Digital Lending – Fintech & Bank Synergy Means Customer is the Winner

Lending without powerful tech is going to be like running a business without a website.

Indian lending market is growing fast and is expected to further pick pace. Consumption fueled by rapid economic development is a key driver of this growth. The consumer credit market is expected to double in the next 5 years. Think about it – one whole new India will be added in just the next 5 years! The enablers to service this market well and to fill the unserviced gaps are technology & mobile internet. Technology has the potential to disrupt the way credit is structured, delivered and consumed in India.

We give an exposure here of how we have leveraged technology to deliver a great experience to the customer. Ultimately, the biggest differentiator for a company is the differentiation that their customers experience and enjoy.

In this article, we focus on one of the most important pillars of lending automation – the fund transfer infrastructure.

Digital Lending Infrastructure

Before we go into the details, here are some issues that are faced by most lenders / fintechs today:

  1. Friction and delay in disbursal of funds due to manual involvement, banking holidays, operational errors etc.
  2. Friction and delay in auto-debit management
  3. Difficulties in real-time reconciliation of repayments from multiple channels
  4. Paperwork and risks involved in handling cheques, loan agreements etc.

A truly digital lender should have powerful technology systems that can transfer funds in real-time, reconcile repayments from multiple channels, have fully automated auto debit management and do away with outdated instruments like cheques (RBI has recommended doing away with cheques long time back) and wet signatures. Here is what infrastructure of a digital lender may look like:

Indian Digital Lending

Credy Approach – Customer Focused Automation

Our approach at Credy has been to build automation that directly benefits the end customer. We are happy to have a strong technology-driven banker in Yes Bank. Banking products of Yes Bank are innovative, robust and work well at scale.

Here are some places where we have used technology to improve customer experience:

  • No cheques – Cheques are avoidable and inherently risky instruments, susceptible to fraud that can cause huge loss to the customer. Cases of cheque fraud in lending are not uncommon.
  • Real-time fund transfer – You would be surprised at how many of the large NBFCs and banks still use NEFT for disbursing funds, even if they are below the IMPS limit. Our in-house loan management system moves funds in real-time backed by strong authentication.
  • Multi-channel repayments – Customers should have flexibility in choosing the mode of repayments. All major payment modes like auto-debit, payment gateway, wallets, UPI etc should be allowed.
  • Real-time reconciliation – It is a bad experience when the customer has to follow-up to get a receipt for their payment. We have real-time reconciliation of repayments via different payment channels. Yes Bank provides virtual accounts where even IMPS transfers can be reconciled in real time without having to manually attribute the transaction to a customer.
  • Auto debit management – Majority of the customers have funds on EMI dates. For this large chunk of customers, paying the EMI should be as simple as, well, doing nothing! Our auto-debit (NACH) system is fully automated – from signing mandates via eNACH to placing auto debits when needed to reconciling the repayments onto our loan engine in real-time.

These are just some of the examples of how a powerful technology infrastructure can deliver superior customer experience at scale as well as bring down risk, costs and turnaround times.

Role of Banks, Regulators & Government

Banks continue to play a critical role in enhancing the technological backbone of our financial system. Players like Yes Bank, RBL etc. actively work with Fintech startups in a synergetic manner. This helps Fintechs develop innovative solutions on top of APIs provided by the banks. All this ultimately helps the end customer.

It is also encouraging to see support from RBI, government, related bodies like UIDAI, NPCI etc in powering our financial system with the necessary technological infrastructure to serve another India that is going to be added in next 5 years.

A budget for Digital Economy

When the Union Budget was announced by the Finance Minister Shri Arun Jaitley on 1st February 2017, the key take away was the willingness of the Government to push India towards Digital Economy. A few important measures were announced in the budget which will help India in advancing towards an economy based on the digital payments, digital services, etc. The idea of Digital economy itself has gained importance in the public discourse post Demonetization where the thrust was upon going cashless. Going digital will create an environment of speedy, transparent and accountable governance and helps in fighting the problems of corruption, black money and terror funding.

The important announcements made in the regard of creating a digital economy were:-

  • 125 lakh people have adopted the BHIM App so far. The Government will launch two new schemes to promote the usage of BHIM; these are Referral Bonus scheme for individuals and a Cashback scheme for merchants. This step will help in more and more adopting the BHIM way to go for digital payments and also motivate people to use wallets and other Apps. It will overall promote the development scenario for digital payments.
  • Aadhaar Pay, a merchant version of AEPS (Aadhaar Enabled Payments System) will be launched shortly and definitely provide the much needed momentum in the digital payments and FinTech sector.
  • A mission will be set up with a target of 2500 crore digital transactions for 2017-18 through UPI, USSD, Aadhaar Pay, IMPS and Debit Cards. The mission can bring in the required behavioral changes in the way customer pays up for buying a product.
  • A proposal to bring mandate all the Government receipts through digital means, beyond a prescribed limit is under consideration. When the Government itself leads by example then citizenry can be expected to follow the new scheme of things.
  • Banks have targeted to introduce additional 10 lakh new POS terminals by March 2017. They will be encouraged to introduce 20 lakh new Aadhar based POS by September 2017. It will provide the rural India with digital connectivity and enable them to be part of financial and digital inclusion.
  • The Government has proposed to create a Payments Regulatory Board in the Reserve Bank of India by replacing the existing Board for regulation and supervision of Payments and Settlements system. A newly energized Board with a embedded vision of spearheading Digital Economy can turn the tides in favor of Digital payments.

All the above steps and the additional focus of the Government on Digital India along with Startup India, Skill India and Make in India will help in accelerating the process of creating a Digital economy very soon. We should be ready to embrace the change and see our country going digital in Indianized way!

Abhishek Ranjan is a Research and Policy Analyst to Members of Parliament (MPs) Mr. Ninong Ering and Mr. Dilip Tirkey. He is also working as a Consultant to University of Chicago’s Delhi Center for Anubhav Lecture Series, and is a Policy Consultant for FinTech startup Credy. Earlier, he was a LAMP Fellow and graduated in Engineering from Manipal Institute of Technology.

Economic Impact of Aadhaar

On 25th November 2016, replying to a parliamentary question on Aadhaar based welfare delivery mechanism, Minister of State for Finance said in Lok Sabha, “World Bank in its World Development Report 2016 in Chapter 3 (Delivering Services) and in Spotlight 4 (Digital Identity) has recognized the use of Aadhaar as a digital ID in India for implementing direct cash transfer programs resulting in savings through reduced leakage and efficiency gains in government expenditures. Further, in order to ensure that the benefits of the schemes reach the actual beneficiaries, payments are made to the actual beneficiaries in their Aadhaar linked bank account through Aadhaar Payment Bridge (APB).” The vital statement made by the Minister proves the commitment of the Government to utilize Aadhaar as the aadhaar of targeting right beneficiaries without much leakages.

The much acclaimed JAM (Jan Dhan-Aadhaar-Mobile) Trinity through the usage of financial and digital inclusion is trying to change the socio-economic condition of society. It is largely helping the disadvantaged and distressed classes of people in availing the benefits of major Government schemes and subsidies. For instance, Schemes like MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme) and PDS (Public Distribution System) have started using Aadhaar card for the purpose of Direct Benefits Transfer and supply of food grains to the BPL people, etc. which has resulted in elimination of ghost beneficiaries and widespread corrupt practices. Aadhaar enabled targeting has resulted in identification of beneficiaries in more fruitful ways from the Government’s perspective.

Even the education sector can be a great beneficiary of Aadhaar enabled payments, for instance in providing the scholarships for students. Aadhaar as a medium of citizen centric governance can prove to be an effective instrument when the schemes like Mid Day Meals and National Nutrient Mission will achieve higher success through this tool. From child welfare to social security and pension, Aadhaar can help the Government in making every rupee count!

Moreover these days, financial services are being linked to Aadhaar at a rapid pace. The banks have been instructed to go for KYC (know your customer) for the functioning of bank accounts which will be also simultaneously linked with PAN Cards. Hence, a system of true checks can be installed upon the banking systems. Due to the impact of demonetization, taxmen have a wealth of information on possible tax evaders. On the one hand, there are 111 crore Aadhaar numbers issued which are linked to PAN Cards and will make it very difficult for tax evaders.

In addition to that, Aadhaar enabled payment system can benefit a large number of farmers who go to sell their produce at the agriculture markets. If payments are made directly to them (Direct Benefits Transfer), it will boost financial inclusion and credit worthiness. The banks can offer those loans and crop insurance which can revamp agriculture sector.

The future of Aadhaar is almost here for us to witness. The 12-digit Aadhaar number could soon be a single point payment address for sending and receiving money without needing to link it to a bank account, once the IndiaPost payments bank becomes operational in September 2017, according to reports from The Economic Times recently.

Aadhaar as an idea provides a single view of beneficiary data and information, aiding in streamlining policy decisions for the state. It will create an enabling ecosystem for data-driven governance in India. To conclude, Aadhaar’s impact on our economy has just started to show results but the future is even brighter and we can expect Aadhaar to be a game-changer!

Abhishek Ranjan is a Research and Policy Analyst to Members of Parliament (MPs) Mr. Ninong Ering and Mr. Dilip Tirkey. He is also working as a Consultant to University of Chicago’s Delhi Center for Anubhav Lecture Series, and is a Policy Consultant for FinTech startup Credy. Earlier, he was a LAMP Fellow and graduated in Engineering from Manipal Institute of Technology.

Aadhaar and digital payments : The power in those 12 digits

Tagged as world’s largest national identification project, Aadhaar is a 12- digit unique identity number issued to an Indian resident on the basis of their biometric and demographic data. The unique Aadhaar number has proved its utility in eliminating fake and duplicate identities which has reduced leakages in many of the Government schemes such as MGNREGS, PDS, etc.

Although Aadhaar neither provides citizenship identification nor guarantees any rights, it is largely seen as a facilitator of various Government subsidies and other targeted delivery of services. The Parliament of India last year passed The Aadhaar bill (Targeted Delivery of Financial and other subsidies, Benefits, and Services) which intends to provide for targeted delivery of subsidies and services to individuals residing in India by assigning them unique identity numbers, called Aadhaar Numbers. The bill provided the legal backing to Aadhaar which was pending from 2010.

Aadhaar Number can be used for verification of identity of a person receiving subsidies or Government services. Any public or private entity can accept the Aadhaar number as a proof of identity of Aadhaar number holder. This step has revolutionized the digital services world too. For instance, one just needs his Aadhaar number to procure a mobile SIM card instead of all the paper work. Many new innovations are coming up in the digital world to proactively use Aadhaar number in an integrated and holistic way.

Till date, 111 crore of total 127 crore Indian population have registered for Aadhaar number which is big success of the Aadhaar program. Post Demonetization, the significance of digital payments is on rise and even the Government launched its own BHIM (Bharat Interface for Money) App which is Aadhaar based app to simplify digital payments. The App would connect to Aadhaar linked bank accounts. Other Aadhaar payment apps have been also introduced by likes of IDFC bank. This will make the payment infrastructure more robust, safe and secure.

The recently introduced AEPS (Aadhaar Enabled Payment System) uses Aadhaar data for the authentication and neither requires your signature nor Debit card. Aadhaar authentication works through fingerprint matching and is highly secure. The beneficiaries of AEPS will be mostly from rural India who will have access to financial services at affordable rates.

In this year’s budget 2017-18 the Government made announcements about Aadhaar Pay. It is a merchant version of Aadhaar Enabled Payment System (AEPS). In the words of Finance Minister, “This will be specifically beneficial for those who do not have debit cards, mobile wallets and mobile phones.” The government has set a target of 2,500 crore digital transactions for 2017-18 through UPI, USSD, Aadhaar Pay, IMPS and debit cards.

The Income Tax department is also working on a project to issue PAN to assesses within minutes by way of e-KYC authentication using Aadhaar, a move that will help bring more people under the tax net by making it easier for people to get Permanent Account Numbers.

Therefore, 12 digits of Aadhaar are going to change the way India is going to transact in near future, especially when 87% population has their Aadhaar numbers. This holds more relevance to rural India where digital infrastructure is just coming up in big way and they will be empowered for financial transaction through usage of their Aadhaar numbers.

Abhishek Ranjan is a Research and Policy Analyst to Members of Parliament (MPs) Mr. Ninong Ering and Mr. Dilip Tirkey. He is also working as a Consultant to University of Chicago’s Delhi Center for Anubhav Lecture Series, and is a Policy Consultant for FinTech startup Credy. Earlier, he was a LAMP Fellow and graduated in Engineering from Manipal Institute of Technology.

E-monetization and FinTech: Future of Finance Has Arrived

FinTech (Financial Technology) is a hot sector right now in Indian startup ecosystem. From e-wallets to robo advisory to online lending, Fintech is seeing innovation and adoption at a rapid pace. There has been a policy and regulatory push towards innovation, at a pace that can match a private sector initiative. The government has rolled out Unified Payments Interface, integrated Aadhaar with many financial services and has given an unprecedented impetus to digitizing the economy by reducing cash usage. Formally connecting most of the remaining unbanked and unfunded Indians to the financial system has sown the seeds for financial innovation to breed and bloom.


Demonetization has resulted in 86% of India’s currency to have returned to formal banking system. India has unusually high rate of use and storage of cash as percentage of the total wealth owned by people. About 98 percent of all consumer payments in India use cash, compared to just 8% in a country like France. This storage of cash leads to slow movement of money and thus restricts the growth potential of economy.

By bringing all the cash into banking system, this stagnation is checked by a great extent. It also speeds up the flow of money which should result in a faster growth rate of the economy. With banks having more cash than ever, the interest rates have begun dropping. This will boost the economy and investments will rise. The temporary dampening of economy of India is due to shortage of cash as it necessary to keep the money flowing into system. The step of demonetization will give a push to the efforts of building a digital economy. With people embracing the use of cards and internet banking, efficiency of money in the system will increase.

The cost of cash to Indian society is significant. The RBI and the commercial banks face a total of Rs. 22,000 crore in currency operations annually. This was 0.4 percent of the total currency in circulation. This cost does not include the cost of storage, transportation, security, detection of counterfeits, etc. The cost of printing and maintaining this extensive amount of cash costs the country nearly 2 percent of its GDP.  Studies show that a moderate growth of cashless transactions by 5 percent a year will save the country more than Rs. 500 crore annually.

Online Lending

National Sample Survey Organisation (2005a) reveals that in 2002 around 50 percent of borrowers were indebted to informal lending agencies, and that a considerable proportion of these loans were made at an interest rate of 30 percent or above. The informal lending is dealt mostly in cash, has been hit badly due to demonetization. Another reason for high rate of informal borrowing is the fact that, in 2001, India had 5.3 bank branches per 100,000 people in rural areas. Today that stands at only 7.8 branches, according to Reserve Bank of India data.

With extra money in the formal banking system post demonetization, interest rates can be expected to come down. This is because there is more money chasing same number of hands, and hence premium charged by lenders comes down. Interest rates in some informal lending sectors have been reported to have dropped from 30% to 5%! This is hitting informal lenders hard, who were using black money to lend to borrowers in cash at high rates. The time is right for lending and borrowing to move online for a more rational lending market.

Online lending and borrowing has numerous benefits. First, it is convenient. Credy, a Y Combinator backed Bangalore-based peer-lending platform, has application process of 3 minutes and approves loans in 24 hours. Entire process can be made digital with Aadhaar based KYC and digital signatures. Secondly, platforms like Credy rely on data and analytics to make better decisions both for themselves and their customers. It also offers a great opportunity as an investment vehicle, for those who want to lend and make good returns. Risk can be diversified by investing in many borrowers. Assuming no defaults or delay in repayments, lenders can typically expect about 16-22% returns from such an investment option.


Fintech is changing fast in India. With BHIM and Aadhaar Pay launched, we will witness a monumental shift in the way payments, lending and authentication is done in India. Linking mobile numbers with Aadhaar was recently given a ‘thumbs up’, making the JAM (Jan Dhan, Aadhaar, Mobile) trinity a powerful agent of change. This is a remarkable time to be in fintech startup space, with potential to use technology and finance domain knowledge to forever change how a common man manages finances. Financial revolution is here.

Credy is India’s first biometrically verified peer lending network. Started by Goldman Sachs alumni, they are backed by Y Combinator in their mission to facilitate credit and economic growth through financial trust, innovation, speed and responsibility. Find more at

Article written for B Hive, a network and coworking space for emerging startups


Week in monetary policy review : RBI focus on inflation

What happened

The Reserve Bank of India on 8th February 2017 kept its key policy rate or the repo rate (which is the short term lending rate) unchanged at 6.25 percent for the second time in a row. This was against the consensus view in the market hoping for a 25 bps rate cut. All other rates i.e reverse repo rate, the marginal standing facility rate and the bank rate, were left unchanged.

Key things RBI noted

The RBI said that this decision of the MPC is consistent with a neutral stance of monetary policy with the objective of achieving consumer price index (CPI) inflation at 5 per cent by Q4 of 2016-17 and the medium-term (2 year) target of 4 per cent within a band of +/- 2 per cent, while supporting growth.

The RBI noted that while retail inflation measured by the CPI has come down for 5 consecutive months, this is driven mainly by deflationary price movements in food items (vegetables and pulses). However, the non-food , non-fuel inflation also needs to come down in order to achieve the target of bringing overall inflation below 5%.

Outlook regarding inflation

  • The MPC is of the view that persistence of inflation ex-food and ex-fuel could set a floor on further downward movements in headline inflation and trigger second-order effects.
  • For Q4 2016-17 headline CPI inflation is likely to be below 5 per cent.
  • Favorable base effects and lagged effects of demand reduction due to demonetization may mute headline inflation in Q1 of 2017-18. Thereafter, it is expected to pick up momentum, especially as growth picks up and the output gap narrows.
  • Base effects will reverse and turn adverse during Q3 and Q4 of 2017-18. Accordingly, inflation is projected in the range of 4.0 to 4.5 per cent in the first half of the FY and in the range of 4.5 to 5.0 per cent in the second half with evenly balanced risks on either side.
  • The MPC noted three significant upside risks to the baseline inflation path – the hardening of international oil prices; volatility in the FX rate due to global market developments, which could speed up domestic inflation; and the effects of the house rent allowances (HRA) under the 7th Central Pay Commission which have not been factored in the baseline inflation path.

What it means

Most major banks cut their lending rates in January post demonetization and inflow of cash reserves. With this policy review from RBI, banks may not cut rates further for a while.


This was the RBI’s sixth bi-monthly and last policy for the year 2016-17 and the third by the Monetary Polciy Committee (MPC). The next policy meet will be on April 5-6.

Here is the press release from RBI.

How has demonetization affected informal lending in India?

Lending interest rates dropped from 30% to 5%! This is hitting informal lenders hard, who were using black money to lend to borrowers in cash at high rates. The time is right for lending and borrowing to move online for a more rational lending market!