Digital lending is known for its speed and convenience which helps in increasing financial inclusion. But as is the case with everything around you, it is necessary to be responsible in your approach which ensures that all the practices are being followed properly. Here, we’ll see the risk associated with digital lending.
Evaluating Borrower Trustworthiness
One of the biggest challenges in digital lending is to judge whether the borrower is reliable or not, especially those who lack credit history. The lenders try out innovative approaches to tackle this issue. For example, examining their social media behavior, phone activity, and their spending habits. Abhay Bhutada, the MD of Poonawalla Fincorp opines that their company focuses on customers with stable cash flow and credit scores above 700, which helps them reduce the risk and keep their NPAs steady.
Data Privacy & Security Concerns
In digital lending, the entire process is online. All your personal and financial data is at a big risk as chances of data breaches, hacking attempts, or unauthorized access are high here. To reduce the risks, it is necessary to have robust encryption, secure data storage practices, and follow all the data protection strategies properly.
Fraud Prevention Strategies
Anything that is being done online is always under the threat of various frauds. These range from identity theft to loan stacking to counterfeit documents. Having advanced technology and anti-fraud mechanisms in place helps in identifying suspicious patterns, trends, and attempts for potential fraud. Instances such as Lendingkart’s adjustment of risk filters in 2021 exemplify how institutions adapt to mitigate potential problems.
Guarding Against Scams
As we all know identity theft is not a joke, millions of families suffer every year from it. Special anti-fraud tools, AI algorithms, regular audits, and verifications help in reducing the risks associated with digital lending.
Navigating Market And Legal Challenges
To avoid any legal issues or reputational damages, it is necessary to comply with the existing regulations and have the flexibility to adapt to new ones coming in. Understanding the market trends and patterns is necessary for sustained growth.
Managing Operational Challenges
Every lending company is always under the threat of facing unlikely situations. Operational risks, tech issues, inefficient processes, and human errors pose a constant threat to the digital lending industry. Having a set operating procedure, backups, and plans to tackle every possible situation is important to reduce the impact of operational challenges.
Conclusion
Abhay Bhutada, Poonawalla Fincorp’s MD says that their company follows digital processes throughout, from onboarding to collecting dues. Yet there has been no complaint or hesitation from the customer’s side in following the digital process. It shows that digital lending practices are growing and have the potential to completely change the borrowing system of the country. This makes it more necessary to evaluate the risks in this industry, making data privacy the number one priority, alongside focusing on prevention of fraud and following the regulations made to create a safe and secure environment.
