The Reserve Bank of India (RBI) recently announced an ambitious initiative called the Public Tech Platform for Frictionless Credit (PTPFC) under the aegis of RBI Innovation Hub (RBIH). PTPFC aims to develop an open-source, public digital infrastructure to enable seamless flow of credit to various sectors of the economy, especially small businesses and farmers.
What is PTPFC?
PTPFC is envisaged as a public good, with protocols, frameworks and building blocks that can be utilized by banking and non-banking financial institutions, fintech companies, data aggregators and other innovators to build innovative credit products and services. It will essentially serve as a digital infrastructure on top of which various credit solutions can be built for end users.
Key Objectives of PTPFC:
- Promote open access to credit through open standards and interoperability between systems
- Make affordable credit available to borrowers at lower costs, especially small businesses, farmers, micro enterprises etc.
- Enable lenders to manage their risks better through better credit underwriting and monitoring
- Bring down information asymmetry between borrowers and lenders
- Provide infrastructure for developing innovative credit products and services
- Promote collaboration between banks, NBFCs, fintech and data analytics companies through a platform approach
How will PTPFC function?
PTPFC will bring various stakeholders of the credit ecosystem together and enable seamless flow of credit through a host of functionalities:
- Digital building blocks – The platform will host various shared data and technology building blocks like unified credit scoring models, digital legal contracts, loan origination systems, KYC verification, credit underwriting algorithms etc.
- Open APIs and standards – PTPFC will define open APIs and standards for credit workflows like loan application, risk scoring, electronic documents and contracts, credit history reporting etc. This will enable interoperability and quick integration between platforms.
- Consent driven data flow – The platform will enable borrowers to easily share their digital financial data like bank statements, tax filings, GST returns etc with credit institutions in a secure manner. This consent driven flow of data will facilitate credit underwriting.
- Digital registries – Registries for authenticating digital legal contracts, collateral, invoices etc will help in reducing risk for lenders.
- Co-lending frameworks – Banks and NBFCs will be provided standard frameworks for co-lending to borrowers, enabling consortium based credit.
- Safe sandbox environment – Innovators will be provided sandbox environments for rapidly prototyping and testing new credit products.
- Analytics and AI building blocks – Shared AI/ML building blocks will enable lowering of costs and quicker model development for credit risk assessment.
PTPFC Components:
PTPFC is envisioned to have the following core technical components:
- Consent Manager – For borrowers to easily provide consent for access to their digital financial data from various sources.
- Contributor Systems – Standards and specs for different data contributor systems like banks, tax authorities, GSTN, MCA, credit bureaus etc.
- Consumer Data Store – A secure data repository where borrower’s data is stored and can be retrieved by authorized credit institutions.
- Product Factory – Standard APIs and SDKs for building credit products, risk models, legal contracts templates etc.
- Credit Passport – A digital platform for lenders to access borrowers credit history, scores, analyze risks etc.
- Credit Workflow Engine – Low code workflow software for automating credit processes like application, risk scoring, loan origination etc.
- Lenders Gateway – A single access gateway for lenders to integrate into PTPFC and access its various services.
- Digital Collections – Tools for digitally collecting repayments from borrowers and managing NPAs.
- Analytics Engine – Shared AI/ML models on the data for credit analytics and underwriting.
The platform is envisioned to be built in an open, modular way with modern technologies like microservices architecture, API gateways, containerization and cloud infrastructure.
How will PTPFC impact credit availability in India?
By providing an enabling digital infrastructure for credit services, PTPFC has the power to exponentially increase credit penetration in India. Here’s how it can make affordable credit accessible to underserved segments:
- Lowers information asymmetry by making reliable data available to lenders through borrower’s consent. This can spur lending to new to credit segments.
- Reduce cost and friction in credit assessment by providing AI/ML models, automated workflows and standardization. This makes small ticket loans viable.
- Open standards can enable hundreds of fintechs and data analytic firms to innovate and offer credit products and services.
- By bringing down costs, new modes of credit like BNPL, revenue-based financing and micro-credit can thrive at scale.
- Digitalization of processes enables instant credit decisioning and faster disbursal.
- Co-lending models can bring synergies between banks and fintechs in offering innovative products.
- Lower NPAs due to robust credit information and analysis enabled by data.
PTPFC and India’s Payment Systems:
By expanding access to formal credit to underserved Indians, PTPFC can help bring more economic activity into the formal financial system. Broader financial inclusion will directly benefit the payment systems in the following ways:
- More credit-led consumption will spur digital payments growth.
- New segments entering the credit ecosystem will adopt more digital payments.
- More SMEs, businesses gaining access to formal credit can increase merchants accepting digital payments.
- Access to micro-credit can increase adoption of mobile based UPI payments in rural areas.
- Instant disbursals to bank accounts can trigger consumption leading to digital transactions.
- Expanding credit ecosystem will generate more financial data, strengthening underwriting and efficiency of payment systems.
Thus, PTPFC has the potential to positively impact the growth of India’s digital payments and settlement systems.
Implementation Roadmap:
RBIH has indicated that PTPFC will be rolled out in phases, based on learnings during the pilots.
- Design Phase (2022) – Finalizing architectural design and standards frameworks. Engaging with ecosystem partners.
- Phase 1 (2023) – Sandbox testing of building blocks with a few lenders and startups.
- Phase 2 (2024) – Production grade deployment of platform with a broader set of partners.
- Phase 3 (2025-26) – Scaling up platform adoption across banking and fintech sector.
RBIH will collaborate extensively with lending institutions, fintech companies, analytics firms, rating agencies, regtech startups and other ecosystem stakeholders during the design and rollout.
Potential Benefits of PTPFC:
By facilitating frictionless flow of credit at lower costs, PTPFC can potentially reshape India’s credit ecosystem and drive financial inclusion. Some anticipated benefits are:
PTPFC For Borrowers:
- Easier access to credit, reduced dependence on informal sources
- Lower borrowing costs due to better credit information availability
- Convenient digital processes from loan application to disbursal
- Innovative credit products tailored to their needs
PTPFC For Lenders:
- Better underwriting with comprehensive view of borrower’s credentials
- Lower NPAs due to robust credit analysis
- Operational efficiency by using shared digital infrastructure
- New opportunities to collaborate with fintechs and data companies
- Expand customer base by leveraging AI/ML models
PTPFC For Economy:
- Expand formal credit to unserved and underserved segments
- Improve access to credit for MSMEs to drive growth
- Bring more economic activity into formal financial sector
- Spur innovation in credit through new financial offerings
- Promote transparency and healthy competition in the credit industry
Challenges in Implementation of PTPFC:
Building a complex platform like PTPFC also involves overcoming some key challenges:
- Getting all banks and financial institutions onboard and aligned
- Ensuring privacy protection for consumer data
- Building robust storage and security systems
- Standardization and interoperability across disparate systems
- Regulatory compliance across various jurisdictions
- Preventing misuse of consumer data and infrastructure
- Scalable and resilient infrastructure to support nationwide rollout
- Business model for long term sustainability of the platform
By taking an open, collaborative approach, RBIH can mitigate these risks and challenges in implementing PTPFC successfully. But careful design thinking and robust governance will be critical.
Conclusion:
In conclusion, RBI’s Public Tech Platform for Frictionless Credit has tremendous potential to reshape our credit ecosystem in the digital age if executed well.
By bringing easier and cost-effective access to credit, it can significantly improve financial inclusion in India.
For RBI, it will be yet another future-ready initiative like UPI to drive innovation in the financial sector by leveraging technology.
PTPFC promises to open up space for more collaboration between banks, fintechs and various domain experts to drive impact and value for the citizens. Its adoption however will depend on mindfully addressing various implementation challenges.
Overall, it signals RBI’s commitment to continue pushing boundaries of innovation in public infrastructure for a truly digital and inclusive financial system.