Digital Lending: Interview Satyam Kumar, CEO & Co-Founder, LoanTap

By Leandra Monteiro

Satyam Kumar, CEO & Co-founder, LoanTap in conversation with IBS Intelligence explains the advantages of digital lending in India and the outlook for the lending industry.

What has been journey of LoanTap so far?

All our portfolios got tested during the Covid pandemic. In terms of the data points, we wanted to work with those which came in a friction free manner. During the pandemic having seen that our portfolios stood neck to neck with the best of the lending and banking systems in India we extended the platform itself in the last one and a half year to external banking partners.

So, what we started as a first proof of concept at a loan book level we now extended to 400 crores. This is what we did to test the concepts in 3 initial segments. One at the dominant class having saved salary for a long time. Then we also tested those algorithms at the Kirana segment. We call it Kirana credit. It can be described as BNPL for the Kirana segment.

The 3rd category that we have entered and have been testing our product is electric 2 wheelers. This segment works in a very different way to the rest of the market and the adoption here did not happen as fast as we were expecting in the metros. In fact, the adoption of electric 2 wheelers happened faster in smaller cities across India.

We also saw an increase in markets such as UP and Bihar which is are unpenetrated segments. Almost 1/4 of the electronic vehicles business comes from these areas.

We have now opened up our model to co-lending. Where we work very closely with partner networks where we derive transaction details of the customers for platforms. So, we operate at a platform level as well as at the value sheet level. This is what we have been building for the last 5 years. Our system has now been adopted by the likes of public sector banks and at the same time we have the classic NBFC partners.

During the COVID pandemic did you tighten your underwriting practices?

As it was very uncertain time, we didn’t really know about the larger consumer ecosystem, or how things would behave. Everyone was really anxious about not knowing what to do. So, some of the segments naturally had to narrow down.

Some of the segments evaporated. For example, weddings were not happening, people were not holidaying, things like corrective medical surgeries were also not happening as hospitals were predominantly deployed to manage the pandemic.

So, at least these three last categories were non-existence. This brought the demand side down by almost 70%. The only two category which were running were home improvement and overseas education loans.

We also used this covid time to cement our position in the medical stores category and at the Kirana level as these two segments were running well throughout the pandemic.

Will the RBI’s recently released norms for digital lending help curb illegal apps?

We hope so. We also worked very closely with the team which was drafting the risk premium. As a business RBI’s draft paper also communicates about having a regulated entity to underwrite these loans. And it should not be fly by night operators.

So, on the awareness front we are driving change. The design of the industry is that the lending business is so lucrative that in one form or other obstacles always crop up. But we must be smart enough to catch the illegal activities and find a way out.

How have Indians taken to digital lending?

The issue is that not only in India, but globally itself. It’s a common concept that when money is coming to us, we do not see the colour of money. That is when you are investing, then definitely you look at the trust factor of money.

So, there is a greed on both sides, where on the investing side one can tend to be less careful with our money and on a borrowing side, I think there are a set of people who are conscious but that’s not true across the board. And that’s why the lending market overheats from time to time.

However now a lot of awareness been created by the RBI. It’s a collective effort which is ongoing, as the market is going to expand at a faster pace. What people need to be aware of is that whatever money is borrowed must be paid back. It must be paid back with existing cash and not borrowing from another to pay some other loan. Digital lending doesn’t work like that, rolling cash from one place to another won’t work.

How do you see the next decade of digital lending in India?

What we are looking at it is the consumer side of the experience. Be it small businesses or individuals, those experience will be controlled by the FinTechs. Whether it’s a neo-banking FinTech, a currency FinTech, a gamification FinTech or a lending FinTech.

Gradually the consumer part will be dominated by us. When we started lending only 30% of the loan was happening end to end digitally. Today 70% of the loans are happening digitally. Even the traditional banking system is coming out and saying that 90% of my loans are happening digitally.

Going forward lending will definitely move towards the digital experience. FinTechs have better engagement with customers and are friction free. In the long run it makes more sense for the consumer to take digital loans.

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