Funding is always an integral part of the growth of a business. With the rise of eCommerce, the requirement for finance has given rise to digital lending. WhatsApp has tied up with banks like ICICI Bank, Kotak Mahindra Bank, and HDFC Bank to provide lending services to its largest and the fastest-growing market in the world.
What is Digital Lending and how does the WhatsApp API plan to enable it?
Lending is a process that enables businesses to borrow money to increase their operations. The lender does an identity verification to ensure the credit worthiness of the enterprise physically.
Digital lending enables small to mid-size businesses to borrow money with online verification.
The WhatsApp Business API has built a solid foundation by partnering with many banks and utility companies so that SMEs can use WhatsApp for all their business needs. In addition, it removes the complexities of regulations and allows businesses to borrow credit easily.
What are the benefits provided to SMEs by WhatsApp API in the lending process?
WhatsApp has emerged as a credible source for conversing with buyers, payments transfers, and providing other utilities to SMEs.
Adding Lending services to all these services gives businesses the following benefits:
1. Simple and easy on-boarding process
WhatsApp API can provide a seamless process in which businesses and lenders can complete the entire on-boarding process on the WhatsApp platform. Uploading all the KYC documentation in one place makes it convenient for the borrower to track the progress of their application on the app itself.
Lenders can verify the business’s credentials by inspecting the number and ticket size of transactions with the customers.
2. Providing the right amount of loan
WhatsApp API enables the right amount of loan to the right borrowers after analysing their revenue and cash flow.
3. Real-time information
The API provides the borrower with more information as the entire journey of the customer is recorded on WhatsApp and gives real-time alerts about cash flow which helps the enterprises make better financial decisions.
4. Easy Dispersal of loans
Loans can be efficiently disbursed through WhatsApp Pay using the UPI mechanism. A single window to verify and receive payments can help businesses keep track of all their finances. This helps reduce the cost of processing the loan.
5. Quick Collection with payment reminders
Payment reminder with UPI links helps the lenders avoid collection costs to a large extent. This helps the borrower avoid additional charges and pay with ease.
Challenges faced by the WhatsApp API
Digital lending is a process of transformation from traditional banking to electronic transactions. This has increased the need for digital financial services significantly over the last two years, which has hampered the bankers’ ability to manage credit risk, drive growth and provide personal contact to the customers.
Digital lending offers unique and personalised problems which are as follows.
1. Onboarding process
The API receives an abundance of applicants, which makes it difficult to analyse every candidate and provide an accurate risk profile of the borrower. It is an exhaustive, time-consuming, and error-prone process.
2. Credit underwriting
Credit underwriting supplies the lenders with relevant and accurate information to set up loans for the borrower. However, borrowers can make false identities with healthy revenue streams to create an ideal profile for the borrower. As a result, lending to such individuals leads to greater default rates and a high cost of recovery for the lenders.
3. Lax Regulations
The government offers little to no protection to lenders in the lending process. This makes it difficult to recover any dues from the borrowers.
A unified solution for the lenders
Precisa is an online bank statement analysis tool that banks, NBFCs, and other institutions use to analyse and provide creditworthiness to potential borrowers.
It presents a unified solution to all the digital challenges faced by the lenders in the following manner:
1. Intelligent document processing
Precisa makes accessing financial data easier by following an Account Aggregator framework that allows in-depth analysis of the economic data for multiple bank accounts. This report helps identify any irregularity and helps provide the right loan amount.
2. Fraud monitoring features
The chances of fraud monitoring are very high because of the easy onboarding process. Precisa presents an eStatement Authenticity check which gives an accurate picture of the enterprise by extracting the financial data in the correct form. It identifies any discrepancies in just a few seconds.
3. Risk Evaluation
Precisa Score can help evaluate an enterprise’s creditworthiness and loan repayment probability. It aids the lenders in providing loans to only those businesses which have the potential to repay the loan.
4. Cash Flow assessment
Precisa shows monthly metrics about cash inflow and cash outflow transactions of the business to ascertain the risk of lending to the enterprise. A healthy cash flow will lead to timely loan repayment by the SME.
5. Spot contra transactions
Any transaction which affects both the cash and the bank accounts is called a contra entry. Identifying such transactions is necessary as it inflates the value of the business.
Precisa allows precise transaction tabs mentioning such transactions. It can help the lender in creating an accurate loan candidate’s profile.
Conclusion
Digital lending is the process of transformation from traditional experience to electronic banking transactions. This has led to a wide variety of opportunities for both the lenders and the borrowers. According to a report by BCG, the digital lending space presents a $1 Trillion opportunity in the next 5 years.
It is a sensible decision to consider a bank analyser tool like Precisa to assist you in providing better services to the customers and maintain a healthy bottom line.
Mumbai