What's The Future Of Lending For Fintechs in India? India Fintech Conclave 2023

up I think you know almost all of the fintech you know lending is the Magic Man for profitability uh and that typically comes you know as a last You Know cover and uh we are you know probably going to have a quick 30 minute conversation around you know what lending is all about before we actually head out break out for cocktail and dinner right so uh hold on to your seat and I have like a very good mix of uh panelists we've got a mix of consumer you know uh you know fintechs for being you know you know crushing it on the on the digital lending side uh we also have infra you know in some sense and the you know SME representation as well right and uh I read a report recently of one of the you know Venture funds which spoke about how you know the whole narrative around uh digital lending is so true where they compared it you know over the last 15 years where it went from uh somewhere around 50 billion ballpark or seven percent of GDP to close to you know 500 billion in the last 15 odd years and they're begging that to grow to almost about 20 of GDP to grow to close to a trillion dollars in the next three or four years right uh so there's massive Tailwinds that is going to sort of kick in you know and and that growth is going to come uh probably at two or three x you know and Nandan you know of all the people alluded to this recently in one of the conversation where we saw he spoke about you know the whole uh impetus that account aggregators is going to give uh and it's also going to lead to a lot of job creation because if there are 20 million smes uh 40 million jobs are likely to get created because of you know incremental access to you know Finance right uh I'll probably kick off the conversation you know first going to yodina you know and everybody keeps referring to you know data being the new oil and you know you have been at the middle of a lot of the data uh and we heard you know some of the panelists talk about uh how much of the that data is really put to good use uh what's been your experience at open you know have you seen uh that getting deployed or are you getting pushed back from you know lenders or actual custodians of the data if there is Banks whose accounts get connected to the open platform uh what's been the experience we could share some light on that thanks Manu very important critical question in the current scenario what we do as open also is enabling the data to be in a very structured manner so data is a new world but did we have dirt of data but so far I don't think that was the case the problem was that it's like the letters of the alphabet we had the data we had it all strewn around but unless you Stitch it together it doesn't make sense so unless it becomes words unless it becomes phrases it doesn't make sense and it's exactly the same problem with data so when we got into the msme sector also it was a singing issue so when you're looking at the cash flow management there can only be two things which can come out which we spoke about in detail on the if you have a surplus how to manage the cache from making money work for you or if you have a deficit where does it come from but this is where the challenge is when you look at the deficit part of it data is extremely important to determine two things whether you had the intent and whether you have the ability so ability part and both the parts are being solved by data and that's where you know we came in in terms of enabling or making sense of it so with the users also what we do is that traditionally we had this challenge of even lenders are the challenge of not able to put all these data in one place in a readable format and that's where one of the major challenges even for the user when they are approaching for a lending or access to lending was the fact that they couldn't show structured data most important problem was also that the money flow happens in the bank and it doesn't talk to any of the other systems and this is where you know beautifully we had this discussion around the digital public infrastructure and you know how all of that is crafting and coming together and then they should be enablers for the user themselves to commit this data for somebody to use in a meaningful way and that's what we have been doing and that's exactly you know from a way in which it has been received and with the recent experience with the landing as well where we were able to drive value within the ecosystem that is you know our conviction has only increased at this point in time fantastic and this also goes back to how even lenders are able to use that put that data to more meaningful use right in terms of underwriting this there's always this fear of uh I think uh you know somebody sort of made a point earlier about uh that data being owned by someone the regulated entity as such are you seeing more and more lenders coming and asking you know how have you you know underwritten or new Cuts they are looking at you know is that something that you are already seeing play out so um see what we have also taken is you know completely cognition of the regulation completely cognizant of the fact that it has to be the when it comes to many matters we have to be customer-centric we've been hearing it through the day and we have to be like you know in terms of the data and the Privacy part of it we need to be extremely sensitive so these two aspects in whichever ways we work whether it is right from this at a security angle to being a today we are a b APG also so from a regulation in the scanners we should be coming under the Frameworks we should be working under and in the aspects where we're working directly with the regulated entities because we don't step on that neither do something which which we are not authorized to do so to speak so that's something which we have always kept as a principle that being said within that framework putting together ecosystem and putting together or for example a consent mechanism completely it is it is if only the customer wants to commit this data for somebody's use and for a regulated entity that's the only time when it goes so it's our responsibility to ensure when we're creating a platform that is in compliance with every regular Asian that is that is there right from data protection to the consent mechanism to uh who consumes the data so all of those are taken care and what we do primarily is how does the customer interact with the regulated entities to make it more effective so that's where we come in and make a difference fantastic if I can sort of uh you know pose the next question to you in terms of uh it's going to be the India's decade you know in terms of the consumption credit story itself all of the data points are pointing to that you've been in the middle of this whole new wave of customers coming into the bandwagon for you know probably NTC as the industry calls it uh but you've had your fair share of challenges in the last couple of years I would you know challenges is probably the right word there has been regulatory Crackdown on certain business models uh there's this imminent funding winter that we are all in the middle of uh there's a new digital lending guidelines that came out uh but we have a much stronger in despite all of this right uh what's been your take and how has the outlook on the business changed in the last you know 12 18 months it's been very intense you know so good evening to everyone and probably you know the the only one thing that he did not put across us after all these problems how do you even survive and why are you sitting here right so yes I guess he kind of uh put down that in way but but yeah let me start this right so basically you know what is the the entire uh confusion or the chaos that has happened is there was a largely an unregulated space with which we all started as fintech lending Place uh right so then the the the growth itself was so massive um I think it was basically checked by the kovit scenarios where even RBI was kind of monitoring that and uh when the scale was so large and they felt that with that kind of an explosive growth without any kind of a supervision or regulation that could come in uh this could be a very very systemic risk if any such event would by about to happen in future I think I think that's where the the regulations came in the picture and then of course you know so we have talked a lot about you know this frequent regulations there's dlg and whatnot but what I would assume is that if you look at the fundamentals of all these regulation I think the the regulator has tried to bring about a framework with which we have to operate I don't think they are saying exactly that these are the exact boundaries within which you have to do the things or or anything of that sort but if you look at the fundamental Frameworks I think there is a the customer protection and uh there are certain guidelines in terms of how one could participate in lending this basically the regulated entities are are kind of known to orbit or kind of participate in the learning and that's what they are kind of appreciating it and those are the framework what they are really doing it rather than to come and say that you know whether this is going to kind of totally geopardize The Innovation that could happen and what not now uh you know you talk to uh many things in that in that question so I think I think you know when we all started there was a there was a view I mean there are two extreme views about the The fintech Lending or the the fintech sector itself that are these I mean the earlier questions what I used to face was um are you the challenges to bank I mean our fintechs are going to be bigger than Banks and bigger banks will nowhere be in the picture this was the first questions what what I was to kind of answer uh when when all it was Jazzy and what not and then you know there was a there was a kind of a storm that was uh created because of there was many many things that happened in the the market the regulations came in and everything then the questions which were asked by the journalist friends here was that is a bubble that is going to burst uh right so those are the extreme things what what probably this industry has seen it I think I think the answer today is that it's going to be a coexistence with the with the lending ecosystem right so it could be Banks it could be the corporate nbfcs or the bfcs which are matured over the years in in running in a traditional way or a non digital or not completely digital way I think I think the coexistence is what will be the answer fintechs are Nimble they are they can kind of get this technology front they can change faster they can adapt to the customer behavior and whatnot but definitely they don't have the kind of balance sheet what what the entire banking system provides and therefore that coexistence would be the the answer for the fintech to kind of move forward and and definitely the last point was on your uh uh the the winter to all this funding and everything I mean uh I don't know I I should feel fortunate because I just closed my series deal last month so I don't know how should I take that so yeah definitely there is a winter but um but I think the good fundamentally good business models would get identified by the investors and and I hope to see that uh the winter actually kind of goes down way faster and and then gives a boost to the entire industry I mean uh I come from Chennai where Winter is a pleasant thing so we always have this view that I always tell investors you know when I talk to them saying you know winter is a nice thing and you know you probably have to get a new rbiage but just taking a segue from what uh madhu uh just uh spoke about gaurav uh you've been at the Forefront I mean uh you know you probably have a front row seat to a lot of the action that's happening on on the consumer lending side uh and you know you you had this you know Market operating in a certain way and obviously the regulator Crackdown a lot of the invest a lot of the founders are trying to figure out business teams are figuring out new business models to sort of evolve I seeing early growing shoots of how some of those businesses have evolved from a digital lending standpoint while the core Remains the Same uh there's a consumption credit need that is getting met but the vehicles through which were getting distributed PPA you know cards were a great product you know from a from a consumer lens but how are you seeing that business getting redistributed or you know what are the new green shoots that you're seeing on the consumer lending side sharing this with this bank that one of the biggest Innovation to my mind coming out of RBI especially in lending I think is going to be cool ending right and I think coal ending currently is understated uh like what up has done on the payment side I think this is going to be the biggest Innovation coming in on lending uh so today if you look at what has shifted I think what we are seeing is today largely partnership or ecosystem lending coexisting between an re and a I would say non-re and as well as an re to re right so what we have seen now is there is very high degree of clarity when a bank is working with a non-re right I think there has been some shift in terms of how uh you know some of the players were operating in terms of card or PPI but a lot of that has now moved to I would say personal finance or uh you know I would say consumer lending second we are also seeing a shift between how you know public sector banks are actually using uh Partnerships right whether it is with nbfc or it is with Housing Finance they are actually using this as their own mode of distribution right where public sector Banks genuinely uh you know a kind of Thrive was largely on deposit and cost of fund what they did not have was largely distribution and I think this is kind of adding an edge and today we have privileged to work with most of the public sector Banks I think uh segments which are I would say largely liabilities business which is a prime personal loan Auto Loan mortgage loan you know public sector banks are going to come back with a vengeance I think that's a space which they have seeded where we are seeing even foreign Banks now is largely on Prime PL right so you know a lot of foreign banks are now looking at using fintechs for Prime PL origination so I think this to my mind is going to be the next wave I think there have been challenges and like what up has been able to do in payments I think lending is far more complex than payment I'll just share one example that today if you look at a mortgage loan the same loan is being underwritten very differently by different banks right so today a public sector Bank needs 1640 touch points to underwrite a mortgage loan on end to end right whereas the private sector Bank on the other side might only need 848 50 odd touch points right so that complexity on lending I think needs to be simplified and then last point I would make is that banks are horizontal uh the providers of capital today are horizontal and the players who are playing on the other side whether it is fintech or like madhu or what we are seeing in terms of nbfc they are largely vertical right so you definitely would see three years four years down the line you will definitely see both interoperability as well as interoperability right so a bank which is on supply chain trying to move to Consumer lending or to pool purchase right or to Enterprise loan how are you going to be interoperative right because you're talking to very different systems on the other side right so I think to our mind the next four to five years what RBA has done I think this is going to definitely deris the ecosystem it's not just about access but also opening different frontiers of where this will go yeah just one follow-up to that you know you spoke about coal lending being being a team and you know there's a lot of nuts from the government also to actually adopt that is that benefit of coal lending getting passed down to the customer or still early you know is it you know the margins that you save because of a balance sheet you know leverage right uh is it actually getting passed on to the customer well you know with the audience as well so when we uh when we're looking at our numbers uh a year back we used to do 15 1600 loans a day now we do close to 28 29 000 loans a day uh on on coal lending uh I would bring out two Trends right a year back coal lending was largely about liquidity right so a lot of players were trying to do co-lending where they did not have access to liquidity now coal lending is not about liquidity right because the biggest of players have come into cold ending what we are seeing is largely either it is about cost of fund are you trying to get into an adjacent space which you are not servicing sure right so where uh if I have to simplify a lot of low Roa business for an npfc which is definitely a slightly more higher Roa business for a bank is what will go there that's what we are seeing in mortgages Etc I think to more a technical point to your point I think the benefit of coal lending will start getting passed on to the customer as the ecosystem shows more on colanding Model 1 right where disbursement is happening real time between two partners and that's where you can go into Dynamic pricing over a period of the next four five years the pricing will remain largely static in clm2 which is largely priority sector or it's more quasi direct assignment is what you store sure yeah uh Amit if I can come to you I think SME is the red heart segment in terms of lending itself there's a lot of Promise there's also a lot of push from the government uh you know in terms of to promote uh you know SME businesses and account aggregator is seen as the you know magic van if I can use that to actually accelerate you know that the whole access to finance for smes uh are you seeing early adoption of account aggregator in a meaningful way or it's still in a POC phase that we'll have to navigate you know uh some more before we get there so there is uh there is surely adoption the adoption is on both sides one is on the lender side one on the consumer side as well uh but it's about just a year since this concept started so it's it's surely evolving uh if one were to look at it in the early stages not all data was coming in in the right format or the right manner that we wanted early stages aligned products from the banks did not were not integrated and so the data was Half Baked today I think the data Integrity is far higher and therefore the ability of a lender to look at an account aggregate data is far that's number one uh two uh more and more data will come in through the account aggregator so GST has already been brought into the regime the the capital markets regulate is already signed in mutual funds and insurance companies will sooner or later come in so what account aggregate is finally going to be one source of financial data for a business name right so when I said the adoption there were impediments there were these Concepts about some Line Products not coming in some banks integrated some banks not integrated uh today if we look at it a individual ping has about a 90 positive rate but there is still a long way to go on the Ping On how does this data come for entities like a partnership or a private limited so that that's still yet yet to be solved so it's an always evolving system and I think as the system involves the lenders will have to keep evolving their Tech stacks and their credit models to adopt it to this person the second piece about adoption is also at the consumer level and there's a lot of Education that needs to go at the consumer level because like it's still about creating an account getting otps and the consumer still worried that all these five accounts will be visible to somebody that's not the culture that the the we are an msne lenders and that's not how an msme is wired to show and show clearly be transparent about all these five accounts so that that educational adoption will take time but eventually I think that is this is this is the way how msme lending will happen in the country fantastic do you know what's your take I mean how are you seeing a uh adopted or you know have you implemented some of that you know uh any early success that you've had so definitely you know in terms of uh in terms of the usage of the a or the intent I would say that while there is some way to go in terms of not getting mature and completely effective but uh this is a very very crucial it's going to play a very crucial role in the entire enablement part of it and we have seen an option but at the same time you know it's a known fact also on the probably on the usage when it comes to unsuccess rate there are various things right and including the participation success rate everything so while that being said um one understands there is a maturity curve which is there but it is if you wait to look at it probably um probably at 12 months earlier to now it has evolved in a big way and you are seeing a lot of you know initial resistance in terms of even participants both sides are getting mature right now so I would say that we are definitely using it and definitely it is going to uh pave the way for a much larger way in which credit can be seen in India and this is going to be like for example all of these part of the I mean the pieces which are coming together because I'm a big believer in the long term uh way the lending has to become contextual and that for that again it has to come together as a complete ecosystem right from different places from where data can be pulled in to how it can be who and how reads it even for underwriting it can be alternate data it can be banking data it can be you know now that the GST data is coming into the AI so all of these put together will become the enabler and then it will onward go to go and sit where transactions happen so that's going to be a full circle and that while we are building different pieces of it and as an ecosystem this is going to be a is going to be a very big play very big role uh well this isn't the whole I think you probably uh is the digital lending guidelines that sort of came out right I think that probably is uh is kind of provided a framework from a consumer lending standpoint right uh has this impacted your business good way bad way or still not fully played out uh have you seen a change in the way banks are looking to partner up you know if there's a cold ending opportunity that you're pursuing uh what has been you know it's been six months now almost uh you know what's been the outcome yeah sure uh I guess uh you know before the digital lending guidelines actually came in I think the the industry was kind of confused whether is this model right is that model right and whether you know this practice is right or not right so that was the idea and and everyone was trying to kind of give it to their own sense okay shayad you know if I go in this way probably this is right and this is how I read the the earlier regulations of nbfcs and everything but what was different right so what was different was there was an internet and a digital angle on top of it which which gotten rise to some of the platform models or some of the non-re what what we would technically call them right so I think I think because there was a non-area technical player or a platform player came on top of this Banks and nbfcs there were many things that were assumed to be kind of deemed right and that was not very uniform or it was in a largely they were in a Unison but not exactly uniform in the way that the assumptions were being made I think I think that that was the need and also it's it's not uh you know so we always went to RBI asking various questions also I mean that would have been the other prompt for the regulator to come with the guidelines because we always went and asked these questions and since there was no regulation they could they could not answer it rightfully I mean always the RBA answers based on certain documents guidelines what they have already built and without that they would never answer anything there right so even though they feel it is right or whatsoever so I think that gave that prompted for the digital lending guidelines which we all asked for and and if you look at the entire guidelines itself I think uh there are there are I would say there are two parts to it one part has totally addressed towards the hygiene factors of the The Lending right so I don't think it is it is a new thing they have re-emphasized what the mandates have been made for banks and nbfcs that the same thing has been re-emphasized a lot that even though your additional lender we also want to see you that you follow these kind of guidelines now there are the other part which probably touch certain sensitivities of the entire industry was on certain factors like you know fldt is the most talked about factor that you know which which was kind of touched upon right so and and that is the only Point what I see has come out which which probably was was a major accelerator in the industry growth and now there is a certain and Clarity Clarity whatever it is so that is being seek now right so I think apart from that if you look at it I don't think there was anything that was not to be kind of deemed fit uh by the nbfs or any lending activity I think this is the only Clarity Point probably the industry is kind of now trying to look at the regulator in terms of giving more clarity so in all in all I think it Consolidated and really made the businesses much more stronger because see we have seen this right so there was a mfi crisis right so and an mfi went through this entire Journey only after the regulations came in I mean seven or eight or nine out of the small Finance banks have grown from the mfi world right I think I think although in a shorter term view it all comes with a lot of pain but in a longer term you would it stabilizes the companies to kind of grow and become much larger players in the ecosystem I think I think that's the way I kind of look at it and probably I welcome them uh but yeah of course you know some of the the early entrants and the and the mid players uh do see certain pains uh especially with respect to the fldg factor um that that needs further clarification yeah the synthetics securitization needs to be solved yet right uh if I can come to you you know you touched on this whole uh coal ending and how banks are now participating more and more public sector banks are participating also in this sort of comment uh spoke about Thinking Beyond you know couple of products at Banks of traditionally and you know vehicle loan and home loan and things like that do you see this as like probably an opportunity for the industry to sort of evolve to a model where a lot of the fintechs will focus on Innovative new products while increasingly banks will have that balance sheet play and just be a passive coal ending sort of you know uh and a balance sheet provider of sorts is that is that reality you know that's kind of dawning on us or banks are still not warmed up if they're still going to traditional products where you know there is certainty around Roa and you know appeal I can worst case Vlog my branches to get another 100 crores you know in the last three days of the month right that's been the thought process uh how are you seeing it you know from where you sit in terms of how more and more banks are looking at Innovative products on the lending side I think we are seeing uh right across the Spectrum right so I think today if you look at a foreign Bank you know whether it is consumer lending or even supply chain right because what foreign Banks don't have is again branches and you don't now need branches right because you can partner with anybody right to get that kind of distribution going for you right so whether it is retail or even supply chain so you see foreign banks on one side you see private sector Banks today uh I would say barring uh you know HDFC Bank others are already in uh there is definitely a conundrum right to say if I have my own distribution do I need to partner and if I need to partner then on what product do I really need to partner right uh and what the fintechs constantly think is that our banks only partnering with us in the short term especially if you are in the consumer space to take away the customer and start doing cross-sell on their own right so I think uh but you know cross-sell in my own experience is the most uh discussed word in boardrooms is very difficult to kind of cross-sell on the ground right so that's one piece which you see what we are also seeing is largely a very tighter collaboration as we as we move forward right so you will see a lot of innovation coming in on the ground where customer experience will become more meaningful one Trend at least my personal view over the next uh if we take a slightly more medium term view I think the other side will start becoming much more horizontal so I I anticipate you know somebody like madhu who has started in consumer becoming more horizontal on product whether it is a two wheeler Finance or it is you know insurance or any other form of financial product distribution I think banks will be able to support because now you don't need that cost of fund because a lot of what was getting manufactured was largely to do his own balance sheet right and that's what it was getting priced one last data point I'll leave it with you on uh Housing Finance for example today why cool lending or partnership is becoming big is because every year close to 14 to 15 percent of your customers actually Beat It Out right so they actually moved out because that's one product which is very sensitive to liability right right and now you know Housing Finance customers housing finance companies can actually retain those customers so I think it's going to be a to my mind Innovation plus retention game and then becoming more horizontal as we move forward sure sure uh just the last question to uh you know I mean in terms of you know traditionally you've had you know SME business loans characterized by segment right so I could be let's say a Trader in a specific segment so there is a certain set of lenders who kind of service you know that industry as a whole lot that ecosystem as a whole are you seeing new you know cohorts of companies or businesses or business models getting underwritten uh not even alluding to what you know the earlier conversation around a and all that but are we truly seeing the emergence of new segments being underwritten because of GST data and whatnot which otherwise was not present maybe even two years ago so uh one has to look at it in terms of where what are these segments and what is what is servicing the segments Are there specific ecosystems that service these segments whether it's in supply chain whether it is on their own digitization of product and is there data available to therefore uh extend credit so there have been multiple multiple different ecosystems that work either in pharmacy articles either in either in manufacturing there are a lot of a lot of examples of aggregators demand aggregate who have been working typically in one commodity aggregation who then integrated backwards to provide credit to that that kind of customers so absolutely sectoral focus of either either a ecosystem or an entity therefore allows it to allows it to entrench itself better there and therefore the the pie kind of keeps increasing because there is very sector specific ecosystem specific data available and that's that's happening across so a lot of banks and bfcs have been therefore partnering with either the either these printed ecosystems literally payments ecosystem e-commerce ecosystem supply chain platforms that's where people are partnering to to be focused on certain ecosystems if you want to be into if you want to get into a a complete apparel industry then you you will therefore partner with the Ecom apparel Giants and therefore go into their ecosystem so absolutely data apart from just Banking and GST this alternate data is very crucial and is the fourth layer so the three three datas that are that are democratized today the the bureau the banking and the GST and this fourth layer of data which comes from a particular ecosystem just helps lenders focus on the ecosystem so the lenders will keep entrenching themselves in web multiple ecosystems and therefore ensuring that the credit really goes to the Last Mile with a with an informed decision fantastic I think a completely run out of time for that so definitely I'm not a spokesperson on the regulation or regulatory side although everyone else got to speak about business models and whatnot and I don't know mother was very very considerate enough to kind of ask me about the the guidelines and what after the last session I feel RBA has been kind to us so you know services to be as a regulator a lot more everyday tests is not something that we do although we get circle is almost every other day thank you thank you everyone thank you all right thank you for that wonderful session

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Keywords: Moneycontrol news, share market, moneycontrol, moneycontrol news, business news, money control, moneycontrol fintech, moneycontrol fintech conclave, india fintech conclave 2023, india fintech conclave, fintech india, moneycontrol india fintech conclave, finance news, fintech investing, fintech investors, deena jacob, kreditbee, digital lending, Amit Mande, Madhusudanan R, financial news

Id: RT527ckTAmg

Length: 32min 30sec (1950 seconds)

Published: Fri Mar 17 2023