Despite the pandemic, unsecured retail finance products, including personal loans, credit cards and durable consumer loans (CDs), have grown by approximately 25% over the past three years with penetration growing fintech apps.
As digital lending models gain momentum, short-term loans offered by BNPL apps and other fintechs have become a preferred mode of consumer finance for new millennial and millennial customers. Z because of their affordability and ease of use, according to consultancy Bain & Company’s India Fintech Report 2022.
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BNPL apps Simpl, Lazy, Zest Money and more disbursed credit to over 15 million users in FY21, emerging as a preferred credit offering in the wake of Covid-19. This had a direct impact on NBFCs working with sustainable personal and consumer loan providers, according to the report.
“The average ticket size for various loan products, particularly personal loans and consumer sustainable loans, is declining due to an increased focus on smaller loans, led by fintech and NBFC lenders. The average ticket size of NBFCs in the PL category has decreased by 70% over the past two years,” the report said.
Yet, these short-term loan products offered by BNPLs will see a tougher regulatory environment, leading to conservative fintech growth in these segments.
“Recent regulations restricting prepaid payment instruments (PPIs) from offering lines of credit and new digital lending guidelines will negatively impact the current business models of these players, especially card lending and BNPL players. providing a revolving line of credit…Additionally, regulatory oversight on consumer finance, specifically led by fintechs, is expected to generally increase in the future, with RBI set to establish a fintech division,” the report states.
Overall, personal credit, including personal loans, credit cards and consumer durable loans, grew by 29%, 19% and 13% CAGR, respectively. Semi-urban markets were the primary source of growth for retail unsecured lending products, with approximately 32% CAGR growth in Tier 4 regions and 18% CAGR growth in Tier 4 regions. 1 over the past three years, the report adds.
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The average note size for various lending products, particularly PLs and CDs, is declining due to an increased focus on smaller loans led by fintech and NBFC lenders. The average ticket size of NBFCs in the PL category has decreased by 70% over the past two years.
Small consumer durable loans have also recovered to pre-pandemic levels, with a CAGR of 11% over the past three years. Over 70% of disbursements were reported among the under 40 age group, about 36% of disbursements were made in the 30-40 age group and 37% in the under 30 age group. Growth in semi-urban areas and in the new credit consumer segment also shows that “lenders are beginning to successfully increase their reach through digital channels and leverage alternative data for underwriting,” the report points out.
Overall, India has seen a significant increase in fintech investment, with around $35 billion invested across all segments so far, which has more than doubled India’s share of funding global fintech since 2016. The years 2021 and 2022 have seen over $19 billion in fintech funding and the addition of 18 fintech unicorns. The payments and lending sectors continue to attract the majority of fintech funding (with around 60% share). More than 30% of funding is now directed to sub-sectors such as wealth technology, insurtech and neobanking.
Indian fintechs saw record investments and deals, receiving around $10 billion in funding from more than 580 deals in FY21, three times the $3.5 billion received in 2020. The first half 2022 saw conservative funding of $4.2 billion, which is lower than H1 FY21, but twice the funding received in H1 FY20. While payments and lending continue to attract the bulk of funding (60%), other segments including financial infrastructure, wealth management technology and neobanks are now catching up.
Bain & Company estimates that Indian fintechs currently contribute around $100 billion in enterprise value (EV) out of an overall financial services EV of $1.4 trillion, in 2021. The report further predicts that Indian fintechs will follow a similar trajectory to Brazilian fintechs, given India has similar macroeconomic fundamentals and lower penetration of most financial products and services. “Brazilian fintechs have grown from a 2% share of financial services market capitalization in 2017 to over 35% in 2021, reflecting sizable gains in retail banking by Brazilian fintechs and neobanks. Similarly, we expect Indian fintechs to capture nearly $350 billion in EVs by FY26, contributing over 15% of Indian financial services EVs,” the report adds.
