P2P: Powering The Next Phase of Indian Fin-tech Revolution
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Within the Indian fin-tech space, the P2P lending segment has been the new kid on the block since 2012. The sector, today, is still at a nascent stage of its growth trajectory. Industry experts look for the P2P lending sector, within the online alternative lending product space in India, to be a $4-5 billion industry by 2023, and reach a milestone of $2-3 billion by 2020.
Within just four years since inception of the segment, $5 million were transacted on online P2P platforms in 2016. In addition to the recent RBI guidelines to regulate the sector, the sector has seen a strong growth push from the Digital India initiative from the Government, which includes cashless economy, Aadhaar and the promotion of digital payments.
With the RBI taking a keen interest in the sector and the penetration of a cashless economy going deeper and deeper into the country, the P2P lending is sitting on a cusp of opportunities within the fin-tech space, which will lead the next phase of the Indian fin-tech revolution. Some of the trends the sector will observe in the next year are:
Leading the Way For Boosting Financial Inclusion
Financial inclusion has been a national goal for over a decade. While working towards ensuring every Indian has access to a bank account and the push to penetrate a cashless economy goes deeper into the country, the access to credit for a majority of the country is still extremely low. The P2P segment will help Indians, not falling into the financial umbrella due to low income, unintentional defaults or lack of security, to have access to credit and create opportunities for growth.
Digitization Increasing P2P Lending Popularity
Demonetization helped, almost overnight, boost the cashless economy in India. With more and more people gaining trust in online payments and transactions, the P2P lending space will see a huge push of borrowers as well as investors. While borrowers will look at P2P lending as the perfect option for short-term and occasion-based funding, investors would be keen as it opens up a completely new asset class with flexible liquidity and monthly returns in form of EMIs from borrowers. As consumers start to understand all the different situations where P2P lending can come in handy, the trust in digital payments and the paved cashless economy will help power this segment’s growth.
A Birth Of A New Asset Class
Retail investors will look the P2P lending space as a new option for investing. As investors are always looking for different avenues to invest their wealth, the P2P lending space, with companies running strong checks on borrowers, returns coming on a monthly basis, and opportunities for strong interest rates returns, will attract more and more lenders/investors. With the RBI guidelines adding more trust to the investment option of P2P lending, this asset class may emerge as a lucrative investment asset class. Being a high return investment with no volatility, big investors would not be able to resist investing here.
Keen Investor Interest
The recent RBI guidelines and the attention given by the regulator on this sector have made this fin-tech segment an attractive space for mainstream investors and private equity funds. While the sector saw investment even before the RBI guidelines were disclosed, the level of interest is only set to increase with the current level of attention, not only from the regulator, but also from consumers and retail investors. More funds finding their way in this segment will not only help enhance the product development, but the marketing activities of P2P lending companies will increase awareness amongst the masses.
Small Businesses & SMEs: The New Frontier for P2P Lending?
The SME lending space is a huge untapped opportunity, and existing P2P players will capitalize on this. With the boost received by various Government schemes to promote small businesses, MSMEs, and SMEs, India has seen a boost in start ups over the last few years, partly attributed to the StartUp India initiative.
Small businesses and SMEs may find P2P lending as an excellent financing option in the early stages of their business growth.
All in all, this segment looks to not only increase its awareness and penetration amongst borrowers and retail investors, it will also look to open up new opportunities as SMEs and small businesses becoming the future borrowers on these digital platform.
While P2P lending should thank its fin-tech revolution predecessors, who have set the stage for its success, it should not be ignored that this sector may be a player in the next phase of the Indian fin-tech revolution.