The occasion was the NASSCOM Annual Leadership Summit. The guest was India’s richest man and Chairman of Reliance Industries Mukesh Ambani. The proclamation was that data is the new oil and that soon data analysis will get people ready to get loans in 10 to 15 seconds.
What Ambani predicted is not a distant dream but something that is already happening.
CashE, founded by V Raman Kumar, in April last year, offers microcredits via its mobile application to employees in the 22-36 age group according to their financial situation as well as social data. The whole process – from application to appraisal and disbursement – is completed in 10 minutes provided all the paperwork is in place, Kumar said in a conversation with BloombergQuint.
The target audience of the company is a cohort of 80 lakh young people in the country who earn over $ 3,250 or Rs 2.28 lakh per year. Kumar said this is a group that will continue to grow, providing a large market for its products. CashE is betting that young people (who don’t hesitate to spend) may run out of money by the end of the month and may need a small loan until the next paycheck comes in. Bank account. “Payday loans” as they are called.
CashE responds to this need by offering loans between Rs 5,000 and Rs 1 lakh for a period of 15, 30 or 90 days. But these loans are not cheap. 30-36 percent is the interest rate charged, plus a processing fee. Kumar insists these rates are in line with what credit card companies charge.
Red flags of innovation?
The concept of payday loan may be relatively new in India, but it has been tried, tested and rejected in some developed markets like the US and UK.
Roongta added that there is an additional element of risk in a market like India where not enough borrowers have reliable credit scores and a sufficiently long credit history.
To this, Kumar said risks are factored into their interest rates and the company caters to a market that is already relatively affluent.
“Banks are trying to get into long term loans. We would like to respond only to immediate short-term needs. This requirement could be a lifestyle need, a family emergency or a medical emergency, ”Kumar said while adding that his company has studied the behavior of millennials and concluded that they don’t like to be bound by arrangements. long term or equivalent monthly payments. .
Loans granted by CashE are disbursed on its own balance sheet as the company itself is registered as a non-bank finance company under the name of One Capital.
The company leverages borrowers’ phones and social network for data points to arrive at a credit score, which is also matched against traditional sources such as CIBIL scores before making a loan decision. This is done through a mobile app that searches for data in call logs, apps, and social networks like Facebook and LinkedIn.
Kumar said that while LinkedIn works as a “great proxy” for someone’s creditworthiness, it’s often only present for high-income borrowers. In other cases, the company must rely on networks like Facebook and Twitter to extract data.
“We don’t read the messages, we just look at the newspapers. We’re also looking at installed and uninstalled apps, GPS tracking, etc. which continues to be with us until we have your phone number, ”Kumar said.
The company also requires borrowers to submit crucial documents like their PAN card, Aadhaar number, bank statements and pay slips online. All these documents are compared with the data collected by the company and with those provided by CIBIL to reach a final decision. The loan amount, if sanctioned, is credited to the customer’s bank account within minutes.
Asset quality track record
In the early days, CashE saw defaults or non-performing assets up to 11% of its total loan portfolio. This, Kumar claims, fell to 2.5%. He said the predictive engine will get much better as more data is fed into it.
“We can still sell these loans to a collection agency and get some of the money back. We’ve factored all of that into our interest rates. We charge a reasonably good interest rate that covers NPAs, ”he added.
These high interest rates could hamper business growth, however, as customers become more aware of the formal banking system and begin to enjoy cheaper credit, Roongta said.
“This [interest rate] becomes a problem because once the consumer knows he is paying a high interest rate, he is likely to be reluctant to take out a loan. The market is getting suspicious, ”Roongta said.
What is the growth potential?
The company says it adds around 700 customers per day. He acknowledges that the high number of failures at the start forced him to tighten up his processes. About a quarter of all applicants get a loan and the company says 70% of them turn into repeat customers.
While the company operates on an app model only, it also relies on some external platforms to attract customers. These include links to postpaid telecommunications retailers and loan aggregators. These platforms, Kumar said, help them tap into a market that banks have avoided.
“Banks usually rely on the CIBIL score and reject claims even if it’s a little lower, so the whole lot comes to us as well. Most of them are people who need the money and are qualified to pay it back. They might have a bad CIBIL score which has been altered by a few instances of bad behavior in the past, ”Kumar said.
Banks have tightened processes in the unsecured lending segment, which includes personal loans of the type offered by CashE, after numerous defaults in this segment following the global financial crisis. Since then, banks have been selective about unsecured loans and prefer to lend largely to their own customers.