SUMMARY
For India to realise its economic potential, the formula will be led by increasing consumption of an expanding middle class
In the US, digital lenders led the explosion in retail personal loans making it the fastest-growing consumer loan segment
True innovation will lead to credit on tap that is sachet-size, ubiquitous, contactless and touches the next 300 Mn Indians beyond the privileged 100 Mn with access to credit
Every consumer or small business, at some time or the other, must know the struggle for getting appropriate credit, especially if the credit is unsecured and the need is immediate. The best way to prepare for this is to ensure access to a flexible credit available on-demand or tap.
The best example for this type of product is the credit card and for small businesses, it is the overdraft (OD) facility. Credit card has provided the function of expanding an individual’s income for spending thereby becoming a catalyst in building the consumption-led economies of the developed world over the last 40-50 years.
For India to realize its economic potential, the formula will be similar and will be led by increasing the consumption of an expanding middle class. However, India – amongst the top world economies – lags sorely in credit card adoption with only about 56 Million cardholders in a population of over 1.3 billion, in comparison to USA with 253 million adults has over a billion credit cards issued.
So, it is imperative for the Indian financial institutions and the new age fintech’s to offer flexible unsecured lines of credit to not just the middle-income Indians but also to low-income Indians. This will help unlock the value of Indian consumer spending that will fuel the growth of our economy for not just the next few years but the next few decades.
In India, per Experian, as of early 2020 the personal loan market makes up nearly 15% ($80 Bn Outstanding) of total Indian retail consumer credit and the Credit Card market has minuscule 4% share ($21 Bn in outstanding balance). So logically, the Indian fintech lenders should have focused on a flexible line of credit space to bridge the gap but barring one, the Indian fintech lenders continue to offer personal loans of various sizes and terms.
The fintech Lenders in USA focused on credit products like personal loans with low penetration and not on the highly saturated market of credit card debt which has nearly $1 Tn outstanding. So the digital lenders there led the explosion in retail personal loans making it the fastest-growing consumer loan segment.
As per TransUnion, the fintech in the USA as of early 2019 had a 40% market share of nearly $140 Bn outstanding in personal loans as against 5% share in 2013 of $49 Bn outstanding. The new-age digital lenders in India have been only able to move the acquisition of the customers, the privileged few with high levels of access to credit who are technologically savvy with high levels of digital literacy, away from branches and DSAs.
There is virtually no other innovation in product and very little in terms of expanding the access to credit to under-served and unserved consumer segments. So at least now, the Indian fintech lenders should focus on bridging the gap in credit card like debt by making available flexible revolving credit that can be accessed anytime and anywhere.
This does not mean we simply ape the west and build the same complex and economically inefficient credit card infrastructure with a myriad of players card networks (Visa/Master etc), issuers (like banks), acquirers/processors, payment gateways and ISOs/MSPs. Each one of these intermediaries, along with the swipe machines and plastic cards adding to the inefficiency and passing on additional costs to both the Merchant and the Customer.
We need to build uniquely Indian solutions with the philosophy of an Atma Nirbhar Bharat leveraging the most sophisticated payments infrastructure in the world provided by our regulator NPCI (National Payments Corporation of India). True innovation will lead to credit on tap that is sachet-size, ubiquitous, contactless and touches the next 300 Mn Indians beyond the privileged 100 Mn with access to credit and will be accepted by tens of millions of merchants include the kirana stores and the roadside vendors. The Covid pandemic has further highlighted, even more starkly, the need for emergency cash and existing credit line
