There has been exponential growth in the digital lending industry, with many innovations driving the sector to produce many new financial products and services into the market. And with these products and services gaining popularity, regulatory bodies such as the RBI and Google Play Store are constantly monitoring them to ensure they are efficient and in the best interests of consumers. Hence, recent regulations have been introduced in the digital lending sector. We had industry experts from Habile Technologies give us a glimpse of how the guidelines impacted the overall industry in our recent September 2022 webinar.
The recent regulations have drastically changed the digital lending landscape. In the last two months, fintechs have seen a change in their business model, with their revenue coming down and their companies’ funding reduced.
When the new guidelines came into being, we encountered queries from our clients asking us questions such as why the digital lending apps are getting delisted from Google PlayStore, what compliances can be followed to adhere to the new regulations, and more. Henceforth, we wanted to share expertise and knowledge with our industry veterans on the trending topic to know how the digital lending industry has been impacted.
In the global landscape, the digital lending market is about $5.8 billion in 2021 and is expected to increase by 25.9% in 2030. In India, about $2.2 billion worth of loans were disbursed between 2021 and 2022.
The factors that are contributing to the financial institutions to shift from traditional lending to digital lending are
The BNPL service and credit card scenario usage has increased dramatically from 2021 to 2022. In 2021, the number of credit card users was 47.1 million, with a 6 trillion transaction value. In 2022, the number of users became 57.7 million with a 9 trillion transaction value. For BNPL, 2.3 million transactions were done for 12 million users in 2021, and the value increased to 2.8 billion transactions with 23 million users in 2022. In both scenarios, 14% were for eCommerce transactions.
In the global trend, now developed countries have regulated BNPL, making it easier for the population to rely on another mode of credit for their purchases. India is among the countries that have seen the highest usage of BNPL. 30% monthly spending increased by customers. When only the technologically advanced Tier 1 and Tier 2 cities had the penetration of digital lending, less developed Tier 3 and Tier 4 cities are also seeing similar trends now.
With all the innovations and advancements, it is necessary to have regular checks and constant watch to ensure that the digital lending industry is functioning well. The regulatory body, RBI, protects customer interest and maintains control over the sector. It ensures that the new digital lending products coming into the market are resilient, efficient, customer-centric and adhere to business norms. So, naturally, when there is growth in this landscape, RBI has come up with new guidelines in 2022.
According to the regulations,
When it comes to Google PlayStore, the RBI report in 2021 on Digital Lending Apps (DLA) matrix says that there are approximately 1100 Indian loan apps on the platform, primarily focusing on keywords like “loan”, “instant loan”, “quick loan”, etc. Among that, 600 seem to be illegal. The number of complaints against the DLAs from January 2020 to March 2021 is 2562. And, according to the latest news, in 2022, 2000 illegal apps were delisted.
Because of these statistics, we have seen securities issues such as fraud, fake apps and data theft also happenings a lot more. Hence, the new regulations focus on monitoring and safeguarding the end consumers. RBI will also prepare a whitelist of all legal apps, and the Ministry of Electronics and Information Technology (MeitY) will help enforce them on PlayStore.
The new guidelines on Consumer Protection say that:
1. KFS – APR has to be included. Penal charges should be upfront on annualised, which was not there before. Information about minimum and maximum value for interest rate, tenure and principal should be there. There is to be a cooling-off period, which gives the time to exit a loan within a number of days without penalty.
2. Authorised Recovery Mechanism – Information about the kind of recovery mechanism the lenders will use, who the recovery agent will be, and many more to be mentioned. The exact data of the recovery agent is to be provided in the policy document.
3. Complete grievance officer details should be on the Regulated Entities (RE) websites, Loan Service Providers (LSP) websites, and DLA descriptions for any complaint. RE should have the sole responsibility for any grievance. A customer complaint should be addressed within 30 days. If not, the customer can file a complaint with the RBI about the RE.
5. For RE website/LSP website, the information that should be available are
Importance is given to
Regulations of PlayStore:
Being the marketplace of the DLAs and a pseudo-regulatory body, Google Play Store has its own set of norms.
Overall, when you look at all the regulations I have mentioned so far, they mainly pertain to consumer protection and data privacy. Concluding the session, the best practices I can say for Play Store to adhere to the regulations on digital lending are
With innovations taking place, people jump to grab every opportunity they can to make lives easier. Every industry has innovations. Every sector sees changes over time. So, why will the financial industry leave behind, especially with technological inclusion in it? Thus, the rise in the digital lending industry. But, there should also be a body to regularly monitor and maintain control. Hence, regulatory bodies like the RBI and pseudo regulators like Google Play Store come into play. Recent situations have shown us how important it is to have a constant watch to ensure customer protection and safeguard their interest when dealing with their finances. That is what our session dealt with.
We hope the webinar on this hot topic has left you with a lot of exposure and knowledge on the digital lending industry. Our webinar video is uploaded; refer to it for more information. We hold monthly webinars and hope you participate in the upcoming sessions for more knowledgeable ventures. Please share any suggestions with us, and don’t forget to stay tuned for upcoming blogs!
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