Loan Marketplaces See Increased Traction As More Borrowers Move Online

Loan marketplaces, which allow borrowers to evaluate a host of options across banks and non-bank lenders, have gained traction over the last three years as customers become more accustomed to seeking credit online. While industry-wide data is not available, these loan marketplaces speak of increased volume of visitors and loan conversions.

BankBazaar.com, which launched in 2008, claims to have seen website traffic grow from 7 million visits a month to over 40 million visits in the last four years. The platform has also seen the conversion rate of site visits into actual loan approvals jump 2-2.5 times in the last few years, according to Adil Shetty, chief executive officer at BankBazaar. The platform now offers products from over forty lenders.

Paisabazaar.com, another such platform, says it gets 21 million website visits a month today compared to 7 million last year. Around 1.5 million customers file applications every month for products like unsecured loans, secured loans and credit cards. The increased traction has prompted lenders to launch exclusive programs and products with Paisabazaar, said Naveen Kukreja, chief executive officer of the platform.

While initially a large share of the applications via these websites were for personal and retail loans, categories such as small business loans are also gaining traction.

Psbloansin59minutes.com, which has received the government’s backing, claims to have disbursed Rs 35,000 crore in loans, according to a PTI report dated March 3, 2018. Namaste Credit, a newer platform catering to small and medium enterprises, told BloombergQuint that its disbursements have increased to around Rs 110 crore a month on average from about Rs 15-20 crore a year ago.

The increased traffic seen by loan marketplaces tells a story of a rapid shift towards digital lending.

According to a July 2018 report from Boston Consulting Group, digital lending is expected to be a $1 trillion opportunity in India in the next five years. Annual digital disbursements five years hence will be nearly five times the current level, the report had estimated.

Expanding The Digital Network

Banks, particularly smaller lenders, are using loan marketplaces to complement their own physical and digital networks.

According to a survey conducted as part of the BCG report, Google is the most preferred touch point for digital lending and influences 69 percent of loan seekers. Bank websites influence 45 percent of potential borrowers, while loan websites help 25 percent of online loan seekers in making a decision.

By tying up with marketplaces, banks are ensuring they don’t miss out on those who are out shopping for loans on these websites.

A bank website is mostly used by customers of the specific bank while direct sales agents (DSAs) can only cover only limited geographies and entail high costs, said Rajan Pental, group head for rural and retail banking, Yes Bank Ltd. To add to these two sales channels, lenders like Yes Bank have structured partnerships with online marketplaces that don’t have the same restrictions, he said.

Harjeet Toor, head of retail, inclusion and rural business at RBL Bank Ltd added that loan applications made directly on a bank’s website often don’t meet the credit quality standards of the lender. In contrast, some of the applications that come via loan marketplaces have a basic level of checks in place. Around 25-30 percent of RBL Bank’s retail business comes from fintechs and loan aggregators, he said.

To be sure, the share of loans by value approved via these platforms remains low.

There are over 15 active loan marketplaces operating today and together they contributed close to 3 to 5 per cent of fresh loan disbursements in the past two years for banks, according to Akhil Handa, head of fintech and new business initiatives at Bank of Baroda Ltd. In terms of the total outstanding retail and SME credit in the economy, the loans processed by these platforms would still be less than 1 per cent, he said.

Changing Business Model

Initially, most loan marketplaces worked on a model based on volume of referrals. That is, they would provide the bank or NBFC will details of a potential borrower after an application was made on its platform. Thereafter, lenders would do most of the work to convert the customer into a borrower and go through the entire underwriting and documentation process. This model was based on a fixed fee-income.

Marketplaces that simply provide referrals or are pure-aggregators will find it tough to compete and scale-up, said Gaurav Kumar, chief executive officer, Vivriti Capital Pvt Ltd which runs a marketplace for corporate credit. Lenders are now looking for platforms which have more “skin in the game” and are willing to manage risk and do underwriting among other things.

The referral model has proven to be expensive than what was initially thought, explained Toor of RBL Bank. As a result, banks are now looking at conversion-linked deals with loan marketplaces that have a specialisation in a specific industry, he added.

In cases where a marketplace undertakes value added services, the fee earned would be higher and linked to the loan amount. As a result, many of the loan marketplaces are moving away from a purely referral based model to one which offers some additional services.