As most of the private lenders, whether the traditional banks or the Non-Banking Financial Companies (NBFCs), are trained to think big, they are always looking for big businesses so as to to end up doing big and that’s where lies the opportunity for a whole new crop of alternative lending startups in India.
The Target Audience: Young salaried employees, students – the millennials who don’t believe in traditional forms of borrowing (because they find it too cumbersome), are instead relying on alternative lending apps and websites to get the required loan – online, conveniently. So whether it is to pay the EMIs on bike before the due date or to buy the latest mobile phone or a laptop; to buy an air-conditioner, electronics or apparel or to even celebrate their pet’s birthday or going on a vacation – the new generation is turning to online alternative lending apps and websites.
The New Loan-givers: Alternative lending apps & websites like Buddy, CASHe, EarlySalary, Vote4Cash, ZestMoney and many more have sprung up to cater to a large population of students and young salaried employees who don’t have credit cards, have fewer assets, have absolutely no credit history or very short credit history to fall back on – which otherwise is a must to get loans from traditional lenders.
The Data: According to a recent data from the Reserve Bank of India – India’s federal bank, there were 24.51 million credit cards and 661.8 million debit cards operational in India as of March 2016. Evidently credit card penetration in India is still too low given the billion+ population of the country and especially among the students who are just out of college and don’t possess plastic. That however isn’t a stumbling block stopping them from shopping online. Lending startups like ZestMoney have tied up with ecommerce sites to allow their customers to buy stuff on EMI, without a credit card.
Risks & Validation: Although the formalities laid down by these alternative lending apps & websites are short and simple for the millennial loan-seekers; however like all lenders they too have their own ways to ensure that their money is safe and will be returned with profit in due course. Initially when these alternative lending startups were launched many of them factored a 5% default rate, but it is now about 3% to 1%. Social media plays an important role when the lenders are vetting loan applications. Lenders do validation based on the loan-seekers’ social media profile. They even collect their customer’s mobile usage data, no. of contacts, kinds of apps in use, frequency of usage etc., all this provide invaluable clues to assessing trustworthiness of the loan-seeker. Its one of the metrics that helps lenders build an internal score of a customer, which ultimately affects their lending decision.
So as of now there’s no-stopping for the millennials from living their dreams; whether it is a dream-purchase or an over-due vacation or a celebration; they can have them all now & have the time of their lives with the convenience to pay later!
Word of caution for the millennial loan-seekers: Beware, because short-term borrowing can be addictive. Also many of you are fresh out of college and unemployed or simply moonlighting. You might end up struggling to pay up in time or unable to pay up at all. You may tend to take un-calculated or miscalculated risk so decide wisely.
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