A recent report from the Centre for Advanced Financial Research and Learning (CAFRAL) suggests that fintech lending is poised to exceed traditional banking methods by the year 2030. Established by the Reserve Bank of India (RBI) in 2011, CAFRAL’s forecast underscores the substantial influence of technology on the financial sector, reflecting evolving preferences among both borrowers and lenders.
The report emphasizes the distinctive credit needs of small to mid-income segments, indicating that fintech lending can effectively address these requirements in a sustainable manner. A key driver in this shift is the collaborative effort between fintech players and banks, with expectations that consumer-friendly products and well-governed fintech entities will emerge as major contributors.
Anticipated advancements include improved credit practices, reduced costs for consumers, and more widespread access to credit, particularly in India where the banking regulator prioritizes consumer interests. However, the report highlights concerns such as high-interest rates, questionable recovery methods, and data privacy breaches in the expanding digital lending space.
One significant challenge identified is the lack of clear information for borrowers regarding the total costs of borrowing, often with crucial details not communicated upfront. Additionally, the proliferation of fake or illegal lending apps poses a considerable risk, with users struggling to verify their legitimacy, leading to reports of third-party harassment and aggressive loan recovery tactics.
In response, the report underscores the importance for fintechs to invest in technologies and systems that enhance digital lending processes, including underwriting, cybersecurity, and data privacy. Despite challenges and negative perceptions arising from some unscrupulous actors, many fintech lenders are actively improving their technologies and practices to address these issues, adhering to digital lending guidelines and a code of conduct covering pricing and recovery practices.