ONDC Looks to Integrate Banks and Fintechs for Last-Mile Credit Services

July 4, 2024

The Open Network for Digital Commerce (ONDC) is taking significant steps to integrate leading banks and fintech platforms to enhance last-mile credit services across India. This initiative follows the network’s early pilot programs for credit disbursal through its platform, aimed at financially underserved regions.

Integration of Banks and Fintechs

ONDC plans to collaborate with prominent banks such as HDFC Bank, IDFC First Bank, and Karnataka Bank, along with fintech companies like Fibe. This integration will facilitate the provision of unsecured personal loans and goods and services tax (GST)-based invoice loans to small merchants and retailers in remote areas. This move aligns with the government’s new initiative to onboard 5 lakh micro and small businesses onto the ONDC platform.

Enhanced Credit Accessibility

Hrushikesh Mehta, Senior Vice President of Financial Services at ONDC, highlighted the critical gap in credit accessibility for micro, small, and medium enterprises (MSMEs) in rural areas. Traditional formal credit institutions often overlook these regions, leaving small-ticket loans for any purpose out of reach. The integration of banks and fintechs into the ONDC platform aims to bridge this gap, making credit services more accessible and efficient.

Fast-Track Loan Processing

A key feature of the ONDC platform is the expedited loan processing time. “Today, if a customer applies for a loan with all the paperwork, it takes days and sometimes weeks, and finally, it may get rejected. But here, if you apply online, in six-seven minutes, you have the sanction, and after one hour, you will get the disbursal,” Mehta explained. This streamlined process is designed to benefit both lenders and borrowers, facilitating quicker access to credit.

Pilot Programs and Future Plans

ONDC has already initiated early pilot programs for credit disbursal, collaborating with Tata Group’s super app Tata Neu and credit marketplace Paisabazaar. These pilots aim to source customers and connect them with lenders such as DMI Finance and Aditya Birla Finance.

In addition to consumer credit services, ONDC is preparing to introduce business-to-business (B2B) credit services, offering larger loans ranging from ₹1 to ₹1.5 crore. These products are still in development and are expected to launch after the consumer and business credit segments go live. The protocol for these services is anticipated to be published by August, with a pilot launch set for December.

Data-Driven Credit Assessment

ONDC is also exploring innovative approaches to credit assessment using alternative data sources. These include platforms such as dairy tech startup Stellapps, retail intelligence platform Bizom, and agritech startup Absolute. By integrating banking details from account aggregators and credit bureau data, lenders can more accurately assess the creditworthiness of customers, including farmers and merchants.

Expansion into Insurance and Investments

Beyond credit services, ONDC is expanding into the insurance and investment sectors. Initially offering marine, health, and motor insurance, the platform is now developing a protocol for life insurance. ONDC has conducted pilot transactions for marine insurance with InsuranceDekho and Bajaj Allianz. On the investment front, the platform plans to introduce mutual funds, starting with simpler products like index funds and liquid funds to cater to a wider audience.

Current Players and Future Prospects

Currently, ONDC has five loan service providers, including EasyPay, Tata Digital, and Paisabazaar, along with two lenders, DMI Finance and Aditya Birla Finance, live on the network. As more banks and non-banking financial companies (NBFCs) join the platform, the adoption of these services is expected to grow, providing small businesses with more accessible and affordable credit options.

In summary, ONDC’s integration of banks and fintechs aims to revolutionize last-mile credit services in India. By leveraging technology and innovative data sources, the platform seeks to democratize access to credit, insurance, and investment products, fostering inclusive financial growth across the country.

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