Coming Soon: The UPI Moment For Lending?

The Unified Payment Interface disrupted payments, allowing a host of companies from Google to Amazon to build their payment offerings atop ‘payment rails’ provided by the UPI infrastructure.Now, something similar is being attempted with lending.Bengaluru-based software products think-tank iSPIRT Foundation, which helped conceptualise UPI, has built a lending tool, called the ‘Open Credit Enablement Network’. This, according to Infosys co-founder and non-executive chairman, Nandan Nilekani, will “democratise credit”, improve access and reduce the cost of loans, particularly for small businesses.“You have lenders with capital, but they can’t lend to small business due to high cost of lending and data asymmetry. We solved the cost issue through this protocol and data asymmetry through the account aggregator system,” Nilekani said at the Global Fintech Fest. “Now we need marketplaces to get customers to access loans.”.What Is the OECN?In technical parlance, what’s being attempted is to build a ‘credit rail’, which will act as a common language between lenders, loan marketplaces and borrowers. Applications will be built using this, which will eventually allow a customer to apply for a loan and receive the disbursement in less than 5 minutes without any human intervention, iSPIRT explained in a blogpost on July 19.“These standardised credit rails then enable lower interest rates, multiple product choices and more tailored offerings for borrowers,” it said.iSPIRT has already begun working with State Bank of India, HDFC Bank Ltd., ICICI Bank Ltd., IDFC First Bank Ltd., Axis Bank Ltd. and Bajaj Finserv Ltd. for the OECN protocol..How Will It Work?Let’s say a borrower applies for a loan either through the banks’ website or through a credit market place. The application, once filled, will be routed through the OECN system to the concerned lender.The customer can give their consent to the marketplace or bank website to fetch various documents and information from the Goods and Services Tax Network, the account aggregator system and the Unique Identification Authority of India, instead of downloading each of their documents from the respective organisations and uploading them.The AA system, which is yet to go live, gives lenders access to the borrowers’ cash-flow statements, bank statements and other documents. Data from the GSTN will help the lender map the borrowers’ cash inflows and outgoes.Adhil Shetty, chief executive officer of the financial services marketplaceBankBazaar, said this could open a lot of new lending in the ecosystem benefiting borrowers, lenders and the marketplaces.“There are several important pillars when it comes to digital underwriting, the first is the income estimation and credit underwriting which will take place through AAs, GST network and lender APIs and the second is digital KYC,” he said. “So this API will potentially work in conjunction with other APIs ,including digital KYC.”An executive with an online lending platform said the process to on-board and lend to a borrower online is still very cumbersome. This OECN network would make the loan seamless as the borrower has to provide their consent to make the application and fetch other documents through just one platform, this executive said on the condition of anonymity..Work In ProgressTo be sure, a number of things need to come together to help the achieve the goal of “democratising credit”.In its presentation iSPIRT listed out a number of steps that were needed before the cash-flow based lending system could be launched. These include:Popularising the account aggregator system.Introducing the e-lien facility on UPI for recurring loan repayments.Defining treatment of invoice financing loans that become non-performing assets.Introduction of a ‘Universal Enterprise ID’ for all MSMEs, which can be linked to the borrowers’ Permanent Account Number as recommended by the UK Sinha Committee.According to a person familiar with the matter, the OECN system is currently being tested by multiple banks to see if lending can be made paperless and contactless. The banks are working on how to implement this credit rail within their existing systems and how to integrate with GSTN, UIDAI, KYC-related software, credit bureaus, account aggregators and other third parties, this person said on the condition of anonymity.“Today it’s possible to think of an end-to-end credit cycle that’s entirely digital—from loan underwriting to disbursement and repayment,” Nilekani said. “This digitisation will help bring down costs of loans.”.NPCI Launches UPI AutoPay Feature For Recurring Payments

Coming Soon: The UPI Moment For Lending?

UPI disrupted payments. Now something similar is being attempted with lending.

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