Are digital lenders meeting the growing demand for online loans in emerging economies?

In 2023, almost all financial services can be accessed using a smartphone. In industrialised economies, this has simply become habit, but are financial institutions serving the growing demand for tech-first solutions in emerging markets?

In 2023, almost all financial services can be accessed using a smartphone. In industrialised economies, this has simply become habit – legacy financial institutions and neobanks alike offer a wide range of products accessed entirely from a consumer’s phone. Many eschew physical premises entirely.

In emerging economies, the story is much the same. The rapid adoption of smartphones speaks to a massive cultural change among consumers, and as smartphone penetration increases even in the most remote areas, the demand for digital financial services has shot up.

Year                                 2018                     2022
Indonesia                           27.4%                   68.1%
Philippines                          44.9%                   60.3%
Vietnam                              37.7%                   66.7%
India                                    27.7%                   46.5%
Nigeria                                13.0%                   38.1%
United States                    77.0%                   81.6%
China                                   55.3%                   68.4%

Smartphone penetration in selected countries, 2018–2022.

This has raised the stakes for financial services providers. Now, clients in emerging markets don’t just demand instant transactions, credit, and payments – they increasingly have the tools to receive them.

Demand is up, but provision isn’t.

A growing number of Filipino consumers are willing to switch to digital-first banks. A survey conducted in 2021 on behalf of Backbase discovered that as many as 60% of customers are ready to make the shift.

A 2022 survey by Robocash Group showed that half of Filipinos already use the services of a mobile bank. Consumers cited online loans as the most in-demand digital financial service.

But provision of digital lending is still lacking. In the Philippines, legacy banks devote less than 10 per cent of their revenues to IT, lower than the average elsewhere in the region. Even the new breed of fintechs largely concentrates on payments, saturating the market yet depriving consumers of much-needed credit.

While strong efforts have been made to meet the central bank’s target of 70 per cent financial inclusion by the end of 2023, certain markets are still ripe for exploitation.

Proper channels.

The Philippines isn’t the only country demanding digital loan products. In some countries, consumers see digital lending as a means of escape from predatory lenders and loan sharks – and from legacy banks with steep barriers to entry.

Digital finance is a way to secure more formal access to credit for borrowers that might lack a traditional credit history due to a reliance on informal sources of income.

Traditional banks wary of exposing themselves to perceived risk therefore impose interest rates of up to 25 per cent, and high collateral requirements that most borrowers struggle to meet. In many emerging economies, such as Nigeria, this has put borrowers at the mercy of loan sharks and predatory lenders.

Digital finance offers a way out, particularly as alternative data arises to provide non-traditional credit scoring. Nigeria – as in most emerging economies – has a youthful, tech-savvy population increasingly reliant on their smartphones. Are the digital lenders emerging to meet their demand for safe, secure, convenient loans?

Meeting demand.

The need for innovative digital lenders has never been higher.

But across emerging markets, the digital lending sector is still relatively underdeveloped, with both traditional banks and disruptive startups failing to meet a growing demand for credit.

True, there is additional risk for lenders serving a population without a traditional credit history, but the firms that can unlock financial services for this underserved segment will stumble upon a goldmine.

But to meet this demand, digital lenders need to be able to operate at scale. By deploying smart, cloud-based loan management systems, lenders can serve more customers quickly and efficiently, disbursing loans and collecting repayments and rapid pace.

Only with the right technology partner can lenders leverage growing smartphone penetration and high consumer willingness. Ambitious, visionary startups across the Philippines, Nigeria, and beyond are well-placed to go boldly where the legacy banks are all too often unwilling.

To find out how Oradian can be the tech partner to enable innovative digital lenders to scale and grow, get in touch with our team today.

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