From the pandemic, to the failures of large NBFCs such as IL&FS … from the Chinese loan app scam to the tightening of regulatory screws, almost every macro action has had an impact on this sector.
But after years of toil, founders are seeing some green shoots. Industry-level NPAs are returning to sub-2% levels. Demand for credit is up and investors have started showing interest in the sector again.
In today’s newsletter, let me chalk out why I think digital lending is at an inflection point in India.
Rapid growth: According to data shared by credit bureau Experian in a report titled ‘Fintech Led Digital Lending: Coming of Age’, around $350 billion has been given out digitally in the country till date. And around 36% of customers are new to credit. Regulatory action has helped the sector grow, as well; the report found that there has been an 85% reduction in costs through the use of electronic KYC. Loan documents are auto-generated, underwriting is done to a large extent by algorithms, collection has become easier through e-mandates and disbursal happens instantly, through digital banking.
Recovery of the sector: The sector has broadly been on a path to recovery. After the two years of the pandemic, fintech lenders as well as large NBFCs have seen a massive jump in business.
Prithvi Chandrasekhar, CEO of the consumer financing business at InCred Finance, said that India continues to be a bright spot among other major economies. He expects to see a strong consumption pickup in the next three four months, just as in previous years.
Overall many major fintechs swung to profits in the last financial year. For instance, Aye Finance reported a net profit of Rs 60 crore, Fibe (previously EarlySalary) reported a profit before tax of Rs 50 crore, Clix Capital reported profits of close to Rs 50 crore, as well.
Also read | Fintech lenders see profits in FY23 after rough couple of years
As Akshay Mehrotra of Fibe pointed out, the major part of the pickup in growth was during the second half of the last financial year.
Focus on unsecured lending: Fintechs have dominated the unsecured lending space across personal loans, consumer loans and small-value business loans.
Data shared by Experian shows the market share of fintech lenders in the PL sector has gone up to 47% in 2023 from around 13% in 2018. For a ticket size of less than Rs 1 lakh, the share of fintechs went up to 73% in 2023 from 45% five years back.
Interestingly, granular data on this space shows that the highest growth of such loan disbursals was recorded in smaller towns such as Alwar (Rajasthan), Gorakhpur (Uttar Pradesh) and Barpeta (Assam).
Fintechs gave out almost 18.3 million in loans in the fourth quarter of 2023 compared to 6 million by the rest of the ecosystem. Fintechs are also giving out small-value loans, with the median ticket size being Rs 2,000, compared to Rs 22,000 for the rest of the industry.
Policy initiatives: The industry has received support from multiple government initiatives, which are playing a crucial role in driving digitisation of finance. UPI is being used to disburse credit and collect outstanding amounts. UPI data is also being used to underwrite customers.
Also read | How digital payments became democratic – the UPI way
NBFC-AA: The account aggregator framework has started easing the flow of data, which can help fintechs underwrite customers better. While the AA ecosystem is still in its early stages, some success has come for early adopters in terms of better quality data, prevention of fraud, and so on.
Digital KYC: There has been a 40% drop in manual KYC since digital processes were put in place. eKYC has helped reduce the cost of operations for fintechs, and this, in turn, is helping them offer better rates to their customers. Video KYC and centralised KYC are initiatives being pushed by the RBI to make remote customer onboarding smooth and fraud proof.
Digital lending guidelines: The digital lending guidelines that came out at the end of last year have cleared many things up for the sector. While players have a better understanding of the regulatory environment, investors are more confident about putting money in the space as there are hardly any grey areas left.
So, after quite a few years of struggle, the digital lending sector is finally starting to look up. Both FY23 and the first six months of FY24 have been good for the space. Now, will fintechs be able to grab the opportunity and carve out a niche for themselves? The answer to that question will emerge over the next few months.
Our Fintech News Coverage This Week
RBI lens on payment firms seeking aggregator tag: Companies which have applied for the payment aggregator licence are undergoing strict scrutiny by the Reserve Bank of India (RBI). The RBI is concerned about three major aspects:
- Internal access controls: The regulator wants to impose proper audit checks to ensure access control for employees is maintained.
- Investor profile: For any investor with a more than 10% shareholding, the RBI is looking at the ultimate beneficiary to ensure compliance with FATF guidelines.
- Data protection: Ensure customer data is protected and all safety systems are in place.
Also read | Exclusive: Rivals snag new users as top payment gateways hit by RBI freeze
Groww dethrones Zerodha as India’s largest stockbroker: Wealth management platform Groww is now the leader among Indian stockbrokers in terms of active clients, pushing Zerodha to the second spot. According to data released by the National Stock Exchange, Groww had 6.62 million active clients in September, up from about 6.20 million the previous month. Zerodha’s active user base remained stable at 6.40 million. ET had on September 25 written about how Groww was racing ahead of the rivals.
Razorpay leans on existing customers on signup freeze: Digital payments company Razorpay, which has been barred from onboarding new customers for its payment gateway business by the central bank, is now trying to generate more business from existing customers through new product lines, as it tweaks its go-to-market strategy. The company launched Optimizer on Monday that will allow businesses with large transaction volumes to avoid transaction failures and reroute transactions in real time.
InsuranceDekho bags $60 million, value pegged at $700-750 million: Insurance marketplace InsuranceDekho has raised $60 million in its ongoing Series B funding round from Japanese financial services major Mitsubishi UFJ Financial Group, BNP Paribas Cardif, which put money through its insurtech fund, and Beams Fintech.
ETtech also wrote in depth about a pattern where InsuranceDekho has raised back to back funding. What makes this current round interesting is that it happened within a year of InsuranceDekho raising one of the largest ever series A funding rounds of $150 million.
Read our explainer on what makes InsuranceDekho stand out
Biz Pay firm PayMate’s revenue rises 12%: Business payments platform PayMate has controlled its losses and recorded a nearly 12% growth in revenue for FY23. Total transactions processed by the Mumbai-based startup went up by a fifth from FY22 to Rs 84,519 crore in FY23.
Top Stories This Week
Manipal’s Ranjan Pai likely to invest $250-300 million in Byju’s Aakash: Manipal Education and Medical Group chairman Ranjan Pai may invest as much as $250-300 million in Aakash Institute, a subsidiary of troubled edtech firm Byju’s, according to sources. While his initial plan was to invest around $70 million, he is now close to infusing $170 million in the first stage, with more to come later, the sources added.
Also read | Byju’s creditors onboard Kroll to ‘safeguard’ assets including Great Learning
Dunzo board, investors vet key costs to keep cash flow in check: The board and key investors of Dunzo are reviewing all major expenses at the cash-strapped startup before approving any significant payments or new commitments, two people aware of the matter said. This is being done to closely monitor the cashflow at the troubled quick-commerce firm, the people said requesting anonymity.
Also read | ETtech Recap: Decoding Dunzo’s deepening crisis in five stories
ETtech in-depth | Rario collapse, GST bring curtains down on Dream Sports’ VC arm: Dream Sports, the gaming giant which operates the fantasy gaming platform Dream11, has decided to roll back its self-funded corporate venture arm which had a committed corpus of $250 million, marking the end of an experiment by the gaming and sports-focussed company. The venture arm’s top boss, Dev Bajaj, who is also Dream Sports’ chief strategy officer, is departing from the company.
Read our in-depth piece here
Social media companies warned of strict action over child abuse content: Social media companies Telegram, YouTube and X (formerly Twitter) may have to face strict acton over their failure to remove violent pornographic content, including child and adult sexual abuse material, from their platforms, said Union minister for electronics and information technology Ashwini Vaishnaw. The IT ministry had sent these a week ago, asking the firms to remove all child sexual abuse material (CSAM) from their platforms.
ET Startup Awards 2023
Winners of the ET Startup Awards 2023 with Piyush Goyal, Rajeev Chandrasekhar and Satyan Gajwani
ET Startup Awards 2023: Profitability ‘biz’word for Indian startups now | If there was one buzzword that could be picked up at The Economic Times Startup Awards 2023, the flagship event to celebrate the spirit of entrepreneurship in the country, it was profitability.
With union minister for commerce and industry Piyush Goyal and minister of state for electronics and information technology Rajeev Chandrasekhar as the guests of honour, ET feted eight startup champions at a gala ceremony in Bengaluru on October 7.
OfBusiness received the coveted Startup of the Year award 2023, joining a list of illustrious winners of this coveted trophy, including Razorpay, Zomato and Zerodha. Read more about the ceremony here.
From left: Samidha Sharma, editor, ETtech, Prashanth Prakash of Accel India; Harshil Mathur of Razorpay; Rashi Narang of Heads up for Tails; Lalit Keshre of Groww and Aadit Palicha of Zepto.
ETSA 2023 | Indian startups go back to the basics in a changed world: A high-powered panel, with some of the top names from India’s tech brigade, discussed the new order and how they were laying the foundation for sustainable revenue and profitability at the ET Startup Awards. Read the full transcript here.
Funding winter more in the mind than in reality, says Piyush Goyal: Guest of honour union minister Piyush Goyal said that the funding winter for early-stage firms is more in the mind than in reality, adding that good ideas will always find financial backers.
Pedigree of India’s tech ecosystem firmly established: Rajeev Chandrasekhar | The minister said in the past, there was some scepticism about young Indians building companies and startups. But over the past five to six years “the confidence amongst the world’s investors, consumers, companies, and enterprises about the capabilities that this generation of entrepreneurs bring to bear is unprecedented”, he added.
Clockwise from top-left: Kunal Shah of Cred; Kalyan Krishnamurthy of Flipkart Group, Sujeet Kumar of Udaan. Siddarth Pai of 3one4 Capital, V Vaidyanathan of IDFC First Bank. Gaurav Munjal of Unacademy, Prateek Maheshwari of Physics Wallah. GV Ravishankar of Peak XV Partners, Jitendra Gupta of Jupiter.
Clockwise from left: Aadit Palicha, of Zepto; Albinder Dhindsa of Blinkit; Rohit Kapoor of Swiggy. Ankit Nagori of Curefoods; Nandita Sinha of Myntra. Lalit Keshre of Groww; Pravin Jadhav of Dhan; Subramanya SV of Fisdom.
Clockwise from top-left: Prashanth Prakash of Accel India with Midas Touch winner Jishnu Bhattacharjee of Nexus Venture Partners. Vikram Vaidyanathan of Matrix Partners, Varsha Tagare of Qualcomm Ventures. Karthik Prabhakar of PeerCapital; Nishit Garg of RTP Global.
IT Earnings
Salil Parekh, CEO, Infosys
Q2 results: Infosys presses cursor up on PAT, down on revenue guidance | Infosys posted a 3.2% on-year growth in net profit for the second quarter, but narrowed its annual revenue growth guidance and reduced headcount sharply.
HCLTech trims full-year outlook on demand drop: For the fiscal second quarter ended September 30, the company posted an 11% sequential fall in revenue in constant currency terms. It reported a better-than-expected 9.8% rise in net profit in Q2.
Also read | HCLTech expects Q3, Q4 growth to lead industry numbers: CEO
TCS Q2 net profit up 9%, announces Rs 17,000 crore share buyback: TCS, the world’s second most-valued technology services company after Accenture Plc, on October 11 warned that decision delays and circumspect client spending have dented global demand and dimmed industry growth prospects.
Indian IT majors see a dip in headcount amid macroeconomic headwinds: Amid macroeconomic headwinds, IT companies are facing slow growth while their clients pull back on tech spending. This has led to large IT players conserving cash and maintaining a cautious hiring approach.
Tech Policy
Israel-Hamas war: Tech firms may shift ops to India, elsewhere if conflict escalates | Global technology majors having offices in Israel could potentially move their business operations to India or other locations if the Israel-Hamas conflict escalates, industry experts said.
Talk to ‘Bhashini’ for UPI-based services in local languages: In a bid to advance linguistic inclusion in the payments ecosystem, Bhashini – the government’s AI-powered multi language national language translation platform – is looking to expand voice-based facilities under the National Payments Corporation of India (NPCI).
Also read | ONDC logs meteoric rise; challenges are climbing fast too
IT hardware firms trip on ‘country of origin’ norms, ping government for clarity: IT hardware manufacturers such as HP, Dell, Apple, Samsung, Lenovo, Asus, and Acer have sought to know how to calculate the cost, insurance, and freight value of some of these products which are imported to India as completely built-up (CBU) units.
ETtech Deals Digest
The funding climate for Indian technology startups continued to be drab at the $100 million to $200 million weekly ballpark figure, with $163.8 million deployed this week in 17 deals, according to data from Tracxn.
However, the density of the dealmaking rounds in the week from October 7 to October 13 was higher than that in the comparable quarter a year ago when startups raised $97.7 million across 30 funding rounds.
In Other News
