How to identify genuine Fintech lenders

During and post covid, the inclination of borrowers towards fintech companies has become more prominent, owing to the high convenience and speedy delivery of services. Customers have been increasingly opting for fintechs’ services to cater to their varied financing needs. This rise in demand has led to the emergence of new players providing tailored services like varied ticket size loans, Buy Now Pay Later (BNPL), amongst others. In India, digital lending has grown over twelvefold from 2017 to 2020, according to a November 2021 report by the Reserve Bank of India. While this has helped in creating a financially inclusive environment, we also saw a rise in the number of illegitimate apps adopting unscrupulous practices. According to the November 2021 report, as many as 600 out of 1100 lending apps currently available for Indian Android users across 80 application stores are illegal apps. It has therefore become crucial to educate customers and raise awareness about identifying genuine digital lenders.

Here are some pointers that will help you determine the legitimacy of loan apps:

Background research: A should borrower check the lender’s credentials and ensure that it is a RBI-registered entity, whether a bank or a NBFC. Customers can also refer to ratings and reviews while choosing a lender. This will provide the borrower with a good sense of the lender’s operations and if any unethical behavior was reported.

Further, it is essential that the borrower carefully if engagement is with the lender or a lending platform. The lenders are the ones who lend to the customers directly. On the other hand, lending platforms are third-party channels that connect borrowers and lenders and take care of these transactions. These can be autonomous, decentralized, or centralized platforms (a group of people or companies operating the platform). As per the latest Google guidelines, the listing on the app store should mention the names of all the registered lenders that are lending on the respective platform. Non-adherence to the same could be a potential red flag, and borrowers should be wary of such platforms.

Data protection: The legitimate digital lenders ensure that all the data is locally stored. Privacy of customers’ KYC information is of utmost importance. The data should be stored centrally, without any exposure to the customer-facing function. Responsible lenders perform Information Security Audits regularly with consulting firms to ensure that any accidental misses are taken care of in a very agile manner. The privacy policy section on the company’s website contains this information and can be accessed and verified easily.

Access to personal information: Lenders with capable operations and underwriting methodologies, do not require access to users’ photo gallery or contacts. However even if the need arises, it should follow Google’s or distribution platform’s guidelines. Responsible lenders keep this information confidential, secured, and avoid disclosing it to third parties. In today’s environment, lenders are highly effective underwriting systems as well as adhering to vetted collection processes. This dependence on their reliance on contact lists or gallery access, and thereby, reducing scope for any counterfeit activity.

Detailed guidelines of rates/charges: Interest rates decided by lending institutions are based on their risk policies. It should be noted that the lender has disclosed all the charges explicitly to the user in the app flow and also categorically communicated to users in the sanction letter with a proper break-up.

Website authenticity: When visiting a lender’s website, look for a padlock icon on any pages where you are asked to provide personal information. HTTP:// websites are secure because they are guarded against identity thieves who steal personal information and sell it to others. A reputable lender will protect you from loan scams by demonstrating that your data is secure and will not leave your information accessible to others.

Headquarter or subsidiary office: The app/fintech from whom you plan to take a loan from, should have a physical address. If you cannot find any legitimate physical address, you should avoid borrowing from them. Many loan scammers prefer to remain anonymous to avoid legal consequences.

Loan recovery process and techniques: The collection stage is a significant lender-borrower engagement phase, and therefore customers should be made aware of the lender’s bid towards responsible collection techniques. Legitimate lenders ensure that the recovery agents act under the purview of the Fair Practices Code and thus facilitate regular training. At KreditBee, the communication scripts (Telecalling script, SMS, OBD) are vetted by legal counsel, and all voice-based communication is recorded and audited by an internal Quality Analysis team. A person would be able to identify this with the help of google and social media reviews and ratings. Past customer reviews will give an insight into their experience.

Google Play Store rules: Google Play Store doesn’t allow apps that offer loans with tenures below 60 days. To make the process even more regulated and safe, lending apps are required to fill out a “Personal Loan App Declaration” form and provide supporting documentation such as a license from the Reserve Bank of India (RBI) or proof that the app is only a platform serving as a middle-man for registered non-banking financial companies (NBFCs) or banks. These players must also ensure the developer account name reflects the name of the associated registered business name in the declaration.

While lending apps provides a great alternative for quick and convenient loans, protecting oneself from many counterfeit fintech loan apps is critical. It is also crucial to possess the right degree of financial awareness, while being digitally savvy to identify and avoid illegal lenders and borrow only from RBI-registered sources.



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Disclaimer

Views expressed above are the author’s own.



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