Had a technical question - is it possible today to figure if the personal/unsecured loans are being put to good use by borrowers? Was curious to understand how financial institutions can monitor that and streamline it. I guess banks do this by physical inspections. I think fintech lending can maybe use some innovation where the credit is not being misused and eventually converted to NPAs. Thoughts?
It is possible with card rails. If the loan is provided in the form of a credit card or the old model (credit line on top of PPI), because when it comes to card transactions, users can spend in certain ways - withdraw from ATMs, use at POS terminals, and make online purchases. The financial institution can disable withdrawals from ATMs, allowing only POS and online transactions, and they will be able to track the use of credit with the MCC codes.
Had a technical question - is it possible today to figure if the personal/unsecured loans are being put to good use by borrowers? Was curious to understand how financial institutions can monitor that and streamline it. I guess banks do this by physical inspections. I think fintech lending can maybe use some innovation where the credit is not being misused and eventually converted to NPAs. Thoughts?
It is possible with card rails. If the loan is provided in the form of a credit card or the old model (credit line on top of PPI), because when it comes to card transactions, users can spend in certain ways - withdraw from ATMs, use at POS terminals, and make online purchases. The financial institution can disable withdrawals from ATMs, allowing only POS and online transactions, and they will be able to track the use of credit with the MCC codes.