan applications.

BOB is pioneer in recognizing the need of collaboration with fintech companies. Our partnerships have helped new age fintech companies to calibrate their ideas/solutions. Platform approach creates synergy amongst all stakeholders and is co-created with the spirit of collaboration. Bank has integrated its systems with Fintechs using APIs to streamline business operations.

Bank has entered into partnerships with various Fintech companies operating in in the area of credit scoring model based on alternate data sources, algorithm based lending, invoice discounting/factoring, credit information aggregator, etc. These partnerships have opened windows for value additions in terms of acquisition of new to bank customers with better due diligence, better marketing opportunities and faster services delivery.

Bank has tied up with 18+ Fintech players with 100+ digital integrations, for the purpose of digital analysis of Bank statement, GST and ITR, Udyam, e-signing, EPFO, Vahaan, Mobile metadata & SMS scrapping, etc.

What is a Conventional Loan?

Conventional loans are offered to customers based on the traditional method of the lending process. Such loans can be obtained after visiting the Lender’s branch and sanctioning the loan application requires human intervention. Before sanctioning a conventional loan, banks first look into the following things:

• KYC verification
• Credit score and credit history
• Income
• Monthly obligation
• Legal and valuation search (if any)
• Assessment of loan limit

The applicant needs to execute the loan documents by visiting the branch personally for disbursement of loan.

How does Fintech Lending differ from Conventional Lending?

Fintech Lending indicates a shift from traditional balance sheet based underwriting mechanism leveraging a digitally verifiable cash flow-based lending criteria. Further, it involves system driven approvals as against Discretionary Lending Powers based approvals granted in traditional lending.

Fintech Lending leverages digitally verifiable cash flow oriented and non-traditional data sources for credit profiling of a potential borrower and reduces reliance on obtaining and analyzing traditional data sources such as audited/unaudited financial statements and full-fledged estimated/projected financial statements and derived financial ratios. Fintech lending also makes use of alternate data sources like utility bills payment history, EPFO, Vahaan registration, Udyam Registration, etc.

Bank of Baroda Fintech Loans –Benefits

Consumers puts a high value on time, personalized experiences, easier processes, and multiple engagement channels for choosing their Lender. Banks must respond with easier do-it-yourself application process, faster credit decisions, predictive lending, and innovative borrowing options. It is in these areas that Bank of Baroda is heavily investing in and bringing innovation to drive the next generation of fintech lending.

The customers benefit

• Ease of application and enhanced experience
• Faster & cheaper credit
• Easy access to lending products
• Realtime decisioning and customer gratification
• Branch-less banking leading to credit from anywhere, anytime

The Bank benefits

• Improved customer reach - Omni-channel readiness
• Behavior driven UI/UX interfaces
• Faster loan approval and eligibility
• Paperless processing through automated rule engines and digital workflows
• Great blend between usage of alternate data and minimum customer information
• Lower cost of service

How does Fintech Lending Work?

In-order to keep up with the ever-changing customer needs, Bank have automated and digitized the journeys, have modernized the existing applications, and streamlined the current initiatives to proactively respond to customer’s needs.

The bank is empowering the borrower to complete the end-to-end loan process for their loan requirements from lead to disbursement in a few clicks with minimal, mandatory documentation. The platform enables the customers to get loan sanction and disbursement through a contactless and paperless process from their convenience, eliminating the need to physically visit the bank branch.

Bank has developed credit models based on turnover, cash flow, digital data points and alternate data as compared to the earlier practice of balance sheet based lending. The Bank has developed tailored lending products, processes to differentiated customer base (viz. existing to Bank customers, New to Bank Customers and New to Credit, etc.) and segment specific risk scorecards that enables fintech lending.

Fintech Lending Products has been designed with key principles as under:

• STP First & Digital First Processes
• Mobile First Operating Model
• Data Triangulation through Digitally Verified data sources
• Pre-population of requisite applicant details
• Digital Product Prioritization basis business potential
• Digital Catalysts for enabling digital and handling digital drop-offs including Digital Cadre of DLCs, contact center & branches

Conclusion

The lending ecosystem has been experiencing a shift in India, with the advent of the new age lenders focusing on an end-to-end digital model with a streamlined digital lending process has strengthened the shift of adopting a digital first approach to lending.

Digital lending has significant advantages over traditional lending, with the potential to address prevalent credit-related challenges in India. One of the most distinguishable advantages of digital lending is speedier approval of credit. Credit evaluations and loan disbursals on digital platforms have visibly quicker turnaround times than traditional loans.

The usage of alternative data rather than traditional asset-based data to determine the creditworthiness of an individual is the underpinning advantage of FinTech lenders over traditional lenders. The shift from asset-based data to cashflow-based data and other surrogate data from sources such as telecom, utility combined with psychometric analysis to evaluate ability and willingness to pay, is augmenting or substituting traditional sources to service credit-invisible strata.