How Fintechs Are Driving the Future Of the EV Sector In India While e-rickshaws have been growing at a good pace, one common bottleneck is access to finance

Electric cars such as Tesla and fancy motorcycles are what comes to mind when thinking of electric vehicles (EVs). It may therefore come as a surprise that the most popular category of EVs in India is an electric three-wheeler or what is commonly referred to as an e-rickshaw.

According to the Society for Manufacturers of Electric Vehicles, there are 1.75 million-plus electric three-wheelers on Indian roads compared with a mere 8,000 electric cars. The small number of cars sold is often seen as the failure of the EV sector in India. The success of e-rickshaw on Indian roads, however, assures us of a healthy growth in the EV industry, keeping the industry viable. It is estimated that in the period 2018-2025, the Indian e-rickshaw market will likely touch $5 billion at a CAGR of 9 per cent.

The humble e-rickshaw started a silent revolution on the Indian roads much before the government announced an all-electric public transport fleet by 2030. The vehicle was first introduced in New Delhi during the Commonwealth Games; it has since then found favor across the country with large-scale adoption in Delhi, Rajasthan, Uttar Pradesh, Bihar and West Bengal. In many places, the e-rickshaw has replaced other kinds of ICE (internal combustion engine) three-wheelers and is making the first and last mile connectivity for passenger and goods delivery noiseless and air pollution free. E-rickshaws have been bringing cheer to the families of owner-drivers too, with average earning increasing three times to INR 25,000 per month, giving the owner-drivers an opportunity to improve their living standards, saving money and rise in social status.

Credit supply is very low

While the sector has been growing at a good pace, one common bottleneck is access to finance. Most banks and lending companies have stayed away from this segment. With proper access to finance, the segment can scale at a much better pace.

Financing is very difficult for this segment. This is mainly because the borrower (owner-driver of the e-rickshaw) is very difficult to underwrite, geographies are not always scalable and serviceable, the e-rickshaw sector is still in early days lacking structure and there is no proven secondary market for the vehicles.

A typical buyer of an e-rickshaw is an adult male usually in his 30s, is the sole breadwinner for his family comprising young children, is barely educated, resides in tier II or tier III towns and does not have credit history.

A typical dealership in a small town would sell 5-10 vehicles a month, making the market very spread out. This makes it unviable for banks and lending companies, especially those with human driven processes.

The scale of the sector is still not large enough to provide structure to dealerships, products, warranties, etc. The products have a low-quality perception. The difference in quality and life of vehicles from different brands also means it is very difficult to establish a proper secondary market.

Despite the several problems in the sector, lending companies such as Revfin, Vedika, Pooja Finance and Manappuram have been actively working in this market.

Most owner-drivers are smartphone users. This opens up tremendous opportunities. Use of digital technology is helping in making financing in this segment easier and more efficient.

Fintech solutions for the EV industry

Fintechs have a very significant role to play in the EV sector, especially in small commercial two- and three-wheeler segments. Fintechs offer speed, ease and reach. Deeper engagement of the fintech sector with the EV sector can help expand the sector at 10-20 times of the present growth.

Digital lending platforms use data driven tools to make underwriting decisions. With help of non-traditional data such as psychometrics, SMS and biometrics overlaid with machine learning algorithms, quick and accurate decisions on intention and ability of the borrower can be made.

Use of digital platforms also eliminates the need for significant human intervention, thereby, making it viable to provide access to credit even in small towns with limited sales. This helps achieve cost advantage.

Digital payments have very low penetration in the segment. An electric commercial two- or three-wheeler driver is generally involved in first and last mile delivery. With digital payments they can receive their fare/payment in e-wallets, they can also hand back any change to their customers through the wallet and most significantly, they can repay their loan instalments digitally. All this will make them a part of the "formal' economy and data rich, opening many new opportunities for the future.

Use of digital means in insurance claims settlement to assess damage through video and pattern recognition will also make insurance models viable by reducing costs and human intervention.

Use of embedded IOT devices is helping lenders and insurers in tracking vehicles, in case of theft, limiting the range of vehicle movement through geo fencing, immobilizing vehicles and also to understand driver productivity. Higher productivity means more income and better management of debts.

Supporting the EV ecosystem

Fintechs are playing a big role in developing the ecosystem for electric vehicles. Some example include tie-ups with insurance providers to provide vehicle, life and EMI protection insurance to borrowers; partnerships with battery manufacturers to finance replacement batteries; partnerships with battery charging and swapping providers to create an instalment-cum-subscription model to reduce initial capital required to buy vehicles and partnerships with aggregators to provide revenue/earning opportunities to drivers making loan instalment payments easier.

Driving the future of the EV industry

Electric vehicles are here to stay. Environmental concerns initially gave rise to the concept of EVs and the central and state governments in India have made several policy decisions for faster adoption of EVs. The economics of electric two and three wheelers are also very good, with low cost of buying and operating. With the recent reverse migration due to COVID-19 the demand for jobs on small towns is going to increase. A combination of the above with growth in e-commerce, hyperlocal deliveries and first/last mile connectivity, the demand for EVs is on a high growth trajectory.

Use of digital technology provided by Fintechs when combined with technology from other players in the ecosystem like insurers, e-commerce, payments and aggregators will create a robust and scalable model for electric vehicles in India.