DPI trends to watch out for in 2024
Welcome to 2024! As we venture into this new year, our news streams are filled with takes on the year gone by and what to look forward to in the coming year. Recently, a discussion with a prominent banker in India, led us to think "What more can we imagine from Digital Public Infrastructure (DPI) in 2024?"
Indian DPI has been getting the attention of fintech fans all over the world for a number of years and we only saw that pick up in 2023. It sometimes feels like National Payments Corporation, iSPIRT, ONDC, Aadhaar and Sahamati are the most prolific start-ups in the Indian market with more quarterly product releases than the average unicorn. We expect this phenomenon to continue and predict these significant trends to drive DPI adoption in 2024:
1. Credit Evolution on UPI:
The impending evolution of credit on UPI is poised to bring about a transformative shift in the consumer experience. Remember that India is still a market with less than 60 million unique credit card holders despite boasting more than 600 million digital transactors. Credit + UPI has the potential to dramatically widen credit distribution and access, especially for smaller ticket size use cases and those embedded within payment systems. In the first phase, Banks and fintech entities stand at the forefront of capitalizing on this opportunity (we do expect NBFC participation to open up towards the end of the year). However, it's absolutely essential for banks to invest in infrastructure to upgrade their existing loan processing and servicing - especially Loan Management systems, given the smaller ticket sizes and greater usage frequency of this credit form factor. We expect a surge in infrastructure investment amongst banks looking to capitalise on this development.
2. ONDC FS Innovation:
Last year, the Open Network for Digital Commerce - Financial Services (ONDC FS) launched to great fanfare consumer credit and insurance offerings in the first phase. This year, we anticipate an expansion of the product suite, potentially incorporating a wider range of credits such as loan against purchase/EMI and hopefully, eventually SME loans. Banks and NBFCs can participate in ONDC FS but, for success, agile loan origination systems will be key - especially those that can work with Account Aggregator-sourced data.
3. Account Aggregator Expansion:
The maturation of Digital Public Infrastructure, coupled with the proliferation of Account Aggregator applications, is poised to grow further in 2024. Whilst lending has been the most “obvious” application for this technology to date, we expect personal financial management applications to take off this year. Even within lending, the full potential of AA has not been fully realised, with a comprehensive AA + AI-based risk decision engine remaining a distant aspiration for most lenders.
4. Fintech Infrastructure Growth on OCEN:
Fintech models operating on the Open Credit Enablement Network (OCEN) are slated for substantial expansion. Intermediaries will play a pivotal role, providing a fertile ground for the industry to innovate and introduce cutting-edge solutions, to cater to a wider customer base. Within the OCEN ecosystem, we foresee a need for better servicing and collections intermediaries, facilitating a smoother digital journey for SMEs.
5. Revamped KYC Dynamics:
KYC procedures, particularly in SME lending, are on the verge of a significant transformation. We anticipate new RBI norms and resultant methodologies that will thrust KYC practices back into the spotlight, potentially reshaping the industry's approach to identity verification and risk management. Practitioners agile enough to offer multiple KYC modes will likely witness the highest adoption rates and customer satisfaction.
6. Sachet Investments in Mutual Funds:
As the mutual fund landscape expands, the concept of sachet-isation of products gains prominence. India's predilection for sachet products will likely fuel demand, enabling customers to engage in sachet investments in mutual funds, attracting a fresh wave of investors seeking fractional investments.
The Financial sector appears poised for exciting transformations in 2024. As DPI takes centre stage, both banks and fintechs will need to upgrade their tech infrastructure to meet demand and launch newer products. This will play a crucial role in ensuring customer adoption as well.
What are your insights and predictions regarding these upcoming trends or would you add a new one to the list? Share your thoughts in the comments section below.
Wishing you a year of prosperity, innovation, and growth ahead!
