It’s alarming to note that one-third of high-confidence customers in India have limited knowledge about their digital loans, and lack understanding on how to detect illegal lending apps, as revealed in a report by Fintech Association for Consumer Empowerment (FACE).

Almost all customers know the lender’s name, but less than a third know about the key fact statement and grievance redressal mechanism, the report titled Understanding Users’ Experience with Digital Lending Applications (DLA) in collaboration with MicroSave Consulting(MSC).

Over 57 per cent of respondents reported checking the loan app’s affiliation with NBFC or Bank as the most crucial verification factor, while 55 per cent said they consider reviews and ratings, the report stated.

Nearly 70% of the users felt confident verifying the loan apps despite following a sub-optimum verification process. Over a third of high-confidence customers exhibit low awareness about factors to detect illegal lending apps, noted the report.

The report showed that digital marketing through social media platforms triggers purchases. Advertisements on social media platforms, such as Instagram, Facebook, and YouTube, are the preferred sources of information for people seeking digital loans, followed by word of mouth and product ratings, and friends and relatives play a crucial role in initiating and finalising the application after users view it through advertisements. Users relying primarily on web links to download DLA face the burden of reviewing more factors when verifying the legality of lending applications, the report added.

“Unscrupulous players hit the very core of the market, i.e., customer trust for digital loans, harming customers and damaging the reputation of responsible digital lenders. We note that users are aware of downloading apps from the Play Store and checking the app’s partnership with NBFCs/Banks, ratings, and reviews. However, the study informs us about significant gaps in the customer tool kit and behavioural biases, making them vulnerable to being tricked by illegal loan apps,” said Sugandh Saxena, CEO at FACE.