Risky fintech lenders eating into Indian personal loan market

Fintech lenders are making significant strides in India’s personal loan market, but are taking on greater volumes of risk than other types of lenders, according to Saurabh Sinha, country head, fintech, e-commerce and telecom at TransUnion.

“Indian fintech lenders have a much higher risk, and they’re not able to manage that risk as efficiently as traditional lender types,” he said, speaking at Money 2020 US in Las Vegas. “But they have been very sophisticated in their customer acquisition strategy.”

In the second quarter of 2017, fintech accounted for around 0.2 percent of new loans and disbursements each. Two years on and the sector represents nearly 30 percent of the total market, according to TransUnion.

Of that, fintechs are concentrating on the country’s under-banked population deriving the highest proportion of business from new to credit (NTC) borrowers at 25 percent. For non-banks, NTC represented 17 percent of business, multinationals four percent, private lenders 10 percent and private alternative lenders 21 percent.

Over the same period, 62 percent of fintech borrowers are under thirty and 30 percent of all fintech borrowers are generation Z consumers (three times that of non-banks). Older consumers prefer traditional lenders.

However, 42 percent of accounts with fintech lenders are near prime, subprime, or NTC. As such, fintechs have much higher delinquencies – defined as loans older than six months and more than sixty days overdue in terms of repayments. That makes fintechs four times more risky than the next category of lender – non-banks and public sector banks.

“There’s actually a clear opportunity for fintechs to partner with traditional lenders who haven’t been about to get into the generation Z market. That could fuel the fintech growth,” said Sinha.

“Fintechs focus on credit inexperience among consumers, and there’s a clear opportunity to better manage things with robust fraud prevention and risk management tools.”

Fintechs also targeted largely urban areas – a strategy that Sinha believes could be altered to target a far larger part of India’s unbanked and underbanked population.

“Almost half of lending by fintechs occurred in highly populated tier one geographies, but we believe there’s an opportunity for lending fintechs in India to expand to smaller, underserved markets to localize their app and mobile offerings.”

“There’s also a clear opportunity for them to do risk-based pricing and invest in collections management,” he said.

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