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The blog is a synopsis of the webinar event ‘Going Digital First’, where industry experts joined in to discuss the strategies for automating loan repayment/collection with NBFCs and LSPs…. And many more!

Ever since the RBI came up with the DLG (digital lending guidelines), NBFCs (non-banking financial companies) and LSPs (lending service partners) have been trying to scale up their businesses while staying compliant with the regulations.

We, at Cashfree Payments, have had several WEBINAR sessions with industry stalwarts over the Digital Lending ecosystem. We are here again with the 6th session in this series of discussions! Our esteemed panellists uncover the strategies that NBFCs and LSPs are deploying to automate loan repayment.

However, our panel members did NOT restrict the engaging conversation only to loan repayments and collections but also discussed various aspects of digital lending. Aditi Olemann, Director, New Initiatives at Cashfree Payments moderated the webinar.

Our panel members were Samir Gupta, Director – Product Management at Cashfree Payments, Tushar Panhale, Head of Payments at Ring and Kissht, Eklavya Pandit, Head of Partner Integrations at Arthmate, Raman Agrawal, Head of Strategy and Finance at Finsall Resources, and Rajat Deshpande, Co-founder & CEO of FinBox.

So, without further ado, let’s get started!

Key Highlights of the Webinar – Automating Loan Repayments

The blog highlights the key points discussed by the panel members. They shared the challenges they faced in their respective journeys. Adding to it, they discussed how they have come up with solutions for the challenges.

The digital lending space is still growing and evolving and there is a lot that still needs to be done. The webinar commenced on the note of how an efficient digital lending system can create an impact.

Role of Efficacy and Efficiency

Arthmate’s Eklavya Pandit stated that efficacy and efficiency are of prime importance. This is because digital lending is all about turn-around time, top-notch customer experience and increasing operational efficiencies.

Arthmate works in embedded finance as a service by building blocks for NBFCs/banks to provide for more efficient lending. Therefore, Eklavya highlighted 5 major challenges that they face. He also pointed out the technological advancements through which they are trying to deal with these issues.

Credit Risk Assessment

A credit risk assessment comes as a major task. For fintechs, dealing with customers with limited or no credit history is quite a challenge when underwriting these borrowers/customers. Hence, they are trying to incorporate multiple scorecards using alternate data or multiple data science models.

Fraud Detection

Fraud detection is equally important to discover that the borrowers are genuine. It is a hard reality that some KYC processes in the digital lending space are not up to the mark. So, they use the KYC engine, OCR test, selfie check, name check, PAN match, computer vision, etc. for verification. They also take the help of third parties for the validation of submitted documents by customers.

Compliance Along With Innovation

As the RBI came up with new DLG guidelines, striking a balance between adherence to compliance and innovation requires a lot of vigilance and agility. Having a digital-first approach and being agile in implementing solutions/technologies available in the market (such as UPI 2.0 or reverse penny drop) can give a better experience to customers plus maintain compliance.

Customer Experience

Customer experience is now of utmost significance as user engagement has to be very seamless and near real-time. It is because there has been a shift from a relation-driven approach to a gratification-driven approach. Reducing operation-heavy tasks to real-time tasks, automating the entire process from onboarding to disbursement to repayment/collections and many such touchpoints are to be checked.

Loan Repayment

Last but not least, one of the MOST CRUCIAL problems in digital lending is the loan recovery part. As there’s no physical connection, the LSPs majorly drive the process in digital format. Hence, it’s difficult for NBFCs to recover loans. Herein, it’s important to optimise technology to reduce operations and workforce for loan recovery by deciding the right channels for collections. For example, using early warning tools to identify high-priority accounts. This can help to focus our approach, particularly on those accounts where there is a need for a field agent.

Challenges of Working in a Regulated Space

While regulations are important for any industry, sometimes they can challenge innovation and scaling businesses. Finsall works in a unique intersection of lending and insurtech (insurance technology). Therefore, Raman Agrawal shared the experience of having stakeholders in two regulated industries, the RBI and the IRDA.

He said that being the first mover has its benefits and challenges. When they started with insurance to make it more supportable/accessible, they knew they had to deal with highly regulated industries on both sides.

However, when it comes to insurance compliance, being in the IRDA sandbox, helped them to deal with insurance-related problems. Now, with the recent RBI guidelines on DLG, it’s icing on the cake for them. This is so because it can help in giving a proper reconciliation.

He explained with an example of a down payment structure and how many NBFCs didn’t have that structure available.

Raman Agrawal also made a point that 97% of the insurance in India is through an agent-assisted model. Moreover, most of the insurance companies work in tier-2 or tier-3 cities. Therein, disbursals usually do not happen via net banking transactions or mandates through e-NACH. So, UPI 2.0 helped them and Raman shared that 70% of their mandate registrations happen through UPI 2.0.

Adding to the above point, he mentioned that they were one of the very early adopters of UPI Autopay. However, he thinks that there is a gap. Even the last NBFC partners need to implement this product. The penetration must go higher in the tier 2/3/4 markets.

There’s a lot more than just underwriting the borrower like how to structure the loan repayment. That’s where LSPs come in and bring in different models/ways to reach out to the customer base.

Using Credit To Meet Daily Needs

Traditionally, access to credit was not easy and was a tedious process. Although fintechs have enabled easy access to credits, it is also important to enable access to customers for using credits to meet their daily needs.

Tushar Panhale shared how Ring & Kissht as brands have solved this problem. Emphasising the same, he said that the new generation not only wants pre-approved loans but also wants on-demand disbursals.

He said that they want to create a one-stop solution for all the credit requirements of customers and loan repayments. From taking personal loans to BNPL as well as to other credit options that can help customers use credits for bill payments or meeting other day-to-day needs.

In his opinion, with the DLG guidelines, the RBI doesn’t want to restrict innovation but wants to ensure responsible lending. It wants a one-to-one relationship between the borrower and the RE. (RE= Regulated Entity)

Use of APIs and Tech Stack for Digital Lending & Loan Repayments

Rajat Deshpande stressed a point that lending as an ecosystem is evolving. He shared how Finbox, a TSP has taken the API-first approach to building a lending infrastructure for banks and NBFCs. (TSP = Technology Service Provider)

They tend to solve the infrastructure issues on both sides – LSPs and lenders (banks or NBFCs). He shared that a lot of work goes behind the scenes to make a financial product go online. Only a few products have been mastered by the ecosystem in today’s time. This is because there are a lot of moving parts of any lending product specifically.

APIs play an important part in almost all the parts of the lending value chain, from enabling borrowers to KYC to submitting data to risk assessments to loan repayments and so on.

Finbox products sit in a place where they integrate with all of the providers in each space and build a set of proprietary technology. Some of these are fraud detection through banks’ statements analyser, credit-decisioning through device-based data, credit-decisioning through rule engines, etc.

They have made deep investments in various parts of the infrastructure to be able to solve 10-15% of the problems of the ecosystem. Although a long way to go, being in an enabler space, they can help improve the overall ecosystem. This, eventually, enhances the customer journey.

Digital Lending & Loan Repayment From Cashfree Payments’s Perspective

Samir Gupta of Cashfree Payments withdrew attention to how the latest DLG has clarified that payment aggregators (PAs) can have a very legitimate role. This was initially not so clear in the previous DLG guidelines but clarified later in FAQs and new guidelines.

Cashfree Payments ensures compliance with its specific solutions for NBFCs, LSPs, and TSPs. We ensure that the money flows directly to the end NBFC bank accounts. Also, at Cashfree, we work with various LSPs and have created multiple scenarios to meet all tenets of DLG guidelines. For example, we have vendor models, split models, and many more.

Earlier the panellists talked of loan repayment/collection challenges, especially from tier 2,3 cities. Cashfree Payments provides multiple payment modes, such as net banking or UPI, which is quite trending in the ecosystem. We also provide eNACH (electronic/digitalised NACH) as well as we are working on the physical side of NACH.

For each payment mode, we work with multiple banks to ensure that payment routes are not down.

We have come up with a few more tech-driven initiatives, like for types of mandate set-up, we allow specific frequency and on-demand set-up. For instance, mandates for home loans where payment must be of a specific amount and on a particular date. Likewise, microfinance set-up where there is no set frequency of payment nor fixed amounts.

We allow merchants to use Cashfree’s checkout or use our API to create their own checkouts. Alternatively, merchants can also use our SDKs (software development kits) to plugin user experience directly into their app. For digital lenders, we do bank account verification and full KYC to create mandates. Thereby, we mitigate the chances of fraud and non-payment by following certain measures.

Wrapping Up:

Following the interesting and enlightening session, the panel members took to answering some QUESTIONS from the webinar attendees. They answered how end-to-end API for payment received reconciliation, without manual intervention, may provide zero error benefit by automating the processes.

Similarly, LSPs that have a supply chain finance platform partner with NBFCs to handle cash flow in the lending process. However, they face problems in reconciliation because NBFCs are not allowed to integrate into their systems. Therefore, they have to handle disbursals and reconciliation manually. This is perhaps a problem to solve.

There is a requirement for different technological solutions for different partners and integrations. Likewise, TSPs for every use case and every stage of the lending process may vary. There are various factors to evaluate the same. For instance, fraud detection for onboarding as in the case of reverse penny drop to match the customers’ names with their bank accounts. Similarly, it is important to ensure that the loan repayment is not through any sort of money laundering activity.

In a nutshell, digital lending is still evolving and RBI’s digital lending guidelines are to ensure regulations and fair practices are in place.