Digital lending has seen a massive growth in India led by technology advancements, rising smartphone penetration and proliferation of financial and transactional data which has allowed fintech companies to create unique lending models.
One of the fastest growing sectors in fintech, lending is estimated to touch $1 Tn mark in the next five years. Even so, a large section of the population is still left out of the credit market, simply because they don’t have enough data or bad credit history. For example, students or independent creators and freelancers may not have a regular flow of income to justify being customers for lending companies.
This means India’s lending market is now seeing innovative lending models that are making credit easier to access for digitally-savvy young customers, who have thus far been left out of the market. There’s a lot of variations in lending models too — from peer-to-peer lending by Faircent, Chqbook’s marketplace model to instant credit from Lazypay, Simpl, and Kissht. But not many are offering alternative to using traditional credit cards like slice.
Having started life as SlicePay, and rebranding to just ‘slice’, Das Capital-backed payments card provider targets the young internet-savvy users including students, freelancers and young or inexperienced professionals. slice’s payment cards are tailored for the needs of students and young professionals between the ages of 18 and 29 years.
According to founder Rajan Bajaj, India’s young generation drives major consumption across products and internet services such as OTT platforms, food delivery etc these days.
“Our addressable market size is 60 Mn youngsters, gig workers, freelancers, small business owners, startup employees, and graduate students, who are not using financial products like credit cards because either they don’t understand them or they don’t have easy access.”
A slice Of The Digital Lending Market
Founded in 2016 by Bajaj, slice claims to be serving 200K active customers today, who make an average of 8-10 slice card transactions in a month. Out of which, 60% transactions are conducted at offline or retail merchants and the rest are online. Overall, the company is said to be nearing 1 Mn transactions on its payment card.
Just last month, slice raised INR 20.5 Cr ($2.8 Mn) debt funding from Japan-based Gunosy Capital and the investment arms of Das Capital and Pegasus Wings Group.
In 2018, SlicePay raised funding in a Series A round led by China-based FinUp Finance Technology Group. And in 2017, it raised $2 Mn led by Japan-based Das Capital, Simile Ventures from Russia and few undisclosed angel investors.
Commenting on the company’s underwriting process, Bajaj said slice uses statistical models and machine learning to assess thousands of parameters and puts them into a selection model based on the company’s past patterns.
Based on the application form, the company’s underwriting algorithms analyse factors such as applicant’s Facebook or Linkedin account, bank SMS history, accommodation (rented, PG, hostel or staying with parents), and monthly house rent, among other data points.
As a registered NBFC, slice can lend directly and it also works with other financial institutions such as DMI Finance, and Chaitanya India Fin Credit.
“Products like credit cards are a great financial tool but are too complicated to use for youngsters. So we figured if we could make a financial product that’s much simpler for them to understand and have access to, they would find it very useful.”
Partnering with RuPay, the slice card enables payments across 5 Mn merchants in India, both online and offline. Customers can use it for paying bills to lifestyle purchases such as travel, stay, food, dining and entertainment.
The slice card has a minimum credit limit of INR 4K and goes up to INR 60K for students or INR 1 Lakh for working professionals and freelancers. Customers can also avail short-term cash loans for emergencies.
It also brings no-cost EMI for high ticket purchases on ecommerce websites such as Amazon, Pepperfry, Myntra and other, where the interest rate ranges from 10-15% depending on the tenure. However, slice does not charge a processing fee or interest on EMIs for up to six months for customers on Amazon, Flipkart, MakeMyTrip, Yatra and other partners.
India’s Digital Lending Boom
As per DataLabs by Inc42, the credit demand in India is projected to be worth $1.41 Tn by 2022. The estimated growth rate in credit demand is 3.73% between FY17 and FY22.
Between 2015 and Q1 2019, the total investment in Indian fintech startups was $7.62 Bn with a total deal count of 478. Out of the total funding, 50.13% or $3.82 Bn was in payments tech startups, followed by 25.49% ($1.94 Bn) in lending tech startups, according to Datalabs by Inc42.
In addition to this, other tech companies have expressed interest in entering the lending space. In July, Digital payments unicorn Paytm partnered with NBFC Clix Finance to enable digital loans for both its customers and merchants. On the other hand, ride hailing major Ola and ecommerce platform Flipkart were reported to be co-launching credit cards, in partnership with major Indian banks.
The fintech sector has immensely benefited from the successful adoption of Aadhaar-based KYC, UPI and other eKYC. While this has made it easier for fintech startups to assess risk for potential customers, the need to access private user data such Aadhaar-linked bank transactions, activity on social media accounts to decide user’s creditworthiness as in the case of slice, poses a lot of risks about data security, sharing, storage and extent of collection.
Digital Lending Moves To Tier-2 India
But a lot of this growth is in Tier 1 cities or metros, where already the competition for digital lenders is very high. Nearly all such startups are gravitating towards Tier 2 and 3 markets.
“Traditional credit card players and digital payment platforms can be considered our competitors. At the same time, we are very early in terms of the overall market potential and some very large companies will potentially emerge in the next few years in the payment space. We are already seeing some signs of it,” Bajaj told Inc42.
With 300K users on the company’s waitlist, slice claims to be growing at a rate of 15-20% per month, and reported revenue of INR 9 Cr in the last fiscal. Currently, it is present in 12 cities including Bangalore, Pune, Chennai, Hyderabad, Delhi, Jaipur, Manipal, Coimbatore and Mumbai among others.
According to Bajaj, the majority of its customers are from metro cities, however, they have plans to further expand its reach in Tier 2 and Tier 3 cities soon.
In order to acquire new users, slice uses customised distribution channels for different types of users. For college students, it focussed on building a campus manager community in each college to be evangelists.
For salaried professionals, slice uses digital marketing campaigns to reach the audience. And it’s also partnering with startups and small businesses whose employees fit into its target audience.
Talking about the company’s marketing split, Bajaj said that 60% of slice’s customers come through referral basis which is word of mouth, while there’s an equal split of the rest between customers that are signed by agents and merchant and those who come on board through digital marketing.
Further, the company is now hoping to touch 2 Mn customers in the next two years along with expanding to 24 cities in the next two years, many of which will be in Tier 2 and 3 cities. And in these cities, credit card usage is even lower than in the metro cities.
The payment card model that slice has deployed — which have repeat-use potential in retail and online transactions — is likely to attract more audiences than simply digital loans, which are generally for larger one-time expenses. Some would contend that loans have a higher degree of repayment failures than credit cards, which can be self-managed.
“We stand out by sharply focusing on creditworthy youngsters who are going to be the prime future. They are already driving majority of the consumption decisions in their homes. The average age of our customer is 21 years. Being an early mover gives us an edge over the others.”