Pssst, do you want a loan with these fries?

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The digital payment ducks all lined up in 2017. From demonetization in November 2016 to government entry into the Payments Space (BHIM) at zero commission for digital transactions entering giants international like Google and Facebook (WhatsApp entry is imminent) in payments, the ducks were right away. The fintech lenders were quietly waiting behind the scenes, biding their time.

Although on paper, unsecured loans will represent a $ 2.1 trillion opportunity by 2026, according to Credit Suisse, but so far lenders have had little benefit to them. They could neither target all available opportunities nor find sufficiently rich data sources (digital lending is above all a data-driven game).

But with the explosive growth in payments, lenders may be on the verge of finding their mojo.

Because if “the data is the new oil,” then the payment histories are the sinks. Digital payments leave a rich trail of user data that lenders can use to assess creditworthiness. Traditionally, lenders have used data such as repayment history, income from payslips to make loans. But with payment data, businesses can know when you pay your bills, how often you make expensive purchases. And that goes into determining someone’s intention to repay. Thus, lenders have in their hands an alternative credit scoring model of borrowers to add to more traditional data sets.

By extension, payment platforms could be the new credit controllers. Whenever you buy digitally, lenders will have the opportunity to offer loans of any size to the right group of people. Previously, this was not possible because the economics of granting such small loans was inconsistent. But with the cost of acquisition now borne, the sizes of the loan tickets are not of concern.

Credit on demand for users of Walnut, an expense management application. Image source: https://twitter.com/roshya/status/945929190146170880

Fintech lenders are also finding allies in banks and non-bank financial institutions who view these companies as a means of acquiring new customer groups. The little traction lending has seen so far is due to companies like Capital Float and LendingKart that provide loans to small and medium businesses. Consumer lending fintechs have yet to see this kind of scale given the small size of the notes and the caution with which they lend.

But that could change in 2018.

The missing pieces of the loan puzzle

In the sequence of steps leading to digital lending, the first and last have proven to be the most inconvenient for startups. The first concerns Know Your Customer (KYC) formalities for new customers and the last is the actual collection of loan amounts. Lenders who wanted to be fully digital couldn’t because they had to physically perform a KYC of new borrowers.

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