Advantages of digitalisation in loan products for new NBFCs

In order to keep up with the rampant change in technology, new advancements are being made in each sector. The financial sector has also adapted to the developments of these emerging technologies. In this article, we shall focus on the Advantages of digitalisation in Loan products for New NBFCs.

NBFCs and the switch to digitalisation 

In India, it has been cumbersome for banks to provide full-fledged services to every nook and corner of the country. A wide variety of rules and regulations are imposed on banks, making it difficult for them to reach a potentially large group of consumers. Sometimes owing to different reasons, they are only able to provide lending services to a certain class of individuals- for example, people who have collateral to obtain loans from the bank. NBFCs have been revolutionary in being able to gap this divide as they as an institution have been able to provide credit to a larger population and with fewer requirements. 

In this era of digitalisation in Loan Products, NBFCs need to make that switch to reach a wider audience and seep deeper into the lending market. Today’s consumers are technophiles, so to make the most of the opportunities, NBFCs must divulge into the cyber sphere. This shall not only provide them with the larger bandwidth of customers they are looking for, but it would also help them understand customer needs better and serve them quickly and hassle-free.

Problems faced by Traditional NBFCs 

NBFCs face certain challenges in the traditional approach. A few of them are listed below:

• Manual filing and maintenance of data

NBFCs, when they operate physically, have to maintain a lot of paperwork. The entire process, from applying for a loan to verification of documents and finally getting the approval, becomes time-consuming. While dealing with a large number of clients, this method is prone to a lot of errors as well. In order to deal with the workload, numerous people need to be hired, which again dents the company’s finances.

• Lack of Expansion Possibilities

When dealing in a non-digital mode, an NBFC’s growth becomes limited. They are confined by various factors such as location, low clientele, limited products etc. This hampers the potential profit the business could have made had it had a digital presence.

• Lack of Customer Experiences

Traditional NBFCs have a stringent approach while lending out loans. This unknowingly makes them fall in line with banks. If NBFCs want to outgrow themselves, they must deliver customised loan products as per the need of the customer. When NBFCs offer digitalisation in Loan Products, it can assist the user in obtaining a loan according to his needs.

• Sub-par customer experience

NBFCs target a larger consumer base for lending than other financial institutions. While dealing with such a huge volume of consumers, it tends to be cumbersome for them to offer top-notch customer services to everyone. However, if they go digital, most of the work can be dealt with by AI & bots, and better services can be offered with minimum human intervention.

• Issues with debt Recovery

Financial institutions always find it difficult to recover their debts. Effective debt recovery strategies need to be introduced by NBFCs to minimise the risk of non-repayment of debt. If NBFCs integrate fraud detection systems, tools to find the frequency of default in payment based on past data. Then the risk in debt recovery could be mitigated.

Advantages of Digitalisation in Loan Products for New NBFCs

The following are the Advantages of Digitalisation in Loan Products for New NBFCs

• Obtaining and managing Consumer Data

At present times banks are reluctant to lend loans to many people. The current situation with the public sector banks has worsened as they try to ward off bad loans. This scenario gives NBFCs an elbow room to establish themselves. Through digitalisation NBFCs can expand themselves. They can understand the needs of their customers and can assess and analyse this data to provide better services to them.

• Tailor-made Loan Products

NBFCs need to be creative with their loan products to maximise their reach. A customer base is always attracted towards the products that have been customised for them. With the digitalisation of loan products, NBFCs shall be able to deliver tailor-made products which the customer yearns for. Technology will also assist in providing a personalised, efficient customer dealing experience.

• Facilitate wider customer reach

As we had discussed earlier, the number of internet users has shot up significantly. To have a more extensive consumer base, various entities in the financial sectors^[1] have opted to have a serious digital presence. NBFCs will be able to make their services accessible to everyone, which shall be only a click away. It also brings all stakeholders, consumers, merchants and financial merchants together. The potential customer pool would be beneficial for all of them.

• Risk Reduction

By infusing technology into their services, NBFCs can have safer transaction modes. This would save NBFCs time and make it easier for the customers to pay back the amount. It would also provide a safe, secure, transparent payment gateway for both parties.

• Enhanced Customer Service

Irrespective of the sector, customer service should be something that is top-notch. Technology would enable NBFCs to incorporate facilities such as text prompts, email updates, query solving bots, delivery of E-bills, and Payment reminders. This would improve the customer experience. The satisfied customers would lead to an influx of new customers through references.

• Cost reduction with digitalisation

Technology facilitates the efficient utilisation of resources. NBFC digitalisation would reduce the requirement of manpower and would also enhance administrative efficacy. Once the NBFC Business is in automation, it shall significantly reduce the wastage of time and resources. Affordable and easily available technology solutions have made it easier for NBFCs to implement them into their services.

Conclusion:

Traditional NBFCs had faced a dip in their business during the pandemic as they had less to no digital presence. In today’s time, when there is a heavy dependence on technology, NBFCs must have digitalisation in their loan products. It will not only help in market expansion but also save them a lot of money.