Introduction

Digital lending is not just a technological advancement but also a strategic move to be competitive even in the digital landscape and
take advantage of the digital economy. With the evolving advancement in technology, the market has witnessed a great revamp. The
offline market has majorly shifted towards digital commerce, this has greatly influenced the market behavior and has largely helped
consumers with easier access, operation and application. These digital platforms shift from the traditional paperwork towards data
driven AI and ML technologies. The seamless experience comes with its own sets of advantages, critics and changed behaviors.
Digital lending involves a creditor i.e. banks, NBFCs; a digital lending platform and a borrower. But this process of loan disbursal is
done online.
These lending platforms provide swift and convenient loans through smart phones. It provides improved customer experience by
streamlining and reducing paperwork at a lower cost by saving administrative costs and under the table demands by officials. Digital
lending also allows a wider digital reach even to the areas where people are not well connected with such banking facilities. However,
it is accompanied by its own set of pitfalls like data security threats, risks of cyber attacks, at times the borrower might be trapped into
misinformation and maybe defrauded by mis represented illegal platforms. Furthermore, it may also leave financial institutions and
lending platforms at risk of cyber attacks.
In the article below we will brief about the digital lending platforms, the emerging trends, customer behavior and regulatory landscape.

Emerging trends in digital lending and consumer behaviour

The uprise in use of digital platforms and emerging trends
With tremendous outreach and availability of smart phones and internet, operating and accessing the digital lending market has
become increasingly popular. These platforms are easy to access, apply for and get grants as loans. The flexibility and ease that is
offered by these platforms has proven to be a huge success. This has led to increased consumerism and economy, not only this but
these trends have set to alter consumer behavior. The seamless banking practices have set to gain trust as well as cast doubts from the
consumers. The main consumers as of now are the people in urban areas because of their exposure with digital services, their trust,
access to digital literacy and awareness . People also tend to have been more inclined towards these regulated platforms than any
unregulated money lending system.
The digital lending platforms tend to use data collected from consumers for customer verification and e KYC. This lets the platforms
have customer credentials knowing better about their financial and repayment abilities this essentially protects the money lending
institutions from defrauding. The consumers, that is the borrower prefers hassle free and swift disbursement of loan amount opposed
to traditional red tapism by banks. However, the rural population is still behind in digital literacy and are generally unaware about such
innovation. A few are also reluctant to use such facilities and cast doubt upon it due to certain infamous fraud incidents that catch fire
and others who believe more in traditional practices. However, the demand for personalized experience has majorly led to a boost in
digital lending.

Innovative Solutions
Despite the industry being relatively young there are innovative actions made for the purpose of ease, assistance, transparency and
security. Initiatives like eKYC, eNACH, eSign can seamlessly be done through smartphones. There are other service providers like
Choice Centres which help as secondary providers and this also saves the time of the consumer by avoiding traditional paper work in
banks etc. With immense competition the digital lending platforms have highly competitive rates of interest which can be proven to be
of great benefit to consumers.
Through AI and ML technologies these platforms fully verify the consumer and his credibility. Furthermore, these automated
systems preserve equality, non biasness, under the table transactions, bribery and similar human conceits. These systems are also well
equipped to assess risk by use of data.
Blockchain is further equipped with the ability to provide secure transactions by verifying consumer information and reducing risks
and frauds. Blockchain also enables smart contracts with automatic disbursal and payment processes.
Smart Regulation also called RegTech is another milestone in the digital lending landscape, it helps in real time reporting ,
monitoring and ensuring compliance to regulatory requirements.
It works on regulatory compliances and other what if solutions to work robustly on regulatory challenges. It also enables fraud
identification and helps in adapting faster with the new regulations. It comes with an important role of improved data collection,
decision making, avoiding policy breach, data analysis and data management.
These institutions also provide effective virtual assistance which simplifies the process and query process.
Furthermore, peer to peer lending platforms eliminate the role of intermediary which enables easier access to credit and financing.

Regulatory landscape
The digital lending essentially exposes consumers to threat and fraud if left unregulated therefore, RBI comes with a set of regulatory
barriers to keep a check on these service providers.
Earlier, before RBI came up with specific guidelines wrt digital lending platforms it was unregulated and this led to fraudulent and
illegal money lending. RBI compulsorily requires prior approval for initiating an Online Lending Platform. In Sept 2022 RBI came up
with mandatory guidelines for these platforms to regulate the process.
The guidelines regulate digital lending apps or lending service providers by obligating them to follow certain requirements while
lending. Firstly, the regulated entities cover all commercial banks, co-operative banks, District Central Cooperative banks,
NBFCsmust conduct a due diligence before collaborating with Lending Service Providers, they must publish a list of LSPs and DLAs
they are collaborating with.
The fees of these services which have to be borne by LSPs can not be shifted to borrowers. Further the borrower must be explicitly
informed about Key Fact Statements(KFS) which discloses Annual Percentage Rates, grievance redressal details and cooling off
period and this must be addressed before loan execution and these documents must be sent to the borrower through mail or SMS.
The regulated entities are required to have a designated Grievance Redressal Officer.
The platforms are also required to take explicit consent from the borrower before taking access to mobile resources and sharing their
data with third parties. The platform has to seriously comply with customer privacy and data security. These data which are stored
should not be stored on any server outside India. These regulated entities are also required to adhere to RBI guidelines on synthetic
securitization for any portfolio loss guarantee arrangements.
Further, Anti Money Laundering and Know Your Customer regulates customer credentials allowing platforms to have access to their
credentials to ensure and satisfy repayment of loans.
The policy aims to ensure transparency, grievance redressal and customer satisfaction through digital lending.
Therefore, regulated entities must adhere to guidelines related to processing, disbursal and other related formalities.

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