How Direct Debit In Fintech Lending Can Improve Loan Payment

For the last few years, the growth of fintech lending in Indonesia has increased significantly. According to Financial Services Authority (OJK), the total distribution of fintech lending reached IDR23.07 trillion in March 2022. This number shows an increase of 96.08% from March 2021, which at that time reached IDR 16.41 trillion.

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However, the rise of fintech lending doesn’t happen without challenges. One of the biggest challenges for fintech is keeping the customers paying on time on their installments. For businesses, late loan payments can gradually destroy their cash flow. For instance, let’s say a business is supposed to use loan payments from customers to purchase ingredients for their products. However, since the loan payments are late, a business owner decides to apply for a credit instead, giving him an added responsibility as he must repay that credit in installments with interest.

Fortunately, you can prevent such a situation with a direct debit payment solution. So how can direct debit API improve loan payment?

Why should fintech lending control the fund collection?

Fintech lending and fintech peer-to-peer lending need to have control over fund collection since the company's cash flow is dependent on revenue. If the company fails to maintain its cash flow, there is a big chance that the fintech will be unable to sustain itself. The root of the problem is irregular bill payments.

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In 2021, GoCardless conducted a survey of 400 borrowers who took personal loans within the last two years. According to this survey, several factors affect their repayment experience. The result is shocking because 50% of the customers had ever missed a repayment or made a repayment after the due date.

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If you think that the customers missed their repayment due date solely because they don't have any funds yet, you are mostly mistaken. Still from the same survey by GoCardless, customers usually have problems with these three issues when they want to repay their loans:

• Technology troubles
• Failed to know the due repayment date
• Failed to see the amount of the repayment

This finding shows that the customers intend to repay the loans on time but face problems and a lack of information instead. The repayment rate will increase by removing barriers to customer experience.

How direct debit can help

Direct debit products tackles all three main problems customers usually face using the conventional payment method. Benefits of Direct debit allows fintech to take control of the customers' repayment so they won't miss any due date. The customers will also know how much they have to pay even though they are not necessarily making the payment since the system automatically performs it. All the customers only need to ensure that they have some money in their registered account.

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Direct debit helps the customer to pay their loan on time, benefiting both customers and fintech lending. The fintech's cash flow will be well-organized and accurately predicted. On the other hand, the customer can avoid the late payment penalty that costs them more than it should.

Implement a direct debit system with Ayoconnect

Ayoconnect, the biggest open finance platform in Indonesia, introduces the direct debit features among the people. In phase 1, Ayoconnect partners with the seven biggest banks in Indonesia, including Bank Mandiri, BRI, BNI, Danamon, CIMB Niaga, Bank Neo Commerce, and Bank Syariah Indonesia. These banks have already connected into 1 API system that can be accessed by the merchant, which later will be continued by other banks for the next phase.

Through PT Ayopop Teknologi Indonesia, Ayoconnect has been approved to operate in Indonesia with Bank Indonesia (BI) licensing. According to the BI’s regulation, Ayoconnect falls under the category of Payment Service Providers (PJP), referring to banks or non-bank institutions that provide services to facilitate payment transactions for customers.

We have acquired License Category 1 from BI, meaning that Ayoconnect is legally permitted to carry out all transaction activities that are included in the category; (a) provision of information on Source of Funds; (b) payment initiation and/or acquiring services; (c) administration of Source of Funds; and (d) remittance services.

Currently, Ayoconnect has already partnered with several fintech companies in various clusters: insurance, lending, and P2P lending. All of them have been registered to OJK, which is also in progress of integration.

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