India: Hold On, My Wallet's in My Phone: Fintech Firms are a Blessing for Small ...

Jul 2016
Global, India, July, 15 2016 - Powered by technologies that harness big data, fintech companies are positioning themselves as viable lenders and payment solutions providers with mobile wallets and insta-loans. Not surprisingly, this is compelling traditional banks to evolve too.

Pankaj Garg, 33, founded DailyObjects, a company that designs, manufactures and sells customised smartphone cases and laptop sleeves, in 2012 because he loved seeing people’s emotions captured in the graphic designs. Like most entrepreneurs, he too faced working capital needs in the initial stages and approached banks for loans. However, they weren’t convinced about the company’s business model. Back then, “we were a startup and growing fast but had not broken even,” he says. “Banks just didn’t understand us then.”

It was Bengaluru-based Capital Float that saw the startup’s potential. The new-age lender, aided by proprietary algorithms that scrutinise reams of data and measure a potential borrower’s creditworthiness, offered a small working capital loan to Garg in 2013. That helped him pay his freelance artists for their designs and also bear the expenses for the just-in-time manufacturing of cases and sleeves.

“They are just as tough as banks in their due diligence,” Garg says about Capital Float. The difference is, they are fast, automated and flexible. For the right customers, loans are disbursed in a day, and for durations as short as 60-90 days. Garg, a repeat customer, typically repays his debts within a year to 18 months through equated monthly installments (EMIs).

Gaurav Hinduja, 33, and Sashank Rishyasringa, 32, both MBAs from Stanford, who started Capital Float about three years ago, have by now disbursed loans worth Rs 400 crore to over 1,000 small businesses across 40 cities in India. Venture capital firms SAIF Partners, Sequoia Capital and Aspada recently returned to hand Capital Float another $25 million (around Rs 170 crore) in funding led by Creation Investments Capital Management. The startup had previously raised $17 million in two rounds from its existing investors.

Capital Float isn’t the only player to have grown in this space. Bengaluru-based Loanzen, Ahmedabad-based Lendingkart and Gurgaon-based Indifi Technologies are also in the game. They see opportunities on multiple fronts—lending to new economy ventures, where traditional banks fear to tread; and quicker, cheaper and hassle-free lending. The emphasis is on fast, internet-based processing. Applications are mostly online and some parts of the process can be done on smartphones too. Loanzen, for instance, will eventually go “app-only”, its founder Madhu Sudhan tells Forbes India. “Our goal is to make it [getting loans] convenient for an entrepreneur so that he or she won’t have to run from branch to branch,” he says. Like Capital Float, Loanzen is also building a proprietary platform to automate lending.

Unlike Capital Float and Loanzen, which are themselves lenders, Indifi operates as a marketplace, connecting banks and non-banking financial companies (NBFCs) with small and medium enterprises (SMEs). The company caters to businesses as diverse as travel agents and manufacturers, all of whom have the same underlying need—short-term capital.

These modern-day financiers are opening up credit to SMEs at roughly the same interest rates (16-18 percent) as banks. Demand for debt within India’s 29.8 million micro, small and medium enterprises (MSMEs) stood at $520 billion (around Rs 35 lakh crore at current exchange rates), the International Finance Corporation estimated in a November 2012 report. Formal sources of lending, however, cater to only $140 billion, of the total MSME debt financing, according to the report. That leaves a $380 billion opportunity—currently including everything from self-financing to loan sharks—for companies such as Capital Float to target.

A common thread running through these companies is the sophisticated technology they are employing, including big-data analytics and machine learning, to make lending practices more competitive, earning them the name ‘financial technology’, or fintech, companies. The numbers bear out the opportunity: The Indian fintech sector is projected to rise from an estimated $33 billion in 2016, by volume of transactions, to $73 billion in 2020, growing at a five-year CAGR of 22 percent, accounting firm KPMG and technology lobby Nasscom said in a report in June.

Lending apart, another class of fintech firms is employing technology to take over a task traditionally done by banks: Payments. Mobile wallets—digital repositories of money accessible through smartphones—like Paytm, MobiKwik and Freecharge are being used by millions of urban Indians today for a host of services from ordering food to hailing a cab.

Source : Forbes India

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