Fintechs are heralding a new era for Indian banking and finance sector

In India, the banking and financial sector has been riddled with many challenges which has either left out many citizens from the fold of financial inclusion or have greatly limited their access to funds. Slowly and steadily, however, this scenario is changing with the advent of a large number of technology-centric companies that are looking to enhance financial inclusion and make capital available to those in need.

Take Paytm, PayU or Mobikwik for instance, the leading payments platform in India which have truly altered the way country looks at basic monetary transactions. While paying one’s electricity bill or phone bill was a bother few years ago and mandated standing in long queues, today all it takes is a click on your smartphone! It has also made it possible to transfer small amounts of money to one’s friends and families in areas where banks may not be present but internet connectivity and affordable mobile devices are.

Similarly, Zerodha and Rupeevest are making the process of investing in equities and other financial products seamless and affordable with highly discounted brokerage rates. In a country where household savings are still a major challenge that the government is dealing with, these companies are enhancing the propensity of the common man to think of things like wealth creation and portfolio management. In addition, BankBazaar and PolicyBazaar offer quick and ready access to customized rate quotes on loans, credit cards, car, personal and medical insurance policies etc. They are leveraging technology to not just make fund raising easier but to also propel Indians to plan better for their future.

In this scenario, where alternative lending companies are making the best use of technology infrastructure to reach out to more and more customers, both individuals and businesses, it doesn’t come as a surprise that they are disrupting the Indian financial services sector in significant ways. As per market research firm Tracxn, about $27 million was invested across alternative lending companies in India between mid-2014 and end-2015. In this same time period, about 30 companies across P2P Lending & SME Lending verticals were founded. Some of the companies that have been doing formidable work in this domain include B2C loan marketplaces such as India Lends, P2P loan providers such as Faircent, and B2B online lenders such as Lendingkart Group NBFC, Capital Float and NeoGrowth.

P2P lending has become a huge phenomenon in the country with marketplace.

P2P lending is generating about $18.79 million in 2015. P2P or marketplace lending as it is often called, connects individual borrowers with individual lenders for mutual benefit. Unstructured P2P lending has been prevalent in the country since time immemorial. However, the tech-backed platforms that are emerging in this space are streamlining how things work. They are ensuring that borrowers get access to funds at reasonable rates. The potential of this space in a country as large as ours is palpable from the large number of marketplace lending platforms that have emerged off late. These include LoanZen, Capzest, KountMoney, Loanbaba, Faircent and LoanCircle which have already raised significant capital.

B2B lending, too, is at an all-time high. These marketplaces are helping India’s large MSME sector accelerate at an unprecedented rate. They are using Big Data and Analytics to evaluate a business and a potential borrower’s credit risk profile to accurately ascertain the amount of funds that can be lent. They take into account the current year’s cash flows and the business growth to analyze the ability to pay working capital loans back and to assess if loans should be renewed or not.

They have also used technology the right way to make loan application and disbursal process fast and hassle-free. These B2B alternative lending companies are truly disrupting the way Indian finance space works and therefore, this segment too has witnessed a steady spurt in numbers, both in terms of growth of start-ups in this space and in terms of investment.

Our Prime Minister, Narendra Modi, has been extremely vocal about his vision for widespread financial inclusion in the country. In fact, this vision is the cornerstone of his “Start Up India, Stand Up India” programme. The Government is going all out to solve the problem of financial inclusion with schemes like ‘Jan DhanYojana’ and ‘Aadhar’ enrolment. The RBI has also given in-principle approval to many large entities to set up Payment Banks across India. Additionally, alternative lending start-ups are boosting this endeavour across the nation with the help of technology. These Fintech companies are now also looking at entering strategic partnerships with various government bodies to enable financial services pan-India with the overarching goal of banking the unbanked.

India is considered to be one of the largest markets for consumer finance with close to 70 per cent of the market being underserved by institutional lenders. Moreover, SME lending in the nation, too is a very deep vertical. Banks and NBFCs lend about $150 million to this sector yet the needs of this large and growing space remain unfulfilled. However, with the advent of tech-backed alternative lending companies, those who have hitherto been left out of the fold of financial inclusion are now fast becoming a part of it. This space is likely to see 10X growth in the near future. All stakeholders in the sector are looking forward to strategic partnerships between start-ups and established financial institutions so that together they can give the right fillip to nation’s economic and entrepreneurial growth.

(The article is authored by Harshvardhan Lunia, CEO & Co-Founder, Lendingkart Technologies)

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