Glossary of Terms –  Report of the Working Group on Digital Lending including Lending through Online Platforms and Mobile Apps

Application Programming Interface: A set of rules and specifications followed by software programs to communicate with each other, forming an interface between different software programs that facilitates their interaction.

Artificial Intelligence: Information technology (IT) systems that perform functions requiring human capabilities. AI can ask questions, discover and test hypotheses, and make decisions automatically based on advanced analytics operating on extensive data sets.

Annual Percentage Rate: The annual rate that is charged for borrowing a loan and includes processing fees, penalties and all other charges that are applicable to the loan throughout its life.

Balance Sheet Lending: Financial service involving extension of monetary loans, where the lender retains the loan and associated credit risk of the loan on its own balance sheet.

Balance Sheet Lenders: Lenders who undertake balance sheet lending.

Blackbox AI: A system for automated decision making often based on machine learning (deep learning) over big data mapping the users’ features into classes predicting their behavioral traits which cannot be interpreted/ explained by even those who design it.

Buy Now Pay Later: A point of sale financial product where a borrower is allowed to purchase products on deferred payment basis and pays in a predetermined number of installments.

Caveat Emptor: The principle that the buyer alone is responsible for checking the quality and suitability of goods before a purchase is made.

Consumer Protection Risk: Derived from the definition of misconduct risk, consumer protection risk is the risk that the behaviour of a financial services entity, throughout the product life cycle, will cause undesired effects and impacts on customers.

Cooling-off Period: A period of time from the date of purchase of good or service from a distance (e.g., online, over phone or email order) within which the purchaser can change her/ his mind with return or cancellation of the purchase, as a part of Terms and Conditions of the purchase contract.

Cyber Security: Protecting information, equipment, devices, computer, computer resource, communication device and information stored therein from unauthorized access, use, disclosure, disruption, modification, or destruction.

Digital Lending: A remote and automated lending process, majorly by use of seamless digital technologies in customer acquisition, credit assessment, loan approval, disbursement, recovery, and associated customer service.

Digital Lending Apps: Mobile and web-based applications with user interface that facilitate borrowing by a financial consumer from a digital lender.

Embedded Credit: The lending services generated from the embedding of credit products into non-financial digital platforms.

FinTech (Financial Technology): A broad category of software applications and different digital technologies deployed by the intermediaries that provide automated and improved financial services competing with traditional financial services.

First Loss Default Guarantee: An arrangement whereby a third party compensates lenders if the borrower defaults.

Key Fact Statement: A comprehension tool in the pre-contract stage of credit process consisting of a standardized form listing all the fees, charges and other key credit information that a financial consumer needs to make informed decision which promotes transparency and healthy competition.

Glass Box Model: In a Glass Box model of AI, all input parameters and the algorithm used by the model to come to its conclusion are known imparting it better interpretability. Explainable AI (X-AI) allows humans to understand and trust the output better.

Lending Service Provider: Lending Service Provider is an agent of a balance sheet lender who carries out one or more of lender’s functions in customer acquisition, underwriting support, pricing support, disbursement, servicing, monitoring, collection, liquidation of specific loan or loan portfolio for compensation from the balance sheet lender. (A balance sheet lender must have continuing ability to handle the above functions and the lender, not the LSP, must be able to demonstrate that it exercises day-to-day responsibility for the same, when LSPs are engaged.)

Loan Flipping: The process of raising cash periodically through successive cash-out refinancings.

Loan Stacking: The process of taking out multiple loans/ credit limits by a borrower from various sources within a short period in order to reach a financial goal, both legitimate and illegitimate.

Machine Learning: A method of designing problem-solving rules that improve automatically through experience. ML algorithms give computers the ability to learn without specifying all the knowledge a computer would need to perform the desired task. The technology also allows computers to study and build algorithms that they can learn from and make predictions based on data and experience. ML is a subcategory of AI.

Market Place Lending: Use of online platform to connect financial consumers or businesses, who seek to borrow money, with investors/ lenders who are willing to buy or invest in such loans/ lend to such borrowers.

Open Texture Rules/ Standards: Those rules/ standards that allow practices to be judged on the basis of broad, flexible requirements and are commonly used as a consumer protection tool.

Pacing Problem: Time and capability gap between technological innovation/ advancement and the mechanism to regulate it.

Payday Loans: A short-term, low value, high-cost loan to cover immediate cash needs typically repayable on borrower’s next pay day or when income is received from any other source and granted without considering other financial obligations.

Payment Gateway: Payment Gateways are entities that provide technology infrastructure to route and facilitate processing of an online payment transaction without any involvement in handling of funds.

Payment Rails: Established networks or back-end systems involved in processing of cashless payments. (Examples: pre-paid wallets/ card rails, bank real time payment rails, bank batch/ bulk payment rails, card rails, carrier billing rail, check imaging rail, etc.)

Personal Identifiable Information: Information that when used alone or with other relevant data can identify an individual.

Problematic Repayment Situation: A problematic repayment situation is one when the consumer is not able to repay the debt within a reasonable time, and/ or the consumer is only able to repay it in an unsustainable way, e.g., by cutting back on essential living expenses or by defaulting on other loans.

Regulated Entity: Entities regulated by Reserve Bank of India.

Responsibilization: Subjecting financial service providers to a broad duty to treat consumers fairly but not specifying in detail how it is to be done.

Short Term Consumer Credit: The practice of lending to consumers, amounts of money that are small relative to other forms of credit in the market for short period, say, from a few days up to12 months, at an annual percentage rate considered high compared with other credit products available to consumers.

Step-in Risk: In the context of the report, Step-in Risk refers to the risk that a balance sheet lender assumes by providing support to the LSP beyond the contractual obligations, both from reputational and substitutability point of view.

Synthetic Identity: A synthetic identity is a combination of information that is real and fake information fabricated credentials where the implied identity is not associated with a real person.

TechFin: As opposed to FinTech where traditional financial services are delivered by use of technology, TechFin is where an entity that has been delivering technology solutions launches new way to deliver financial services. In other words, FinTech takes the original financial system and improves its technology, TechFin is to rebuild the system with technology.

Travel Rule: Information required to be collected, retained and be included in every fund transfer transaction initiated by one financial institution on behalf of a customer that should travel (be passed along) to each successive financial institution in the funds transfer chain.

Vulnerable Consumers: Those consumers who are at a disadvantage in exchange relationships where that disadvantage is attributable to characteristics that are largely not controllable by them at the time of the transaction. (Andreasen and Manning, 1990)

Source: https://m.rbi.org.in//Scripts/PublicationReportDetails.aspx?UrlPage=&ID=1189#GL

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