India’s digital lending market is set for major growth as banks prepare to link credit lines to UPI, expanding financial inclusion and access to credit.

Strategic Shifts and Digital Banks

This week's Lafferty Weekly Briefing capture a global wave of transformation in retail banking--from India's push for digital credit via UPI, to AI scepticism in underwriting, stablecoin rivalries, and aggressive global expansion by digital banks. As traditional banks rethink strategies in China, Brazil, and Germany, fintechs and Big Tech continue their disruptive advance. Here's what you need to know.

A big theme in retail banking at the moment is the broad trend of traditional banks adapting to competition from digital-first rivals across different markets. JPMorgan's digital bank, Chase, has achieved significant success in the UK, acquiring two million customers since its 2021 launch. The bank is now set to expand into Germany's competitive retail banking market in the second half of next year. JPMorgan's head of German retail banking, Daniel Llano Manibardo, stated that the initial product would be a savings account due to its popularity in the country, with plans for a gradual expansion of services. This move comes as other players, such as Spanish bank BBVA, have also entered the German market, which is largely dominated by local savings banks.

In France, Société Générale's digital offering, BoursoBank, is reconsidering its cost-cutting strategy after rival Revolut announced plans to attract 10 million users in France by next year. BoursoBank, which reached its customer target a year early, is facing pressure to maintain its lead. Similarly, in Brazil, Itau Unibanco is undergoing a significant digital overhaul to compete with agile fintechs like Nubank. The bank aims to serve 75% of its retail clients through digital channels within three years, up from 15%. This transformation includes a plan to reduce its physical branch network from over 2,300 to 1,500, though the bank's CEO affirmed that it would not become a remote-only service, emphasizing a multi-channel approach to customer service.

Digital Infrastructure for Credit

India is poised for a major shift in digital lending as banks prepare to link credit lines to users' UPI apps. This enables small businesses and individuals to access loans backed by various assets and use them for digital payments or withdrawals. The National Payments Corporation of India (NPCI) noted the massive untapped credit market and the need for banks and fintechs to upgrade platforms to expand inclusion. However, resistance is growing in some Indian states, where UPI usage could expose small vendors to tax scrutiny, prompting some to stop accepting UPI payments.

Google competes on Blockchain

Stripe, led by the Collison brothers, continues its fintech expansion, entering the stablecoin space with its acquisition of Bridge. However, Google is entering the same arena with the launch of its own blockchain infrastructure, the Google Cloud Universal Ledger (GCUL). Designed to support Python-based smart contracts and promote neutrality, GCUL aims to appeal to banks already using Google's cloud services.

On the AI front

On the AI front, there's growing scepticism about whether AI is truly transformative in retail banking. A key point raised by analysts is that many underwriting algorithms marketed as "AI" are simply evolutions of decades-old machine learning models like GBM and XGBoost. While they offer predictive improvements, their impact is incremental rather than revolutionary. There's also criticism that banks are focusing AI resources on image generation and productivity tools rather than operational areas like underwriting and collections, as many banks have been promoting their acquisition of licences for apps such as ChatGPT or Co-Pilot, which currently don't appear to be adding much by way of productivity.

The Nigerian government along with public and private sector partners is determined to developed LLMs that draw on its indigenous languages. "Unlike most AI models that are trained in English and other global languages, Nigeria's LLM will support five indigenous languages alongside accented English," reports TechCabal. "With a population of more than 200 million and over 500 local languages, policymakers argue that tailoring AI to local realities is both a cultural necessity and a strategic advantage." Bosun Tijani, Minister of Communications, Innovation, and Digital Economy, said the multilingual model was conceived to keep Nigeria in the race for foundational AI. The operators are drawing from the experiences of other multilingual countries such as India. "The LLM is being developed by the National Information Technology Development Agency (NITDA) through its National Centre for Artificial Intelligence and Robotics (NCAIR), with input from Lagos-based AI startup, Awarri, and DataDotOrg, a global technology partner."