Is Gamification the answer to reducing India's NPAs?

Non-performing assets (NPA) in India are advances or loans that have been due for more than 90 days, according to the Reserve Bank of India. When an asset no longer generates revenue for the bank, it is considered non-performing. While there are several factors resulting in NPA's, fundamentally it boils down to loans not being repaid by the borrower to lenders such as banks and the subsequent losses they face. Combating the NPA problem is a top priority for Indian banking institutions. While traditional approaches such as tight lending requirements and debt collection processes have been used, there is a clear need for creative alternatives.

In this blog, we'll look at the notion of gamification in the Indian lending sector and how it might provide a novel method for addressing the NPA situation.

What is the Lending Business?

The lending industry is a critical component of India's financial ecosystem. In fact, as of March 2022, the lending market saw a growth of 11.1% over the previous year. It consists of banks, Non-Banking Financial Companies (NBFCs), and other financial entities that make loans to individuals, corporations, and governments. These loans produce interest, which accounts for a significant amount of the revenue generated by these institutions. Taking banks, for instance, their revenue is dependent on the interest rates set on loans. When these loans are not repaid, banks to recover losses may have to revisit the interest rates provided to newer customers. Here they are often faced with the dilemma of whether to pass on high interest rates to customers.

The lending industry in India is critical to promoting economic progress by providing access to finance for a variety of objectives such as housing, education, and entrepreneurship. NPAs, on the other hand, have been a chronic source of worry, impeding the sector's expansion.

What is Gamification?

Gamification is the purposeful use of game design features in non-game environments in order to motivate people to participate in certain behaviours or accomplish specified objectives. Gamification in the Indian lending business entails creating software or services with game-like characteristics to engage borrowers interactively and enjoyably.

Gamification provides borrowers with an entertaining and compelling experience, encouraging them to satisfy their financial responsibilities. To provide an immersive experience, techniques such as point-based systems, leaderboards, challenges, and interactive financial education modules can be employed. Borrowers may be motivated to meet their payback responsibilities if they actively participate in these gamified events.

Cred, a popular credit card management platform in India, uses gamification strategies to encourage users to practice responsible financial behaviour. The platform introduced "Cred Coins," a virtual currency that users earn by consistently paying their credit card bills on time. These coins can be redeemed for a variety of rewards, such as partner brand discounts and exclusive vouchers. Cred enhances the gamified experience even further by assigning users a "Cred Score" based on their creditworthiness and financial habits. While this is not a traditional credit score, it is a gamified indicator that encourages users to maintain positive payment histories. The app features an easy-to-use and visually appealing interface for tracking credit card bills, as well as exclusive offers and perks from partnered brands.

Behavioural Economics: Gamification and UPI In Tandem

The National Payments Corporation of India (NPCI) developed the Unified Payments Interface (UPI) in 2016, and it has quickly gained traction, altering how transactions are carried out in India. UPI now has 300 million users and 500 million merchants. Its cost-effectiveness is one of its primary success reasons since it allows customers to transfer money without paying additional expenses. UPI also allows for smaller payments to be made at local stores, with no minimum transaction value.

The synergy between gamification and UPI becomes even more obvious in the context of behavioural economics. Behavioural economics is the study of how psychological and emotional variables influence economic decisions. There are two important factors at work here: validation and convenience.

In behavioural economics, validation refers to the psychological reward and acknowledgement that individuals receive for prudent financial behaviour. Borrowers who achieve their repayment commitments receive prizes and acknowledgement in the context of gamification, providing a sense of validation. This confirmation is a potent motivator because it taps into a fundamental component of human nature. Borrowers who are aware that their efforts are recognised and rewarded are more likely to meet their financial responsibilities.

Convenience, on the other hand, refers to the ease with which economic transactions may be carried out. Convenience is crucial in the context of UPI. UPI provides unrivalled usability and cost-effectiveness. Users may transfer funds to anybody, at any time, without paying additional expenses. Furthermore, the flexibility of UPI enables minor payments at local businesses with no minimum transaction amount. The AutoPay function streamlines the process of setting up recurring payments for bills and subscriptions, saving consumers time and effort.

Within behavioural economics, the junction of validation and convenience underlines the connection between gamification and UPI. They constitute a potent mix that not only can offer a solution to decrease NPAs but also positively impacts borrowers' behaviour, producing a more responsible and engaged lending environment within India's financial landscape.

Conclusion: Gamification in Lending

Gamification has the potential to reduce NPAs in India's loan sector. Lenders may engage borrowers, improve financial literacy, and encourage responsible financial behaviour by combining game design features and using the potential of the Unified Payments Interface (UPI). This not only benefits lenders by lowering NPAs, but it also enables Indian borrowers to better manage their money. Gamification may prove to be a critical tool in building a healthier and more responsible borrowing culture while decreasing NPA risks as India's lending industry advances. With the use of gamification and UPI's unique benefits, the win-win situation in which lenders and borrowers both profit from a more engaging and accountable lending environment becomes increasingly attainable. Borrowers receive confirmation for loan repayments and value the unparalleled ease given by UPI, which makes the transaction more engaging and frictionless.

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