Challenging Times Ahead for Digital Lending Start-Ups

Digital Lending Start-Ups like Early Salary, MoneyTap and others have been hit hard post COVID-19 pandemic and lockdown. Startups like Early Salary, MoneyTap have paused a few verticals of their business and are become more careful in the selection of new customers. Geetika Dayal, Executive Director, TiE (Delhi) said, “We will see a slowdown. Loan recovery will be a major issue for these startups.” Agrees Murali Nair, President Banking for Zeta, a neo-banking platform. "While the credit demand is unprecedented, the supply of capital has completely dried out," says Nair adding "only those with enough funding will survive the storm". 

"Startups which don’t have cash for the next 6-8 months according to their burn rate, might face a survival crisis," says Pranjal Kamra, CEO, Finology, a startup providing financial education solutions.

Bala Parthasarathy, CEO & Co-founder, MoneyTap said, “We have tightened-up our credit threshold to sail through these uncertain seas. Previously we lent to a wider range of people. We have now narrowed down due to uncertainty and risk factors. Specifically, we have changed our policy to have stricter norms for consumers without any credit score or whose income cannot be easily verified." 

The list of defaulters is on the rise too. Akshay Mehrotra, Co-founder & CEO, EarlySalary, a white-collar digital lending startup, said, “There is an increase in defaulters...The first-month defaulters increased from the usual 18 per cent to 26 per cent, but it’s much lower than what we anticipated." 

"Customers who don’t have any negative credit line are still allowed to repeat,” Mehrotra said. He acknowledged that in the pre-lockdown days, his Start-Up used to lend to a larger customer base. But now his firm has stopped sourcing newer loans as they do not wish to create Non-Performing Assets.  Also, the market is hoarding cash. “We had planned to grow our balance sheet three times this year. But now we are not in a growth mode,” said Mehrotra.  

Startups are also becoming prudent so as to not take risks. Murali Nair, President Banking for Zeta said, “In the last month few fintech startups have approached us to utilize our platform to monitor their customer’s expenditure through a prepaid card. These lending startups shall face a challenge in terms of loans disbursements by 20-25%."

Nirav Choksi of CredAble, another digital lending startup says raising funds may get more difficult for startups barring those in the space of education and online. "For rest of the sectors, funding will be very slow and might lead to the acquisition or shut down," Choksi.  Kamra of Finology, said: "Earlier everyone thought of digital lending as a safe area. As the market is now capital deficit, startups working in customer loans will be hit tragically. Goods lending company who had around 25-30% growth earlier will face problems in sustaining up to 7%-8%. So, startups will not look for growth in the next two quarters."

Nair said, “In the coming month's fintech's which have enough source of funds shall survive the storm only when they are prudent of their lending customers.” Choksi said there is likely to be a consolidation in the fintech industry.