Non-fintech Startups Riding Digital Lending Wave The uptick in lendingtech consumption is encouraging startups in sectors other than fintech to introduce lending as one of the revenue streams and successfully scale them as well

The boom in the fintech sector, particularly in digital lending, is giving way to non-fintech startups adding a new revenue stream, which is also helping them retain customers by providing them with an end-to-end solution.

For instance, Car Dekho has launched its digital lending platform called Rupyy. Through this, it offers financing options to automobile customers and retailers. It has partnered with 30 esteemed banks and NBFCs for the same. Upstox, Udaan, Spinny, CredR, Bajaao Music are some of the other startups that have gone the lending way.

Lending has become a natural choice not only for fintech companies but for many consumer-facing companies as well, especially the ones dealing with higher ticket sizes. For instance, for businesses like Spinny, it makes sense to help consumers with hassle-free loans. It has tied up with HDFC Bank, ICICI Bank, Axix, Kotak and a few others to facilitate the same. "India being a perpetually credit-deficient society, innovative lending solutions present a relatively easier play for personal needs and corporate lending," said Ashwani Singh, managing partner, 35 North Ventures India Discovery Fund.

It helps these startups save up on customer acquisitions as well. Let's take the example of an online retailer for musical instruments Bajaao. Businesses like these deal with higher ticket sizes but have Gen Z as their core customers. Since this target group is mostly still studying and working part-time or just starting their professional journey, a loan can lure them to buy or help them take faster decisions. Bajaao for instance offers musical instruments on EMI, EMI Options using credit cards. "This customer base can be used to cross-sell many financial products one of which is credit. Lending businesses operating with strong underwriting processes can generate much higher margins than payments due to which we see many payments, specifically wallet businesses, moving towards lending to strengthen their bottom line," said Ankur Bansal, co-founder and director, Blacksoil Capital.

There is a substantial market demand for easy credit services, especially among underserved segments. Thus these companies offer easy disbursal facilities and tailored loans. This shift allows startups to tap into the demand and reach a large customer base while generating attractive revenue through interest income and fees. "The success of LendingTech business models in India can be attributed to the untapped market of unbanked individuals and the country's improving digital infrastructure. Startups leverage technology, alternative data, and innovative approaches to bridge the gap and cater to a wider customer base," said Teja Ramineni, co-founder, Avenue Holdings.

According to Market Data Forecast, the peer-to-peer (P2P) lending market size is forecasted to be $10.5 billion with a CAGR of 21.6% from 2021 to 2026. P2P lending platforms offer attractive returns of 9%-14% for investors, along with borrowers having processing fees of 2-4% and interest rates exceeding 15%.

With the rise in EMIs, buy now pay later etc, the appetite for credit in India is growing. Be it in the private sector or the domestic household front, the demand for easy access, low-cost, and highly diversified products to suit the needs of the Indian Market continues to grow at a rapid pace. In the private sector, the percentage of domestic credit in India stands at ~50% of the country's GDP. While in China and the USA, these numbers stand at ~175% and ~200% respectively.

While it may be a struggle in the beginning for non-finance tech firms to tap into lending opportunities, over time they often garner the expertise of credit in terms of people, knowledge and tech.