The digital payment ducks all got into a row in 2017. Starting with demonetisation in November 2016 to the government getting into the payments space (BHIM) to zero commissions for digital transactions to the entry of international giants like Google and Facebook (WhatsApp’s entry is imminent) into payments, the ducks were all in a row. Quietly waiting in the wings, biding their time, were fintech lenders.

Though on paper, collateral-less lending is going to be a $2.1 trillion-sized opportunity by 2026, according to Credit Suisse, but so far, lenders have had little going for them. They could neither target all available opportunities nor find rich enough data sources (digital lending is primarily a data-driven game).

But with the explosive growth in payments, lenders may be about to find their mojo.

Because if “data is the new oil”, then payment histories are the wells. Digital payments leave a rich trail of data on users that lenders can use to assess credit-worthiness. Traditionally, lenders use data like repayment history, income from salary slips to give loans. But with payment data, companies can know when you pay your bills, how often you make high-ticket purchases. And this goes into determining someone’s intent to repay. Thus, lenders have on their hands an alternative credit scoring pattern of borrowers to add to more traditional data sets.

By extension, payment platforms could be the new credit gatekeepers. Every time you buy digitally, lenders will have a chance to offer loans of any size to the right set of people. Earlier, this was not possible because the economics for giving such small loans didn’t add up. But with the cost of acquisition now taken care of, loan ticket sizes are not a matter of concern.

Credit on demand for users of Walnut, an expense management app. Image source: https://twitter.com/roshya/status/945929190146170880

Fintech lenders are also finding allies in banks and non-bank financial institutions who view these companies as a way to acquire newer sets of customers. Whatever little traction lending has seen so far is because of companies like Capital Float and LendingKart that give loans to small and medium businesses. Consumer lending fintechs are yet to see that kind of scale given the low ticket sizes and cautiousness with which they lend.

But that could change in 2018.

The missing pieces of the lending puzzle

In the sequence of steps leading up to digital lending, the first and last ones have proved most troublesome for startups.The first is the Know Your Customer (KYC) formalities for new customers and the last is the actual collection of amounts lent. Lenders who wanted to be fully digital could not as they needed to physically perform a KYC of new borrowers.

AUTHOR

Arundhati Ramanathan

Arundhati is Bengaluru-based. She is interested in how people use money in the digital age and how new economies will take shape based on that interaction. She has spent over 10 years reporting and writing on various subjects. Previous stints were at Mint, Outlook Business and Reuters.

View Full Profile

Available exclusively to subscribers of The Ken India

This story is a part of The Ken India edition. Subscribe. Questions?

MOST POPULAR

Annual Subscription

12-month access to 200+ stories, archive of 800+ stories from our India edition. Plus our premium newsletters, Beyond The First Order and The Nutgraf worth Rs. 99/month or $2/month each for free.

Rs. 2,750

Subscribe
 

Quarterly Subscription

3-month access to 60+ new stories with 3-months worth of archives from our India edition. Plus our premium newsletters, Beyond The First Order and The Nutgraf worth Rs. 99/month or $2/month each for free.

Rs. 1,750

Subscribe
 

Single Story

Instant access to this story for a year along with comment privileges.

Rs. 500

Subscribe
MOST POPULAR

Annual Subscription

12-month access to 150+ stories from Southeast Asia.

$ 120

Subscribe
 

Quarterly Subscription

3-month access to 35+ stories from Southeast Asia.

$ 50

Subscribe
 

Single Story

Instant access to this story for a year along with comment privileges.

$ 20

Subscribe

Questions?

What is The Ken?

The Ken is a subscription-only business journalism website and app that provides coverage across two editions - India and Southeast Asia.

What kind of stories do you write?

We publish sharp, original and reported stories on technology, business and healthcare. Our stories are forward-looking, analytical and directional — supported by data, visualisations and infographics.

We use language and narrative that is accessible to even lay readers. And we optimise for quality over quantity, every single time.

What do I get if I subscribe?

For subscribers of the India edition, we publish a new story every weekday, a premium daily newsletter, Beyond The First Order and a weekly newsletter - The Nutgraf.

For subscribers of the Southeast Asia edition, we publish a new story three days a week and a weekly newsletter, Strait Up.

The annual subscription will get you complete, exclusive access to our archive of previously published stories for your edition, along with access to our subscriber-only mobile apps, our premium comment sections, our newsletter archives and several other gifts and benefits.

Do I need to pay separately for your premium newsletters?

Nope. Paid, premium subscribers of The Ken get our newsletters delivered for free.

Does a subscription to the India edition grant me access to Southeast Asia stories? Or vice-versa?

Afraid not. Each edition is separate with its own subscription plan. The India edition publishes stories focused on India. The Southeast Asia edition is focused on Southeast Asia. We may occasionally cross-publish stories from one edition to the other.

Do you offer an all-access joint subscription for both editions?

Not yet. If you’d like to access both editions, you’ll have to purchase two subscriptions separately - one for India and the other for Southeast Asia.

Do you offer any discounts?

No. We have a zero discounts policy.

Is there a free trial I can opt for?

We don’t offer any trials, but you can sign up for a free account which will give you access to the weekly free story, our archive of free stories and summaries of the paid stories. You can stay on the free account as long as you’d like.

Do you offer refunds?

We allow you to sample our journalism for free before signing up, and after you do, we stand by its quality. But we do not offer refunds.

I am facing some trouble purchasing a subscription. What can I do?

Please write to us at [email protected] detailing the error or queries.