Large fintechs help revamp P2P lending
PremiumBig fintechs are looking at P2P lending as a feature to engage a captive audience, instead of building business models around the space
Peer-to-peer (P2P) lending is going through a revamp as larger fintechs, including BharatPe and Cred, have launched offerings around the risky asset class for their customers, allowing them to earn and borrow at competitive market rates.
Merchant fintech BharatPe earlier this month launched a P2P offering called 12% Club to let consumer lenders earn 12% interest on their investments. Members of the product can also borrow at 12% interest as BharatPe launched a separate app for the P2P offering.
“Earlier, (institutional) investors were wary of the P2P business owing to the high customer acquisition cost required to build both supply and demand for loans on the platform. But now with businesses like Cred and BharatPe having access to cash-rich individuals and merchants, the P2P lending segment is set to become mainstream," said Ashneer Grover, co-founder and MD of BharatPe. The fintech’s P2P offering is close to a monthly investment run rate of $5 million by individual investors, and loan disbursals worth $1 million, he added.
Last week, credit card bill-based rewards marketplace Cred launched its P2P offering Cred Mint. It allows its user base of 7.5 million with 750 or above credit scores to lend at 9% interest and borrow at 12-15%. The idea was to build an inflation-beating product for customers with surplus savings, and to counter annual (borrowing) interest percentage rate of credit card revolving, which stands at 36-45% in the industry, said Cred founder Kunal Shah.
Smaller incumbents in this space such as Faircent, LenDenClub and LiquiLoans are also happy since the big fintechs are partnering with them to get access to a larger consumer base. BharatPe has partnered with LenDenClub and LiquiLoans to create its offering in the space. Consumer borrowing by individuals on its product will be powered by NBFC Hindon Mercantile, among others. Cred has signed up with LiquiLoans for its P2P lending product.
“As soon as a player like Cred enters the P2P domain, it brings a lot of credibility to the sector. It will have a network in terms of reaching out to the customer," said Bhavin Patel, founder & CEO, LenDenClub.
He said that eventually when the sector matures, each player will seek to cater to specific targets of a customer base.
“It’s actually good for us... They (Cred) will expand the market and educate. Our challenge is awareness both on the lending side and the borrowing side. They have deep pockets, and will propagate the category," said Rajat Gandhi, founder & CEO, Faircent.
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Besides, big fintechs are looking at P2P lending as a feature to engage a captive audience, instead of building business models around the space. On the other hand, companies such as Faircent, LenDenClub and LiquiLoans rely on two distribution channels—direct B2C leads and leads generated through partnerships.
To be sure, the P2P lending sector has its fair set of challenges. For one, the industry that is regulated by the RBI is plagued by lack of consumer trust, poor product-market fits and me-too product innovations, causing many upstarts in the space to shut shop.
“P2P lending is an emerging asset class, but big fintechs will not be able to make an impact unless they really create trust and awareness, which have kept investors from tapping into this investment product," said Sanjay Doshi, partner and leader, financial services advisory, KPMG in India.
P2P NBFCs will not be able to gain if they don’t have control on either the investor or borrower in these fintech tie-ups, since the real value lies in sharpening underwriting algorithms, added Doshi.
tarush.b@livemint.com
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