Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

Businessman,Using,Modern,Computer,,Pressing,Button,On,Virtual,Screen.,Cloud

Embedded finance and cloud are two of the most trending topics in the lending domain, with a potential to open up new opportunities for both traditional banks and non-financial service providers. Together, they are anticipated to expand the digital lending market, which is predicted to reach $1.3 trillion in market value by 2030, benefiting both customers and lenders.[1] The beauty of embedded lending and cloud lies in the fact that it integrates the banking community with non-financial institutions seamlessly via APIs, enabling customers to avail credit at a single point.

Embedded finance and cloud computing in digital lending

According to a report, the Indian fintech market will be 60% made up of digital lending by 2030. [2] The report further elaborates that the expansion of digital lending will be fueled by factors such as spread of formal finance, rising per capita income, and increased internet use, among others. While formal finance penetration still has some way to go in India, there is a huge opportunity that embedded lending and cloud can enter immediately and democratise credit. Important areas such as enhanced customer experience, instant credit applications, approvals, and disbursals, stand to drive immense value for the consumers and the lenders. This is where the whole digital lending ecosystem, including the digitally transformed banks, non-financial agencies and fintechs, come together to accelerate GoI’s larger financial inclusion goals accurately.

With cloud, banks become nimble enough to migrate their services off-prem, freeing up most of their erstwhile capital expenditure towards enhancing product offerings, customer experience and lending business growth. They get to pick and choose the services they need on a pay-as-you-go basis. More importantly, Banks that move to the cloud can be agile to scale as their businesses grow, roll-out products faster, and expand into larger markets while improving fault tolerance, disaster recovery, and data protection.

The challenges

The two main areas that need dedicated focus when banks transition to embedded banking and cloud computing are:

Security: It is crucial to maintain the privacy and security of financial, personal, and mission-critical applications. The chance of a security breach is unaffordable for banks.

Regulation and conformity: Financial data for banking customers must remain in the country where they bank. Data cannot be mixed with other data, such as on shared servers or databases, according to some compliance regulations. Banks must therefore understand exactly where their data is located in the cloud.

To address security and compliance issues, financial institutions must choose the proper service, deployment, and operating models.

In conclusion

The lending market has become increasingly competitive. Banks must embrace the next step in digital lending solutions with renewed focus on OpenAPI-based embedded lending and cloud to keep pace and provide end-users with the lending solutions they now expect in a tech-heavy environment. Growing vertical integration between banks and Fintechs is one of the key initiative that will benefit both parties and usher in an industry-wide revolution.

 

[1] https://inc42.com/buzz/digital-lending-become-1-3-tn-market-2030-india/

[2] https://inc42.com/buzz/digital-lending-become-1-3-tn-market-2030-india/

Author:

Dr. Jasmeet Chhabda, SVP & Head of Marketing, Lentra

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members