Lending

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/04/banner1251-1.webp" alt="M2P Fintech" title="" id="3l3vpjt7z" width="100%" height="661">The size of the Fintech market via <a class="link" href="https://m2pfintech.com/blog/embedded-finance-101-the-bridge-connecting-tech-and-financial-services/">Embedded Finance</a> — embedded insurance, embedded lending, and embedded payments is going to be 400 lakh crores in the next 10 years.”- The Economic TimesLending has existed since civilization started. Mankind has borrowed for various reasons: seeds, animals, currencies, jewels, mortgages, <a class="link" href="https://m2pfintech.com/blog/credit-card-processing-a-definitive-guide/">credit cards</a>, and digital.Embedded Lending or embedded credit is the latest in the line receiving the spotlight. Being an active subject of debate, many businesses believe embedded lending can increase their revenue by 5x. This article summarizes the story of Embedded <a class="link" href="https://m2pfintech.com/blog/credit-risk-model-for-unbanked-last-mile-lending-enablement/">Lending</a> and its potential to bridge the gap between businesses, lenders, and the end customer.<h1 class="heading-node" id="b347" style="text-align: justify">What is Embedded Lending?</h1>When lending (a financial service) is offered through non-financial products/services (retail or food delivery app), it is called Embedded Lending.As the name suggests, a financial service is embedded into a non-financial service, thereby removing the need for using third parties. The embedding is invisible and offers a seamless lending experience to the users in a few clicks. It saves the costly infrastructure as it happens at the backend with simple <a class="link" href="https://m2pfintech.com/blog/api-the-power-that-drives-new-age-banking-ecosystems/">API</a> calls.The entire lending ecosystem now becomes light as the reliability of many participants like a lender, banking institutions are reduced. <a class="link" href="https://m2pfintech.com/blog/credit-risk-model-for-unbanked-last-mile-lending-enablement/">Credit risks</a> are almost zero as the lender has access to the customer’s credit history and spending pattern. Based on these analytics, the lender can set the amount to be disbursed as a loan. They can further use these analytics to offer attractive rewards as an incentive. It also narrows down the gap between businesses and consumers.Furthermore, legacy lending processes slow down the business cycle in many ways such as:Time-consuming&nbsp;— Businesses borrow for starting a new branch, upscaling, delivering bulk orders, etc. At times, they need loans to fulfill their unexpected short-term revenue shortcomings and to improve their credit score for troubled-free future loan processing. Businesses cannot hold their orders for a long time till they are approved of the loan. By the time they are credited, the deal would be in the air.Lengthy processing&nbsp;— The concept of lending is believed to be forbidden or rather daunting as it involves complex and lengthy processes. Documentation, verification, underwriting, sanction, payment management consumes huge manual labor and time.<blockquote class="block-node" id="s9q4njppz">“Consumers prefer to accomplish their financial tasks through their digital channels.” -Forrester</blockquote>Change in customer preferences-&nbsp;The emergence of mobile devices changed the consumer’s buying and transaction channels. While the businesses want their customers to stick to their platform till they buy the product, consumers prefer to complete their payments, lending, or availing no-cost EMI options in the same platform digitally.Competitive advantage&nbsp;— It’s vital for businesses to stay abreast in the market. Any business that adopts the latest innovative features are deemed to be the top-rated services/products.Physical verification needs- Traditional lending requires the applicant to walking to the investor’s office or a banking institution with physical proofs and certificates. Each bank has its set of procedures. It takes substantial manual efforts and energy. A small error, say a spelling mistake can take another month for the applicant to prove genuine.Pandemic constraints&nbsp;— The government’s curfew measures to contain the pandemic or face any unprecedented challenges fostered the businesses to navigate their operations indoors.Embedded Lending alleviates these shortcomings, and it is an incremental leap on <a class="link" href="https://m2pfintech.com/blog/digital-lending-open-credit-enablement-network/">digital lending</a>.<img src="https://miro.medium.com/max/700/1*oFtzR5QA7SUN0aQ90NYp0w.png" alt="Features of Embedded Lending" title="" width="100%" height="350"><h1 class="heading-node" id="cae7" style="text-align: justify">A practical example of Embedded Lending</h1>Geeth is an aspiring fashion designer. She started selling handcrafted sarees online with Flipper. As an effect of her hard work and unique designs, more customers began buying her products. Geeth realized it’s time for her to replenish her inventory but her cashflow was not sufficient. One day, she received an invitation to the&nbsp;Flipper Lending&nbsp;program.Geeth grabbed the opportunity without any second thoughts. She logged into the Flipper seller central to know her available loan limit. She applied for a $20,000 loan, which she can repay within 12 months at an interest rate minimum than the banks. Within 5 business days, her account is credited with the money. Geeth’s brand flashed in the top seller’s list.Thanks to Embedded Lending.<h1 class="heading-node" id="c6ef" style="text-align: justify">Why this process is much easier than the traditional route of lending?</h1>● Geeth never has to run to a banking institution, check her credit scores, search for a liability, wait for the underwriting process completion or leverage her assets.● The entire process — loan application, verification and approval, credit, repayment is digital. Geeth can get her loan with a few clicks.● Interest rates are comparatively minimal than banks.● Flipper Lending is an invitation-only program. It verifies the seller’s eligibility criteria like Geeths’s annual selling history, customer complaints and copyrights infringement history of 6 months, etc., before inviting. This ensures Flipper the seller’s ability to repay.● Repayments are automatically deducted at fixed rates every month from Geeth’s account while Geeth can focus on her designs and sales● Geeth never has to postpone her dreams for the sake of money.● Both Flipper and Geeth can enjoy increased revenue, and steady stream of customers.<h1 class="heading-node" id="fc8f" style="text-align: justify">How Embedded Lending helps businesses?</h1><blockquote class="block-node" id="i8ao12ft0">“Credit card penetrations in India remains 59% although 800 million have a bank account.”-Economic Times</blockquote>Embedded Loans aims to facilitate the end-user (consumer or business) to avail of financial service as and when required. It can be applied to many fields, such asE-commerce Website challenges:Shopping cart abandonment, where the customers leave the site before buying products in the cart, is a headache for eCommerce businesses. Although there are many reasons, insufficient cash at the moment stands on top. Embedded lending alleviates this with Point of Sale credit providers. This increases the consumer buying rates, which in turn increases the profits.Tackling cash flow of Small Businesses:One of the biggest challenges small businesses struggle to tackle is their cash flow. They can harness this credit method to drive their business. With Embedded Lending, SMBs can utilize every opportunity they come across, like buying raw materials required for a large manufacturing order without worrying about the capital.Simplifying loan processes:Embedded Lending can also assist in processing education loans. A student can apply for a loan with a few clicks while taking his online certification courses. He can easily link his bank account, fetching his registered details from RBI (Reserve Bank of India)/ or a respected country’s regulatory body. He/she can pay her loans at once they are placed.Non-financial service providers incorporate Embedded Lending on top of their core services. The application process is simple, and the daily rewards are attractive. Technologies like Face ID and Touch ID ensure the end consumers’ security and privacy who avail themselves of the credits.Further, Embedded Loans can make businesses go cashless in the near future, provided all the cybersecurity and regulatory needs are satisfied.<h3 class="heading-node" id="s63ynjwut" style="text-align: justify">Conclusion</h3>Financial services are no longer seen as a standalone domain. It has now become the kith and kin of all the businesses that focus on sales. The synergy between financial services and non-financial services is phenomenal, helping every stakeholder enjoy the benefits. With the facts discussed above, Embedded Lending is indeed a noteworthy Fintech innovation every business should leverage.To know more about embedded credit write to us at business@m2pfintech.com.<a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox. Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.

Beginner’s Guide to Embedded Lending

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/05/Artboard-1-copy-7-11.webp" alt="M2P Fintech" title="" id="hwrpiz4dg" width="100%" height="317">Often, the country’s self-employed and underbanked section shies away from accessing formal credit lines as they do not satisfy the banking formula. Traditional financial institutions staunchly rely on asset-based lending where they have an asset to fall back on in case of default. But, it ignores those millions of potential borrowers who perhaps are viable choices than salaried defaulters.Also, the on-going pandemic has forced many industries to shut down their business. With the economy slowly getting back-up, these segments are still in search of funds. In the absence of credit scoring and strong financials, scores of MSME and SME’s have succumbed to high-interest loans or credit flow decline. But coupled with the right tools and innovation, cash-flow-based lending can help revive them.Nevertheless, the landscape is now slowly shifting, with many upcoming FinTech's and NBFCs focusing on cash-flow-based lending. Cash-flow lending takes into account the revenue generation capability of the individual/enterprise based on various factors such as seasonal or market demand. The interest rates and tenure of the loan are adjusted accordingly. This method of lending doesn’t come under the regular pattern of 12-month EMI repayments.<blockquote class="block-node" id="ivntz2hml">Inspired by the country’s FMCG sector’s ingenious move, this movement is termed “Sachetization,” where good things come in small doses.</blockquote>Sachetization was spurred off by India’s FMCG sector to capture all facets of the market. They realized that the significant market shareholders were not the ones who could not afford large-ticket items in a single purchase. Starting from shampoo packets to instant coffee, sachetization has a long-standing relationship with the Indian economy. Now, P2P lending has also adopted this model through the means of cash-flow-based lending.For example, with data insights and cash-flow lending, a farmer can take out loans to reap a better harvest. He need not pay the usual cycle of 12 months but rather avail a customized loan with a repayment tenure based on his crop production. The same formula can be tailored to a different set of customers like fishermen who has an off-season of 4 months due to the monsoon.Many financial service providers are now partnering with new-age FinTech's to offer sachet loans to their target customers. They are currently restructuring the formula by deploying technology to better understand the MSME/SME’s financial needs.In a nutshell, making cash-flow-based credit available to every segment will be a small solution that has the ability to spearhead complete <a class="link" href="https://m2pfintech.com/blog/fintech-a-catalyst-for-financial-inclusion/">financial inclusion</a>.<a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox.Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.

Sachetization inspired cash-flow lending

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/06/Artboard-1-copy-10-4.webp" alt="M2P Fintech" title="" id="9psuo4qu8" width="100%" height="284">Around the world, there are billions of people without access to structured and formal lending services. This category also includes those micro, small, and medium enterprises that struggle to stay afloat without timely financing.Fintech has identified these segments to be on the brink of a financial revolution, but there is a tiny hitch. For instance,<a class="link" href="https://m2pfintech.com/blog/digital-lending-open-credit-enablement-network/"> digital lending</a> institutions need to regroup their position on mastering the tech, utilizing data in identifying potential borrowers. Nevertheless, some lenders have made some headway in adopting alternative data models resulting in a cutback of credit losses and doubled application approvals.Post-COVID Credit Assessment for Unbanked SegmentThe impact of lending and borrowing on small and medium businesses and informal segments like single structures, migrant populations &amp; the unbanked segment is now seen as “Too risky.”This scenario gives rise to crucial problem statements that need to be addressed by various players in the formal financial ecosystem as below –<ul class="list-node" id="1e9xn2w3x"><li>Lack of structured and verifiable financial behavior data for MSMEs, small retailers, and even single entrepreneur set-ups</li><li>Physical <a class="link" href="https://m2pfintech.com/blog/know-your-customer-kyc-the-need-for-authentication/">KYC</a> verification challenges, especially if the borrower's name details, address, or any other criteria are mismatched against available sources</li><li>The financial inability of MSMEs to service and repay existing Loans (in effect) to avail any of the fresh or emergency credit</li><li>The prevalence of manual processes in risks and credit assessment of lenders and banks increases the chances of fraud, errors, omission, loan data exception, and oversight</li><li>Specifically, in the current scenario, as COVID 19 can be classified as an “ACT OF GOD,” this presents a rare loop-hole challenge for existing borrower data to be improperly / insufficiently benchmarked against existing lending product standards</li><li>One of the most ignored segments is the unbanked and under-banked segment (who can be classified as without an active bank account or a transaction presence for a minimum of 6 months)</li></ul>Credit Assessment Opportunities — Ecosystem Participation<ul class="list-node" id="zp19xq2a4"><li>Alternate scoring entities and solution providers need to capture and capitalize individual data through Telecom, Utilities, Taxation &amp; GST, Payments, E-commerce, and Location data</li><li><a class="link" href="https://m2pfintech.com/blog/account-aggregator-101-democratizing-data-access-and-sharing/">Account aggregators</a> will be a qualitative and quantitative complement disruptor for the credit assessment and provide holistic financial behavior data across participating Financial Information Providers (FIPs) and Financial Information Users (FIUs)</li><li>Credit repair entities will have an essential role in ensuring the impacted segments have access and transparent understanding to repair appropriate credit damage due to COVID</li></ul>So far, these pioneering efforts have sparked the unbanked credit assessment. They have brought forth massive opportunities for the sector, and the future looks promising.Want to know more about enabling digital credit? Then write to us at <a class="link" href="mailto:business@m2pfintech.com">business@m2pfintech.com</a><a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox. Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.

Credit Risk Model for Unbanked: Last-Mile Lending Enablement

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/05/Artboard-1-copy-8-19.webp" alt="M2P Fintech" title="" width="100%" height="284">Lending is a complex world where loan origination to disbursal is a sea of procedures. It involves tremendous efforts, time, and logistical investments from the loan seeker. Right from <a class="link" href="https://m2pfintech.com/blog/know-your-customer-kyc-the-need-for-authentication/">KYC</a> verification to document submission, loan application form &amp; user-setup, account mandates, amount sanction, and disbursement, end-use monitoring &amp; EMI/Principal collection, the entire life cycle of the loan is mostly offline.It paves the way for many instances of fraud/mis-governance, data input error, transaction failures, other issues, and loan closure inconsistencies. It also prevents many from seeking credit as they are wary of these cumbersome procedures.<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/06/Artboard-1-copy-13.webp" alt="M2P Fintech" title="" id="jrpp3783x" width="100%" height="284"><h2 class="heading-node" id="25a0">Short story:</h2>Sunil is an MSME entrepreneur, residing in a semi-urban area called Bandipur. He ran a profitable electronic shop before being railroaded by the pandemic. The business faced a looming loss and a climbing expense due to strict lockdown measures. Since most of the lenders were in the urban or metropolitan cities, he had limited credit options.In fact, from March 2020, Sunil was finding ways to avail credit. He had made endless negotiations with lenders available, expecting a reasonable rate and term. It was a fruitless quest; Sunil had to get a loan from a lender named Roy Chatterjee, at very high interest. He completed all the steps from risk assessment, KYC verification, credit assessment, loan disbursement, and collection offline.<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/06/Artboard-1-copy-9-1.webp" alt="M2P Fintech" title="" id="cs0vgyg4f" width="100%" height="284">In the process, Sunil discovered that having minimal or almost no digital facility in the loan application method had given him a suboptimal output. The lending life cycle was complex and filled with data input errors, transaction failures, and loan closure inconsistencies.He also arrived at the conclusions that:<ul class="list-node" id="anlqtu1sw"><li>The absence of data yielded him risky credit allocation and disbursement</li><li>Secondly, the lack of digital infrastructure led to increased inconvenience</li></ul>Owing to a lack of repayment data, the lender misleadingly showed several months of missed collection and charged more than the actual amount. So, Sunil ultimately had to shut down his business and sell his assets for loan closure.<blockquote class="block-node" id="cdewdrpee">What would have saved Sunil’s business?The availability of competitive&nbsp;Digital Credit or Lending Solutions&nbsp;from various lenders could have given Sunil the right credit options.Sunil’s dilemma is an example of the current MSME situation in India. The MSMEs are referred to as the&nbsp;Lost Middle&nbsp;as their needs are not addressed. Their distinct requirements fall between microcredit organizations like Micro-Finance Institutions (MFINs) and banks, thereby making them prey to secondary lending agencies who charge exorbitant interest rates and sometimes deceive. And that’s where platforms like OCEN comes in as a helping hand.</blockquote><img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/06/Artboard-1-copy-10-1.webp" alt="M2P Fintech" title="" id="p47fcaqn0" width="100%" height="284">OCEN stands for Open Credit Enablement Network. It aims to promote transparent loan origination and participation from categories of Education, e-commerce, Payment Aggregators, Fintechs, and NBFCs. This platform is designed to serve even niche customers or borrowers like Sunil.<h2 class="heading-node" id="6eff">OCEN- A premise</h2>Fundamentally, OCEN is the brainchild of iSpirt, Sahamati, and Credall. It is a digital lending solution that provides credit to customers having a credit history and provides micro-credit opportunities to people with no credit or bank transaction history. In short, the platform aims to improve and enable credit access to everyone.<h2 class="heading-node" id="58af">So, what does OCEN do?</h2>Generally, it targets to serve all possible borrower categories like personal, home loan, and business. Furthermore, it offers a marketplace model for loan offerings.OCEN aims to resolve the major problems by emphasizing Digital-Only assessment, sanction, and disbursement of loans to borrowers. It supports borrower and lender usage monitoring, thereby ensuring a 360° data collection and analysis.Digital lending can prevent mis-governance or fraudulent loan practices by both the parties — loan seeker and loan provider.<h2 class="heading-node" id="c81c">OCEN — The Ultimate Platform for MSMEs</h2>OCEN is best suitable for MSMEs because its open protocols will ignite further innovation at each step of the loan process. Furthermore, it will help to democratize credit.&nbsp;It can even ensure that every service provider offers credit by just plugging into the platform.<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/06/Artboard-1-copy-11.webp" alt="M2P Fintech" title="" id="97zo19bd8" width="100%" height="284"><h2 class="heading-node" id="2ff3">Will OCEN solves the struggle of MSMEs?</h2>Yes. It can rapidly increase credit availability to enterprises that are already digitized to a greater extent. For other MSMEs that operate in a minimum data zone or with a low digital base, lenders need to utilize the physical and digital infrastructure and channels. Simply put, overcoming data errors or discrepancies for companies with a minimum digital capability is still an issue to be addressed.<h2 class="heading-node" id="6ff8">The Future Journey of OCEN</h2>OCEN is expecting to terra-form the credit landscape in the coming months and years ahead. It will allow small businesses to avail credit in real-time. Whether its supply chain finance for broad/long term or instant-short term credit or any other trade-specific condition, you could anticipate a sea-change transformation in the more extensive credit process.The next visible step in OCEN — is the significance and authorization of Loan Service Providers (LSP) categories. Finally, the rationale behind the digitalization of lending and the Open Credit Enablement Network is to make “Credit for Everyone”&nbsp;a reality.<a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox. Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.Author- <a class="link au nn" href="https://medium.com/@abhishek.mody" rel="noopener">Abhishek Mody</a>

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