Alternate lending

Here is Why Customer Acquisition is Still a Challenge for Alternate Lending Platforms

Transactional value in the alternative lending segment has grown y-o-y 106.4 per cent in 2018
Here is Why Customer Acquisition is Still a Challenge for Alternate Lending Platforms
Image credit: Shutterstock
Entrepreneur Staff
Senior Correspondent, Entrepreneur India
4 min read

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

With the emergence of new age technologies like artificial intelligence, the alternate lending platforms have been successful in making a mark for themselves – all thanks to data boom and initiatives like financial inclusion.

In fact, according to a PwC report –  around 225 alternate lending companies were founded as of 2017. On the other hand, some reports also suggest that the transactional value in the alternative lending segment has grown y-o-y 106.4  per cent in 2018 and its predicted to grow with CAGR 53.3 per cent between 2018-2022.

While these fintech startups claim to serve the unserved and underserved class, customer acquisition is still one of the major challenges among these companies.

In conversation with various alternate lending players, Entrepreneurs India evaluates why customer acquisition is an underserved market

Credit Assesment

Satyam Kumar, Co-founder & CEO, LoanTap says even though fintech organizations have decent technology orientation, they lack the acumen in assessing credit needs of customers.

“Thus they merely act as marketplaces or online sourcing partners of the existing banking system. The value addition provided by them in actual loan processing is very limited. While the customer gets the ease of reaching to the bank through an online mode, riding on the technology of these fintech organizations, they are still stuck with old conventional loan products of the existing banks and financial institutions,”

Having said that, there are few fintech companies that have worked around to design innovative loan products and has backed it up strong technology in terms of sourcing, loan processing and customer service.

Eligibility Parameters

Unlike traditional lenders like banks, alternate lending platforms target borrowers who do not have access to finance therefore, these customers have a minimal credit history or fall short on other eligibility paraments.

“Despite experimenting with alternative credit scoring models, rejection rates remain high. This results in negative customer feedback from a large number of dissatisfied customers whose loans get rejected. This, in turn, creates a challenge in building and managing a positive brand perception amongst their core customer base,” says Gaurav Gupta, Co-founder and CEO, MyLoanCare.

Cost of Acquisition

Gupta also points out another important issue when it comes to customer acquisition – the cost of acquisition, which is relatively high for the alternate lending platform as they majorly deal with small ticket size loans.

He adds, “These lenders also need to continuously invest in technology to refine their underwriting engines and algorithms taking into account borrower behaviour and market changes. This needs constant large investments in analytics and technology. Corresponding to the high cost of acquisition, repeat business tends to go down as once the customers have availed credit, they develop a credit history and become eligible for loans from conventional lenders at much lower rates. Hence, achieving per customer account profitability becomes difficult.”

Data Validation

Data validation is one of the key issues when it comes to customer acquisition.

Manish Khera Founder & CEO, Happy shares that, “For underwriting a borrower, a third party must endorse the individual's income/KYC documents - Traditionally banks would review the savings account/ credit bureau records but for the masses who new to credit/ underbanked, alternate data is crucial.”

Additionally, data is not always available for everyone in the same format.

“If I chose to look at the social media records as alternate data - I am bound to get a mix of people who are inactive, super active & also when I collate data from different media, the variables available are distinct. This restricts my scale,” he adds.

To address the issues, companies like Happy and other alternative lending platform have partnered with terminals, remittance players, e-commerce sellers to gather more information about the merchant & support his credit need

More from Entrepreneur

Are paying too much for business insurance? Do you have critical gaps in your coverage? Trust Entrepreneur to help you find out.
Get Your Quote Now

One-on-one online sessions with our experts can help you start a business, grow your business, build your brand, fundraise and more.
Book Your Session

Whether you are launching or growing a business, we have all the business tools you need to take your business to the next level, in one place.
Enroll Now

Latest on Entrepreneur

My Queue

There are no Videos in your queue.

Click on the Add to next to any video to save to your queue.

There are no Articles in your queue.

Click on the Add to next to any article to save to your queue.

There are no Podcasts in your queue.

Click on the Add to next to any podcast episode to save to your queue.

You're not following any authors.

Click the Follow button on any author page to keep up with the latest content from your favorite authors.

How Alternate Lending Players are Banking the Unbanked