5 critical market changes P2P lending apps should embrace in India

No credit score needed, and one swipe to enable a transaction. In India, a traditional lending model is being revived, digitally. And it’s happening on a huge scale.

Mobile Peer-to-Peer (P2P) lending has been rapidly growing during the last few years.   

The underlying concept is simple – people borrow small amounts of money from others via a mobile platform, with tech managing the matching and transaction between users.

But why are these types of apps experiencing a surge? For borrowers who have been underserved by banks – by either long and difficult procedures or low credit scores – mobile P2P lending delivers loans much faster and conveniently. At the other end, P2P lending offers customers better financial returns.

While the Indian P2P lending market remains in its early stages, the number of opportunities are as high as challenges. In what is now a quickly growing field, business models are still in the making, not to mention UA strategies. From competition to regulations, what are the market changes P2P lending apps in India need to consider for finding the right users? We’ve summed up the critical 5 things you should consider before developing your user acquisition strategy.

Expanding scope of customers

While the smartphone boom of recent years can’t provide exponential growth in the Fintech market in the future, it’s worth taking a look at the monetary habits that come with people using phones regularly. More of the Indian population are becoming digital savvy, and this is leading to users being more comfortable with cashless operations. The rise of internet penetration in rural areas (so far 17%) will also play a part here as it is expected to catch up with urban conditions (60%) in the next three to five years, according to Deloitte’s latest Fintech in India report.

Giants push into the Fintech market

Tech giants such as Google, Samsung, Amazon and Apple have all come up with their own mobile payments apps in India, making lending more of a “common thing”. The e-commerce sector, in particular, is seeing lending become more and more of a common practice. For instance, people can take a loan from Moneyview to buy a TV on Flipkart.

Local digital payment firms such as PhonePe, MobiKwik, Freecharge and Billdesk are seeing bigger investments for their mobile operations, with Paytm leading the way. India’s largest online payments and mobile wallet company aims to continue to be the largest investor in digital payments in the country. We’ve covered their operations in a previous article.

Regulations expected to set a common ground of trust

In 2016, the Reserve Bank of India (RBI) released a proposal which defined P2P lending as a separate category within the Fintech space. This move also saw the introduction of the first regulations. These regulations include providing organs, such as a Lending Security Reserve, which give a portion of fees for loans that are lost, a transparent reporting mechanism, lending risk education, and a limited responsibility for P2P platforms to control reimbursements.

Final regulatory guidelines are expected to be put in place, which all P2P lending companies will have to register for and adhere to. These will cover business and operational processes of P2P lending and once installed, it’s believed that the regulations will generate further growth in the sector by creating a clear and safe environment to invest and partner in. Chinese investors are among those keeping a close eye on the market.

New business models on the verge of breakthrough

So far, two P2P models have emerged, according to Deloitte. One is direct disbursal, in which P2P platforms directly match the requirements of borrowers and lenders. This works particularly well with urban, educated and middle class customers, who know the marketplace model and make transactions online.

The other is the partner assisted disbursal model. This involves P2P platforms partnering with  non-governmental organizations (NGO) or micro financiers to manage user acquisition, disbursement, and collections for a fee. The P2P platform is then in charge of onboarding lenders and offering matching services. This model is primarily used for addressing lower income customers.

People spend more

This year’s Mercer’s annual Cost of Living Survey has revealed the continuously rising living costs in the urban areas of India. Compared to 2017, Mumbai has climbed two spots (55) and is ranked higher and more expensive than cities such as Melbourne. With the current average income in the cities not rising at the same pace, and personal consumption rates spiking, people are increasingly looking for new financial opportunities.

P2P lending offers new investment opportunities with high returns and caters to people’s need to borrow money. As reported by Santander, credit financing is becoming more popular, particularly in the urban areas, and P2P lending apps are seeing the effects of this trend – especially when it comes to seasonal spending. A good example is Diwali as part of its narrative is based on spending. Before the the holiday, a salaried employee is likely to look for external finances since buying new items and gifts for the family are seen as a ‘good omen’.

Final word

How are apps in particular reacting to market challenges? Take Early Salary, a P2P lending app that saw growth in India in the recent past. Here is how Sudesh Shetty, Founding member and Head of Marketing, assesses the market:

As a growing field in India, Fintech opens up many opportunities for us. We’re excited to be at the forefront of P2P lending, key to which was understanding the changing needs of the customer and exploring tech. Currently, we are investing in those features that resonate with our customers’ needs such as instant and flexible services that reduce extra costs.

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