Leveraging UPI 2.0 for Powering Collections Piece of Lending Value Chain

Introduction

A recent BCG-Omidyar Report on digital lending highlighted that the unit cost of the collection via DSA-led traditional channels for an INR 1 million unsecured business loan for a one-year tenure is 0.8%. The same report estimated the unit economics to be 20% more efficient for digital channels that automated collections.

Lending is a spread business and as such, there is a premium on efficient collection (& onboarding) that keep the spread sustainably viable. The role of greater automation of collection practices, therefore, cannot be overstated. At present, automation of collections appears to be happening through two models; the anchor platform approach where the lender collects at source from borrower revenues; and the NACH model where the lender sets up a pull on the borrower’s loan account. The NACH product is offered through the NPCI. However, both these models have limitations in terms of the nature of business use cases they can serve. This article will make the case that UPI 2.0 w ...

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