BENGALURU: Unauthorised lending is an issue that is bothering victims, lenders and authority alike. Encouraging awareness and digital literacy has emerged to be the only solution in the immediate horizon alongside consistent auditing of online app marketplace, industry participants told TOI.
A recent survey conducted by the Fintech Association for Consumer Empowerment (FACE) and Grant Thornton Bharat, reported unauthorised lenders as the topmost critical threat to consumer trust and industry stability.
74% of survey respondents, 54 of them – including banks, nonbank financial companies, investors, think tanks, and consumer associations – marked unauthorised lenders with a severity score of 6.1 on a scale of 7, as per the report.
A call for regulatory intervention was strong, as only 6% view this risk as low. While significant progress has been made in addressing the issue, the adverse impact of unauthorised loan apps means that the market continues to rank this as the highest risk.
“Two years ago, the problem was more widespread. There was no proper diligence on how these apps are appearing on the app store, several thousand such apps. Today, the problem is getting solved a lot more, at least from a Google PlayStore perspective,” Saxena told TOI.
In 2023, Google tied up with FACE onboarding the latter as a priority flagger, to combat predatory digital lending apps on Play Store in India. Since then, FACE has been supporting the online search giant with market intelligence to inform detection and enable removal.
Saxena however agreed how controlling the marketplaces are not a full-proof mechanism to solve predatory practices in digital lending. “Marketplaces can be a source of such illicit lenders, but slowly they interact with users through direct messaging or have them separately download android application packages of their app,” she added.
In August, the Reserve Bank of India proposed to create a public repository of digital lending apps deployed by its regulated entities as a measure to check unauthorised lending and prevent consumers from falling prey.
A rise in unauthorised lending has caused a pile-up of issues ranging from cyber harassment and debt trapping. Both Google Play Store and Apple App Store have proved to be useful platforms for such app developers to emerge. Some of these exchanges between the perpetrators and victims have led to suicides over the last year and current.
Babu Lal, a software engineer by profession, has over the years emerged a common point for many such victims of debt trapping and theft of fake loans originating off these apps. “Some of these apps are only just released and show up in the top trending lists under lending category in less than 24-48 hours. If you do a simple search on the app developer name, you’ll figure that the developer has no proper credentials. App marketplaces such as Google PlayStore and Apple App Store have much to do in disallowing such parties. Apple definitely has a lot more scope to show proactiveness here,” he told TOI.
Lal opined that fintechs do not fully realise the dent such apps end up making on legitimate business and consumers of theirs. “These fake apps are taking away their customers.”
Even as awareness of fintech prevails, there is not much the startups has managed to do to curb the issue, with players looking for home from regulators. Pursuing risk-driven lending not only protects customers but also upholds systemic stability, balancing growth with sustainability, said Sashank Rishyasringa, co-founder axio (formerly Capital Float) told TOI.
“Regulation in lending ensures fair practices are strictly adhered to and customers aren’t overleveraged,” Rishyasringa added.