The socio-economic landscape of India is evolving at a rapid pace - with an increased focus on ‘New to Credit’ (NTC) customers. Those in the early credit journey, seeking credit for the first time are largely untapped segments of the lending ecosystem. Since they seek credit for the first time, they are generally prioritized than other borrowers with an established credit history and similar risk scores. 

According to recent stats by TransUnion study, around 35 million consumers opened their first credit account in 2021, while another 31 million became NTC in the first three quarters of 2022. The stats also highlighted that 67% NTC consumers were concentrated in rural areas and semi-urban areas. Additionally, women in the NTC customer segment in India grew from 32% to 34% between 2017 and 2022. This indicates the emergence of untapped and underserved markets that can further be leveraged by new-age lenders to strengthen economic growth and inclusion.

Understanding of NTC Customer Segment

In the quest to tap into the untouched segments, stakeholders in the lending industry are emphasizing on the NTC customer segment. These customers are individuals who have no prior credit history with formal banking institutions or non-banking financial companies. The segment may include self-employed individuals, young professionals, the rural populace and even those women who have never stepped into the formal financial sector before.

With the integration of digital banking and lending, stakeholders are providing access of credit to these individuals for a number of products including consumer durable loan, personal loan, agricultural loan, two-wheeler loan, gold loan, home loan, or other credit products. By entering into the credit space, NTC customers are gradually becoming key contributors to a sustainable and financially inclusive ecosystem.

Role of New-to-Credit Customers

While catering to NTC customers might be daunting owing to the lack of credit history, its benefits can outweigh the challenges. With accelerated technology advancements, data analytics and alternative credit scoring models, digital lenders assess the creditworthiness of their customers with greater accuracy. This makes NTC customers represent untapped market potential with individuals and small businesses in India that have not been a part of the formal credit system.

Apart from this, the urban customer segment is increasingly becoming saturated. In this scenario, the NTC customers offer a fresh opportunity for the expansion of offerings for lenders. By reaching out to these new borrowers, traditional and digital lenders can expand their loan portfolios and diversify their customer base.

Since NTC customers are new to credit products, lenders who provide them with their first credit experience have the potential to build long-lasting relationships. These customers are more likely to stay dedicated to the institution that first extended credit to them, especially if they receive personalized support and favorable terms. This creates an opportunity for lenders to cross-sell additional products like savings accounts, insurance, or investment services, increasing the lifetime customer value.

Mitigating risks and challenges associated with NTC

Lack of an established credit history was once considered a challenge for lenders that restricted the customers from gaining access to credit. However, with technology adoption, it has been converted into an opportunity where lenders use a data-backed approach to understand the customer’s behavior and build a comprehensive consumer persona. The lenders also embed AI and ML models to analyse this data accurately and predict the risk, maintaining a robust risk mitigation framework.

Final Thoughts

India is moving towards a more inclusive and digitally powered economy. Furthermore, RBI is recognising the potential of safe digital lending and fintech emerging as the cornerstone of the ecosystem. Helping customers in their credit journeys can augment the quality of their life, hence, progressing the economic landscape towards growth and inclusion.

About the Author

Artem Andreev is a competent finance expert who brings 12 years of experience working in product management during growth and crisis times. He has successfully managed and grew credit portfolios during 2+ banks mergers/integrations periods which involved different Target audience, business-models, products and IT systems. He also has 6 years of start-up experience in launching businesses from scratch in the APAC region and also has hands-on experience in building microfinance companies in the APAC region.