Have you taken a loan online recently? Did you fall hook, line, sinker for the words ‘instant approval’? Taking a loan online is not so instant, as much of the paperwork is still done manually. For the final approval from a lender and the loan to come through, it can take seven to 30 days, even when you apply for it online.

Those in the business know that easing the process can get more people a loan. One of them is Adhil Shetty, the CEO of online financial marketplace BankBazaar. If you spend even five minutes with him, the word ‘paperless’ is bound to come up. He wants to make his website the place where one can get loans without ever having to deal with physical paperwork. But it’s another thing that regulation is yet to keep up with Shetty’s ambition.

Even as the nine-year-old company chases a longer-term vision, if you cut to the present, a three-year-old company PaisaBazaar—part of the insurance marketplace PolicyBazaar—has skipped ahead of BankBazaar. And both do things differently. BankBazaar identifies and passes on credit-worthy customers to the bank. PaisaBazaar’s is a more cost-efficient model for banks that ensures that such customers get loans.

Senior officials from three large private banks The Ken spoke to said PaisaBazaar is processing more loans, and two of those banks said PaisaBazaar is processing nearly twice the amount of loans as BankBazaar. The top lenders, HDFC Bank, ICICI Bank, Bajaj Finserv, Axis Bank, Kotak Mahindra and Yes Bank account for over 70% of all the unsecured (collateral-free) loans in the country.

Even as financial institutions search high and low for a good set of retail customers to lend to, financial marketplaces are a small and costly channel. So the balance of power between marketplaces and lenders is tilted in the lenders’ favour. In a way, PaisaBazaar’s lead is a nod towards which of the two models is getting a thumbs-up from the financial institutions.

But why is a bank’s approval important? Lending through marketplaces accounts for only about 4% of all digital disbursals. But it’s expected to grow. The online financial marketplace has grown from processing Rs 100 crore of personal loans a month in 2015 to Rs 500 crore a month now. And it is expected to process Rs 3000 crore a month by 2019, according to industry estimates.  

The best-selling products in marketplaces are personal loans and credit cards as banks don’t mind using online channels to source them. They are of smaller ticket sizes between Rs 3 to 5 lakh and are seen as less risky. PaisaBazaar processes nearly Rs 250-crore worth personal loans every month, according to its CEO Naveen Kukreja. BankBazaar reportedly processes about Rs 100-crore worth personal loans a month. BankBazaar did not confirm or deny these numbers but maintained that it is ahead of the competition.

AUTHOR

Arundhati Ramanathan

Arundhati is interested in how people use money in the digital age and how new economies will take shape based on that interaction. She writes the newsletter Ka-Ching! ever Monday. She lives in Bengaluru and has spent over 12 years reporting and writing on various subjects.

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