This Alternative Lending Platform Feels Consumer Lending is More Than Just a Trend
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Traditionally, lenders have focused on large corporate loans. With time, they have also started to cater to the SME segment. Between business clients, lenders often miss out on retail customers. However, with the age of digitalization and the rise of new age lending aka alternative lending, consumer finance space is considered to be a hotspot in this segment.
This is also where LoanTap has found its niche. It is one of the few lending startups that are closely servicing salaried professionals with unsecured loans. Earlier this month, the fintech startup also raised $8m, which was led 3one4 Capital with its existing investors Shunwei Capital, Kae Capital, India Quotient, Tuscan Venture and angel investor Ashish Goenka.
In a conversation with Entrepreneur India, LoanTap’s Co-founder Vikas Kumar discusses what makes consumer lending a hot choice among investors.
Even though LoanTap has a slight exposure to SME finance, their core focus is on salaried customers. Explaining the company’s vision, Kumar says unlike a bank, which generally offers one vanilla product to salaried borrowers – term loan, LoanTap focuses on need and cash flow-based products. Their product range varies from EMI free loans to overdraft to wedding loans to holiday loans.
He says, “People in India do not leave their job until they have another in hand. The visibility of salaried employees is pretty high and their salaries increase over the period of time. So unlike the SME space, for salaried persons, the cash flow is easy to project. This is where we found the opportunity to provide better products for the class.”
One of the main reasons why banks avoid retail customers is because the cost of service as against the loan size is higher. The due diligence process is lengthy which increases the bank's turnaround time significantly. So for example, if one needs a loan for a medical emergency at home. He or she would have to wait almost 10-15 days for approvals to avail a loan from the bank. However, with technology at the core, new age lenders have been able to solve this issue.
Having said that, with little access to the Aadhaar data stack, Kumar agrees the cost of onboarding the customer has increased significantly for fintech lenders. Giving an example, he says, “If a customer needs to borrow INR 50,000, we have to spend INR 2000-3000 to onboard them as the KYC process is now offline. The government needs to address this issue for consumer lending to thrive.”
Additionally, consumer lending is not as easy as it may look. People tend to fake their bank statements and even their salary statements to access loans. But LoanTap claims that its customer securitizing processes are better than a bank. “Out of 10, we can detect 9 frauds and our NPAs are less than 1 per cent of our loan book. Most of our NPAs come from job loss, death in the family and migration of the borrower.”
As of date, LoanTap has sanctioned more the INR 170-180 crore and has outstanding of INR 130-140 crore. The company claims to be EBITA positive and is also set to report PAT positive by end of this financial year. Sharing LoanTap’s 2022 plans, the entrepreneur added, “we are looking at loan book size of INR 3,000 crore."