Almost 70% of mobile users felt confident verifying the loan apps, despite following a sub-optimum verification process. However, over a third of high-confidence customers exhibit low awareness about factors to detect illegal lending apps, according to a survey.
To systematically understand gaps in users' approaches and knowledge about digital lending applications (DLAs) in India, the Fintech Association for Consumer Empowerment (FACE), a non-profit industry association, and MicroSave Consulting (MSC) conducted the survey between December 2023 and January 2024. FACE monitors app stores and other prominent app distribution channels to identify and report illegal loan apps for removal.
According to the survey, affiliation with a bank or non-banking finance company (NBFC), rating, and review of loan apps are key factors customers consider when verifying the app, but there are gaps in verifying the loan app and knowing other loan terms.
"Unscrupulous players hit the very core of the market, i.e., customer trust for digital loans, harming customers and damaging the reputation of responsible digital lenders," says Sugandh Saxena, chief executive officer (CEO) of FACE. "We note that users are aware of downloading apps from the Play Store and checking the app's partnership with NBFCs or banks, ratings, and reviews. However, the study informs us about significant gaps in the customer tool kit and behavioural biases, making them vulnerable to being tricked by illegal loan apps. As we work towards a safe loan app ecosystem for customers, the insights from the report will inform our effective actions to focus on aspects that customers overlook and break behavioural disposition."
According to the survey, about a third of high-confidence customers have limited knowledge about their digital loans. Almost all customers know the lender's name, but less than a third know about the key fact statement (KFS) and grievance redressal mechanism, it says.
The loan app's affiliation with an NBFC or a bank is the most crucial factor in the verification process, with over 57% of respondents checking that, closely followed by reviews and ratings considered by 55%. "Over three-fourths of users ignore downloads and data-sharing metrics when deciding about lending apps."
Akhand Jyoti Tiwari, partner at MSC, says, "Users face risks when accessing digital lending apps (DLAs) from sources with inadequate verification protocols prior to listing in app stores. Insights from user behaviours underscore the urgency for awareness regarding illegal DLAs. There is a crucial need for standardised baseline standards across all app stores, ensuring consistency in verification, hosting, reporting, delisting, and dispute resolution processes."
Here are the key insights from the study...
- 70% of the users felt confident verifying the loan apps, despite following a sub-optimum verification process. Over a third of high-confidence customers exhibit low awareness about factors to detect illegal lending apps.
- More than half show low knowledge of verification factors for loan apps and tend to only look at a limited set of parameters like partnerships with NBFC/Banks, ratings and reviews. This section of users is susceptible to fraud and scams.
- The loan app's affiliation with NBFC or Bank is the most crucial factor in the verification process, with over 57% of respondents checking that, closely followed by reviews and ratings considered by 55%. Over three-fourths of users ignore downloads and data-sharing metrics when deciding about lending apps.
- About a third of high-confidence customers have limited knowledge about their digital loans. Almost all customers know the lender's name, but less than a third know about the key fact statement and grievance redressal mechanism.
- Digital marketing through social media platforms triggers purchases. Advertisements on social media platforms, such as Instagram, Facebook and YouTube, are the preferred sources of information for people seeking digital loans, followed by word of mouth and product ratings.
- Friends and relatives play a crucial role in initiating and finalising the application after users view it through advertisements. Users relying primarily on web links to download DLA face the burden of reviewing more factors when verifying the legality of lending applications.
- Women users showed slightly better awareness of the loan product.
- 76% of users reported loans from DLAs positively impacting them, 13% indicated no significant change, and 11% expressed a subpar experience.
- People who haven't availed credit from loan apps, mostly in rural areas, reported no need for loans, access to alternative credit sources, or unfamiliarity with the loan apps.
