Digital lending: 4 ways to prioritize data security to confront online lending challenges

India has a growing digital ecosystem across all sectors which can be attributed to the increased technology integration after the onset of Covid-19 pandemic. One of the key industries that has undergone a dramatic transformation is the Financial Technology sector or FinTech. In the recent years, banking and financial institutions have digitized conventional services, providing ease, accessibility and efficiency to customers.

The accelerated adoption of FinTech successfully has paved the way for digital lending, providing instant loan disbursals to the common man. It demonstrated a high level of disruption with the emergence of online lending players bridging the gap of loan accessibility for the underserved.

Digital lending: The ever-evolving market scenario

The digital lending space in India has witnessed a massive boom in recent years. Quantifying the rise, Ajay Chaurasia, Vice President: Marketing, Product & Business at RupeeRedee, says, "At present, the digital lending market in India has received investments in excess of USD 1 billion. Additionally, the industry estimates exponential digital lending market growth, projected to touch a whopping USD 515 billion by 2030."

The emergence of digital lending players has led to increased availability of data in multiple formats. Technology integration has further made it easier to analyze the enormous amount of data and gather relevant consumer insights. 

"The online availability of consumer data poses several risks to security such as fraudulent activities, data hacking, data breach, loan defaults," Chaurasia adds.

As the digital lending market continues to grow at an unprecedented pace, data security becomes one of the biggest challenges inhibiting the growth of FinTech companies. Ergo, companies backed by advanced technologies leverage data science capabilities to combat security issues for an improved customer experience.

Digital lending: Robust customer onboarding exercise

Digital lending requires a robust mechanism for seamless customer onboarding. Against the backdrop of this, digital lending companies prefer to create an integrated Omni-channel user experience through a myriad of services. 

Digital lending apps mandate the requirement of various data points like Aadhar Card, PAN Card, Banking statement, etc. When data is collected online, managing multiple digital identities becomes a critical challenge for FinTech companies.

Before the intervention of the government, cybercriminals benefitted from online data collection and misusing the digital identities of customers. On the other hand, sharing incorrect information related to income statements and KYC details becomes another challenge for seamless customer onboarding. 

"While the government has started issuing licenses to ‘Specified User’ FinTech companies as a progressive step towards data security, digital lending apps have started focusing on embedded security mechanisms in the initial stages itself," he avers.

Digital lending: Mitigating credit risks

Digital lending is a behind the screen process. Conventionally, multiple risks are inherited from customers sharing false information. This increased the overall risk of user authentication, making it even more challenging for apps to understand the Income Debt ratio of customers and assess the customers’ repayment capacity or creditworthiness. Consequently, it increases the risk of defaults or non-repayment of the loan.

Chaurasia opines, "New-age digital lending apps heavily rely on data science. By using advanced data analytics and credit assessment models, digital lenders can mitigate credit risks as well as make informed lending decisions. Having said that, these apps invest in robust IT infrastructure, cyber security measures and ethical recovery plans to ensure customers are not bothered by the apps’ operational risks."

Digital lending: Ethical loan recollection process

Loan repayment or recollection has always been one of the most painstaking processes for digital lenders. In a time of economic slowdown and consecutive layoff drives, a strategic response to the loan recollection process can be a severe relief for lenders as well as borrowers. This can be designed by capitalizing on the potential of data science that helps FinTech companies trace down the high-risk customers.

"Predictive analysis of customer behavior, credit score, transaction history, etc. can help companies identify high-priority accounts. This helps lenders in allocating their recovery teams properly while also deciding the right mode of channel that would work for high-risk customers," he sums up.

Digital lending: Bottom-line

With the advancements in technology infrastructure, digital lending is continuing to evolve and progress at a rapid pace. Apart from deploying robust security systems, digital lenders should focus on sensitizing borrowers about safe lending practices along with the benefits of timely payments for their better financial activities in the future. Embedding data analytics can catalyze digital lending solutions more strategically. It can bring stability to customers’ cash flow and also ensure business sustainability for digital lending players.