Six Profitable BNPL Business Models to Unlock Infinite Value

<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/2022/04/banner1251-5-1.webp" alt="M2P Fintech" title="" id="l0awqi5yp" width="100%" height="356">Swiping a credit card for purchases has been a standard practice for decades. All we need to do is swipe the card, and the transaction is complete. If it is an E-commerce transaction, entering the card details and other requisite information does the trick. And the time taken to complete this happening is mere seconds. But there are many steps between the card swipe and receipt of the swipe. All those actions are an intricate part of how credit card processing happens on the inside.<blockquote class="block-node" id="6mo1864fw">Simplifying Wikipedia’s terms: The Credit card is a payment card used by consumers to pay the merchant in exchange for goods or services. It is a promise between the card issuer and the cardholder to abide by a few drafted financial terms &amp; conditions — the cost of the goods + interest rates or late fees.</blockquote>It is a calculative risk taken by many parties involved in the transaction.From transferring the funds securely to collecting the payment from the user later, it revolves under a virtual promise. So that the importance of understanding credit card processing is to avoid any mishaps.<h2 class="heading-node" id="b7b9">What is credit card processing?</h2>Credit Card Processing is the funnel through which the data related to the Consumer Credit Card and purchase are transmitted from their Credit Accounts to Merchant Account. As consumer uses their credit card to buy a product, a virtual process happens swiftly between many financial participants to allow or decline the purchase.The credit card processing framework is a blueprint that serves as a guide for payments to go in the right direction during the transaction, and when they take a toll, it acts as an investigator.<h2 class="heading-node" id="bab3">Stakeholders in credit card processing</h2>The credit card processing network actively processes millions of transactions with the help of rigid network infrastructure and various stakeholders behind each network architecture.Each task is a mini approval request raised and approved in a circular motion by the financial entities involved in the process.Card Holder:&nbsp;The consumer is the credit cardholder.Merchant:&nbsp;The owner of the online selling platform or the offline store where the goods or services are placed for the consumers to buy.Example: Amazon (online store) Costco HyperMarket (offline store)Payment Processor: These are the companies that communicate and relay information from Consumer’s credit card to both Issuing and Acquiring Bank. All this occurs at lightning speed. Payment processors collect, receive, and accept the payment using a combination of hardware and software advancements. They ensure the security and fraud protection measures in the transactions.Card Network: Visa, MasterCard are the dominant examples of the card network, followed by American Express and Discover. They are virtual payment infrastructure facilitating the communication between merchant and issuer bank. Along with these international players, we have an India-borne network RuPay, launched by NPCI (National Payment Corporation of India).American Express and Discover are also issuers in the credit card industry. Discover also owns and operates Discover Bank. In India, Discover-branded credit cards are seen in collaboration with HDFC Bank and Diners Club International.Issuing Bank:&nbsp;An Issuing Bank (or “Issuer”) is an entity that provides Credit/Debit Cards to customers (VISA, Master, American Express, etc.). It authenticates a customer’s purchase at a store/online site. When a payment is made at a store, funds are transferred from the issuing bank (which authenticates the transaction) to the acquiring bank.Acquiring Bank:&nbsp;An Acquiring Bank (or “acquirer” or “merchant’s bank”) is an entity that maintains the merchant’s bank account. With the help of the acquiring bank, the merchant can process debit and credit card payments, access payment gateways, and receive payments from transacting customers.Any eCommerce entity or a brick-and-mortar store can collect online payments only after signing a contract with an acquiring bank. Once the contract is signed, the merchant can receive online payments, and the acquirer takes care of it on behalf of the merchant.In short, acquirers accept payments while issuers make payments. Also, the Acquirers provide their services to businesses, whereas Issuers offer their services to individuals. Acquirers and Issuers are like two sides of the same coin; though there are subtle differences in how they work, one cannot exist without the other.<h2 class="heading-node" id="92d9">How does credit card processing work?</h2>Credit card processing, which happens in a fraction of seconds, is a complex process in the background. We have tried demystifying the process in 7 simple steps:<img src="https://miro.medium.com/max/1400/1*K9bp4Kbg_HWik1wOxQw9jw.jpeg" alt="Credit Card Processing Flow" title="" width="100%" height="284"><h3 class="heading-node" id="46f4">Consumer confirms purchase</h3>The consumer, who is also the cardholder, confirms the purchase at the POS (Point of Sale) terminal or the checkout webpage of the e-commerce website.<h3 class="heading-node" id="7fec">Consumer submits transaction details</h3>To complete the purchase, the consumer swipes the credit card or submits his card details to begin the payment. The transaction here will follow two flows; if it is a POS transaction, the POS device will read the card information. In the case of e-commerce websites, the consumer enters card details in the payment gateway.<h3 class="heading-node" id="1675">Secured data transmission</h3>There are multiple levels involved in the card data transmission and the purchase amount.<ol class="list-node" id="z0vfnyiw9"><li>Encrypted details sent to Payment Processor-&nbsp;The card reader or the payment gateway passes the transaction information in an encrypted format to the payment processor.</li><li>Payment Processor to Card Network-&nbsp;The payment processor collects and transmits information to the Credit Card Network.</li><li>Card Network to Issuer Bank-&nbsp;The Consumer’s Bank or the Issuing Bank which has issued the Credit Card, receives the information.</li></ol><h3 class="heading-node" id="1ae6">Payment verification by issuing bank</h3>The Consumer’s Bank verifies the availability of sufficient funds for the purchase. It also checks the legitimacy of the purchase. Once all these checks are done, it sends an approved or declined message to the Credit Card Network.<h3 class="heading-node" id="834e">Payment authorization</h3>Authorization response from the Card Network is sent to the Payment Gateway or the Card reader, displaying the response at the Purchase window. Once the authorization is approved, the merchant can deliver goods to Consumer.<h3 class="heading-node" id="665c">Payment processing by acquiring bank</h3>Merchant’s Bank or the Acquiring Bank receives the approved authorizations and credit card payments in a batch from Merchant for settlement. The payments are processed by the Bank on behalf of merchants.<h3 class="heading-node" id="e50a">Payment settlement flow</h3>The merchant bank further raises the Credit Card issuing bank request for batch settlement. The issuing bank, in turn, makes a settlement payment to the merchant bank the following day. Once funds are received by the Merchant Bank; certain amount towards interchange fees, acquirer fee, etc. are deducted before depositing the remaining to the merchant’s account. The settlement process typically takes 2–3 Business days.<h2 class="heading-node" id="ec35">What happens if the card transaction fails to go through?</h2>In case of refunds, payment disputes, or fraud reports, the process begins at the issuer end and then flows to the acquirer. In these cases, too, the issuer will authorize, and the acquirer authenticates. Though the minor details may differ from case to case, the overall process is the same. This activity is also known as the&nbsp;Chargeback process.&nbsp;Here the issuing bank will reverse the transaction in question by withdrawing money from the acquirer and returning it to the cardholder.The merchant can dispute the chargeback through&nbsp;Representment, where the acquirer must gather evidence on the merchant’s behalf to prove the original transaction validity. The issuer will examine the collected facts and offer an outcome supporting either the merchant or the cardholder.<h2 class="heading-node" id="280d">What are credit card processing services?</h2>A credit card processing service handles the data transfer that happens between the card machine and the bank. It processes all kinds of credit card transactions, both offline and online. Also known as&nbsp;Merchant Service&nbsp;Providers, these companies are authorized by card networks such Visa, MasterCard, etc. They help businesses open merchant accounts and manage their daily card transactions for a fee.<h2 class="heading-node" id="3ad2">Credit card processing fees</h2>The whole operation of credit card settlement and processing is notoriously confusing and complex. Still, it’s made easy for a price, and that is your credit card processing fees. This amount is charged to the merchant based on the payment processor he is using.Payment processors like the fintech providers who provide the payment infrastructure in the selling platform are the ones that collect this fee. It is then split among the other active players in the credit card processing framework.Credit card processing fees are broken into<ol class="list-node" id="5i5ncnxcm"><li>Interchange:&nbsp;The commission fee that goes to the issuer bank, non-negotiable.</li><li>Assessments:&nbsp;The commission fee that goes to the card network brand, non-negotiable.</li><li>Markup:&nbsp;The commission fee that goes to the payment processor, negotiable.</li></ol><h2 class="heading-node" id="f95c">Payment processing technologies</h2><img src="https://miro.medium.com/max/1400/1*jEPc3qSRo-kXAHW_35lr0w.jpeg" alt="Payment Processing Technologies" title="" width="100%" height="284">Payments are sensitive everywhere. Lose a tooth nobody cares but lose a penny in the transaction everybody loses their temperance.It is essential to place your business into the next generation of the digital world that demands trust, fast, easy, and scalable fintech solutions. Only when your chosen payment processing technology can act as more than an enhancement can one survive the competition.To process a credit card, settle the credit card funds, and secure the payment process, the fintech industry caters to the technology accordingly. Irrespective of online or offline stores, payment processing, needs to happen few seconds to place an active bet in the competition. And here are some of the technologies<ul class="list-node" id="gt7lqlsep"><li>Mobile POS terminal (mPOS)- It is a device used at stores for retail card transactions</li><li>Payment Gateway- It is the key component of the payment processing system, and it sends the customer information to the acquirer</li><li>Real-Time Payments (RTP)- As the name suggests, RTP payments are initiated and settled almost instantly. Ideally, this technology is available 24*7*365</li><li>Mobile Wallets- It is a virtual wallet that stores an individual’s card details on a mobile device. They are used to make payments without the need for a physical card.</li><li>Blockchain in Payments- It is a promising tech for payment processing. Many companies worldwide are exploring its potential in the same.</li><li>NFC/Contactless Cards- NFC is available in smartphone payment gateways. It allows users to store multiple card data on their mobile, thereby reducing the need to carry cash.</li></ul><h2 class="heading-node" id="3bfc">Conclusion</h2>I know this is a lot to take in. We wish for an easy backend process, too, with fewer complications involved.However, that’s a job for us to worry about while you think only of choosing the right credit card processing system. The only thought you should have is about bringing in a suitable payment processor to make your credit card transactions occur in a fraction of seconds for a lower fee.Want to know more on this? 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.

Credit Card Processing - A Definitive Guide

<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>

Digital Lending — Open Credit Enablement Network

<blockquote class="block-node" id="musdo3dd7"><img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/05/Artboard-1-copy-8-2-4.webp" alt="M2P Fintech" title="" id="cwegdj29x" width="100%" height="351">What if I told you Fintech dates back to half a century? And it’s not a buzz word conjured up in the present, but one of the most disruptive technologies of the last five decades.Ready to explore the unchartered waters of <a class="link" href="https://m2pfintech.com/blog/fintech-a-catalyst-for-financial-inclusion/">Fintech</a>?</blockquote> Then let me take you through a timeline:<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/06/Artboard-1-copy-13-1.webp" alt="M2P Fintech" title="" id="q5nkj7fnh" width="100%" height="358">So, now you know that right from checking your recent transaction via a banking app to scanning a QR to pay, everything is a classic use case of everyday Fintech.Indeed, today’s Fintech products and new business models are the results of the latest technologies disrupting traditional financial services such as investments, insurance, trading, <a class="link" href="https://m2pfintech.com/blog/digital-lending-open-credit-enablement-network/">lending</a>, and <a class="link" href="https://m2pfintech.com/blog/banking-as-a-service-redefining-financial-services/">banking.</a>What is Fintech? How is it categorized?The term Fintech stands for Financial Technology. The application of programming, analytics, and technology to financial services and banking has brought forth an unimaginable revolution called Fintech. In short, you can say Finance + technology = Fintech.Moreover, in the last decade, the Fintech industry has gone through a wave of innovation. It has created new journeys for banks and businesses and transformed the way you pay, lend, borrow, save, invest, insure, and so on.From <a class="link" href="https://m2pfintech.com/blog/ready-to-sneak-peek-into-global-cashless-societies/">cashless</a> payments to<a class="link" href="https://m2pfintech.com/blog/digital-lending-open-credit-enablement-network/"> digital lending</a>, from crowdfunding to <a class="link" href="https://m2pfintech.com/blog/all-you-need-to-know-about-virtual-cards/">virtual currencies</a>, from mobile banking to robot advisors, everything falls under this umbrella. All in all, you can conclude that it has touched almost all the verticals of the financial sector. Its sub-domains include Paytech, Bankingtech, Lendtech,<a class="link" href="https://m2pfintech.com/blog/insurtech-the-changing-facets-of-the-insurance-industry/"> Insurtech,</a> Wealthtech and Regtech.<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/06/Artboard-1-copy-12-1.webp" alt="M2P Fintech" title="" id="q4o7m888l" width="100%" height="358"><h2 class="heading-node" id="ed70" style="text-align: justify">A Sneak Peek into the Onset of Fintech Globally and in India</h2>Right from 1950, <a class="link" href="https://m2pfintech.com/blog/fintech-a-catalyst-for-financial-inclusion/">Fintech</a> has gone through many tremendous changes and growth by easing the lives of millions of customers worldwide. However, the latest Fintech boom can be attributed quite well to the new technology advancements and evident global events.To explain further, let me show you three striking realities that triggered the sky-rocketing growth of Fintech.<ul class="list-node" id="z6ujlvxil"><li>The infamous credit crisis of 2008 forced financial institutions to focus heavily on regulation and triggered innovation. To overcome this lag and to close the existing tech gap, many firms started developing mobile-first, <a class="link" href="https://m2pfintech.com/blog/api-the-power-that-drives-new-age-banking-ecosystems/">API</a>-enabled, and AI-driven bank solutions.</li><li>The 2016 Demonetization bolstered the usage of banking apps and digital payments. After this incident, the Indian Fintech start-up ecosystem grew at a faster rate and became a strong contributor.</li><li>The 2020 COVID Pandemic has made digital transfers a necessity rather than a convenience. For instance, online renewal payments for insurance has seen a considerable uptick globally.</li></ul><img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/06/Artboard-1-copy-11-5.webp" alt="M2P Fintech" title="" width="100%" height="358">In simple words, Fintech has made the overall customer experience more straightforward and comfortable.Why do we need Fintech?When you observe traditional insurance, lending, and banking firms globally, you discover a common thing these legacy firms have. It is nothing but a vast pool of untapped customers and complicated processes. Fintechs act as a helping hand to serve these overlooked and overwrought customers.To elaborate, here is a sneak peek of these potential customer clusters:<ul class="list-node" id="1xbnvgudo"><li>Thousands of customers without bank accounts and with smartphones</li><li>Many authentic borrowers with a low credit score or bad credit history</li><li>More professionals wanting to manage their personal finance</li><li>Consumers looking for personalized insurance products</li><li>Many customers trusting robot-advisors over wealth managers and so on</li></ul>Further, they also simplify the process and make financial services more accessible.<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/06/Artboard-1-copy-9-5.webp" alt="M2P Fintech" title="" id="oumayvwhq" width="100%" height="358">Fintechs today are breaking the mold by developing dedicated digital solutions for them, such as mobile banking, lending without banks, peer-to-peer borrowing/lending, payment APIs, and so on. In short, they are striving to create a much-awaited financial inclusion across economies.As customer adoption rates are higher than usual, many start-ups and investors today are exploring many facets of fintech inclusion. With countless Fintech enthusiasts around the corner, there’s no wonder why unique lending capabilities and payment technologies are emerging every day.The Ones to Watch: FintechTo sum it up, Fintech SaaS has the potential to transform consumer relationship with money. You can also think of Fintech as a <a class="link" href="https://m2pfintech.com/blog/banking-as-a-service-redefining-financial-services/">Bank-as-a-Service</a> version of traditional banking.<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/06/Artboard-1-copy-10-3-1.webp" alt="M2P Fintech" title="" width="100%" height="358">Nevertheless, it can and will set the landscape of future banking and financial services. It is an ongoing journey, and emerging products will always be the result of regulations (banks), innovations (fintech), and customizations (end-user).Remember, it is more than a technology or a business model; It touches lives and makes incredible advances. If you want to keep track of something disruptive in the future, then Fintech is the one to watch.Want to know more about fintech, 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.

Tag: "Digital Lending (52)"

M2P Fintech