A cashless economy, the rise of digital money yet an increasing demand for credit. All of this has led to the rise of the digital credit start-ups that let you buy now but pay later. With the promises of letting you have a hassle-free transaction and the ability to buy what you want, regardless of the fact that you might not have cash on you; these start-ups are targeting the consumer segment of India that does not have access to a credit card.
Determining credit worthiness through social media
One of the biggest problems while getting a loan is the amount of paperwork involved in it and the number of times you have to visit the bank and even then, you might end up not securing the loan. Doing away with all the hassles, these start-ups base your credit worthiness through digital checkpoints. “It’s a longish process at the bank, which is why the credit card penetration is so low in the country. We have a propitiatory algorithm that assesses credit worthiness using alternate data. All of this is done in real time with minimum or no customer involvement. It’s a less pervasive model,” said Akshat Saxena, co-founder of ePayLater.
Enabling Financial Inclusion
The startup ePayLater recently tied up with IRCTC giving users the option to buy a train ticket immediately without having to worry about whether they have enough balance in their account at the said moment to pay for it. “It’s a fairly innovative way of making payments. The user can just sign up once and then we access their credit worthiness in real time and let them buy the ticket. This actually enables financial inclusion.
Tapping the 100 million people segment
While there are a large number of people who are denied loans or don’t have access to credit cards, there’s another segment that almost always needs instant cash but has no access – college students. Targeting the age group of 18-26, Slicepay makes way for micro credit use cases. “There are over 100 million people between the age group of 18-26 who don’t have credit cards. These are mainly students who need small ticket loans and banks don’t have the cost structure to include the same. Taking the whole process digital, we offer them the ability to buy a smartphone or laptop with convenience. The average credit loan is 15,000,” said Rajan Bajaj, co-founder of Slicepay.
Are we headed towards a debt crisis?
Considering there are also people who could make use of this facility for the wrong reasons, will it lead to a debt crisis? “First, the credit taken by these people are for small numbers. Secondly, the analysis we do is pretty secure. We are prudent in a way that we are very cautious of lending. Let’s say we have 100 customers per month, we refuse 40 of them because of their low evaluation scores. We are also educating them about cibil scores. We have campus ambassadors who can also do physical verification The AI and ML-based process raises red flags if there is an error and the person is denied the loan automatically, leaving no room for faults,” said Bajaj. At Slicepay, they do 1500 loans per day.
Saxena from epaylater agrees to say, “A credit card is an unsecured product because there’s no collateral involved. A house loan or car loan is still secure because there’s an asset involved. However, ours can be the most secure product because of the algorithmic analysis we do for the credit assessment. Everyone is on social media now and the assessment done through the digital data is always accurate. The number of people we give loans to per month is definitely a double digit percentage.”