Digital Lending War: A unique “digital war” is raging in the Indian financial market. On one side are banking giants like SBI (YONO), HDFC (PayZapp), and ICICI (iMobile Pay), and on the other, fintech companies like Paytm and PhonePe. This competition is no longer limited to payments (UPI), but the real battle is centered on “digital lending,” the ability to provide instant loans through mobile.
Technology and Trust
Initially, fintech companies attracted young people and small businesses with their fast technology and easy interface. However, by 2026, banks have turned the tables. SBI’s YONO app has digitally disbursed loans worth over ₹3.2 lakh crore so far. Meanwhile, ICICI’s iMobile Pay has given tough competition to fintech’s “super app” model by integrating over 250 services into one platform.
Banks’ greatest strength lies in their trust and cost of funds. While fintech companies must rely on other banks or NBFCs for loans, banks have their own cheap deposits (CASA). This is why SBI or HDFC Bank can offer personal loans at 10-12%, while fintech companies have to maintain higher rates to protect their margins.
Fintech Strategy
Paytm and PhonePe are no longer just payment apps. PhonePe, which is preparing for its $1.5 billion IPO in April 2026, is now positioning itself as a lending service provider (LSP). Fintech companies have real-time data on customer transactions that banks don’t.
They know when you pay your electricity bill, how much petrol you refill, and how often you eat out. Using this data, they can offer nano-loans or merchant loans even to people who are credit invisible (those without a previous credit score).
Impact on Profitability
This race for digital lending has directly impacted the profit margins of both. Digital lending has reduced banks’ acquisition costs (the cost of acquiring customers) by 70-80%. A significant portion of SBI’s record profits comes from its digitally approved loans.
Simply increasing volume is no longer enough for fintech companies. Investors are now pressing for profitability (EBITDA positive). This is why Paytm is rapidly expanding into higher-margin areas like insurance distribution and stockbroking.
Who will win
The 2026 outlook suggests that this battle is shifting toward collaboration. While banks continue to dominate large and secured loans, they are now partnering with these fintech platforms for smaller, unsecured loans. Ultimately, the winner will be the one who can strike the right balance between the speed of technology and the security of banking and low interest rates.
Vikram Singh
Author at TimesBull covering breaking news and current affairs.
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