Ashok Hariharan, CEO & Co-Founder, IDfy

When you start any loan application online - whether through net banking or a fintech app, the first message you see is, “We will fetch your credit bureau report.”

Have you wondered how many people in India actually have a bureau score? And is someone’s repayment capacity really defined by just that number? What if you don’t have a score at all?

That’s where smart underwriting steps in. It is reshaping the credit industry in India

Credit scores: No longer enough for a young, digital-first India

Among those aged 18-25, only 11 per cent have an active loan product. That means the remaining 89 per cent have little to no exposure to credit.

Now imagine someone in that 89 per cent who is earning steadily, saving responsibly, and even maintaining a healthy cash flow. None of this is recognised by most lenders.

In a country, where Gen Z and millennials are redefining how we work and earn, relying solely on bureau data isn’t just outdated, it’s exclusionary.

Why traditional underwriting is failing India’s new borrowers

Even today, the lending ecosystem assumes that every working professional earns a fixed salary. And as a result, they are granted instant low-interest loan approvals (based on their bureau score, and sometimes with no collateral) and credit cards with outrageous limits.

And while the Indian economy is undergoing a major shift, lenders are completely disregarding freelancers, gig workers, start-up employees, and digital creators, who now make up a large share of the workforce.

But, for new-to-credit (NTC) customers, the story is very different.

Less than 16 per cent of all new loan originations in Q4 of FY25 went to NTC (New-to-credit) borrowers, down from 23 per cent in the same period. In unsecured personal loans, the numbers drop to 10 per cent, and for ticket sizes above ₹50,000, it falls further to 7-8 per cent.

This creates a paradox. Salaried employees keep getting credit for leisure spending, vacations, new gadgets, and even cosmetic surgeries, which in turn makes their credit history stronger. Meanwhile, an independent CA struggles to get a small business loan. Most start-up employees are also turned away if their companies are not on lenders’ “approved employer” lists.

The Gen Z paradox: India’s youngest borrowers are its most excluded

Gen Z is financially stable by every measure, except one: bureau scores. They earn through gigs, creator platforms, and micro-entrepreneurship. They spend almost entirely online, with every transaction as proof.

A PayPal receipt, a delayed electricity bill, or even a traffic challan - each is a datapoint in their financial story. Yet none of this counts in the traditional credit system. And that needs to change.

The untapped billion

India cannot unlock its full credit potential by relying on bureau scores alone. The real opportunity lies in richer, forward-looking signals – data that’s already in front of us. Banking transactions, utility bill payments, and savings patterns directly reflect a person’s ability and willingness to pay.

In Q1 FY26, ₹73 lakh crore worth of transactions flowed through UPI – almost double the ₹36 lakh crore in cash circulation. And nearly half of that cash isn’t even actively circulating.

Today, 80-90 per cent of India’s transactions have a digital footprint, and this digital footprint can act as alternate data to unlock billions of loans in this new world of underwriting.

Reimagining risk: from credit history to credit potential

True repayment ability lies in forward-looking signals: income, growth, savings, spending, and financial discipline.

Shifting the lens from “credit history” to “credit potential” allows for a more accurate and inclusive way to assess someone’s real ability to manage and repay credit responsibly.

Why lending companies must move beyond scores – and why now?

Until recently, there were two big problems that kept lenders from using banking data. 1. Borrowers could tamper with statements. 2. Transaction narrations were too messy for underwriters to interpret.

Now, both barriers have fallen. Here’s how:

The Account Aggregator (AA) framework now lets lenders access verified data directly from banks. Q1 FY26, it had enabled over 68 million data fetches, with adoption growing rapidly across banks and NBFCs.

Meanwhile, AI and large language models trained on Indian transaction patterns can decode narrations and create personal cash flow statements in seconds. What was once limited to corporate lending – analysing forward-looking cash flows – is now possible at scale for individuals.

Alternative data: future of credit in India

This is not an argument to discard bureau data altogether. Bureaus remain useful, but they are just one data point.

Alternative data should be treated as the primary signal, with bureau data serving as secondary validation. That’s how we shift from measuring credit history to evaluating credit potential.

Conclusion: From risk to opportunity - how AI and alternative data can redefine lending in India

By embracing alternative data, India’s lenders can tap into new segments, foster genuine financial inclusion, and fuel the aspirations of its youngest citizens. The choice before lenders is clear. Remain tied to outdated credit scores and lose out on 90 per cent of the market, or reimagine risk, harness alternative data, and unlock the potential of the untapped billion.

In the world’s fastest-growing digital economy, this isn’t just the future of credit; it is already the present. Are you ready to embrace it?

Published on October 13, 2025