Adding It Up
Online aggregators are doing much more than connecting the customer with the service provider. Their future depends on ability to keep innovating.
People in need of funds are often not aware which financial institution will lend to them. They also do not know factors that impact their loan eligibility. As a result, most approach the wrong institution, only to have their application rejected, which further hurts their chances of getting a loan in the future. It is things like these that are driving demand for financial services aggregators such as Rubique, Loanadda, BankBazaar, Loanwala and Deal4loans which have built a marketplace for customers to search, compare and buy financial products. These offer products from the biggest banks, non-banking finance companies, or NBFCs, insurers and fund houses covering credit, protection and investment needs for every life stage. The aim is to ease customers' financial journey by reducing documentation and processing time by making the entire process paperless. For example, at BankBazaar, a leading player, a borrower can complete the entire application, documentation and verification process online and get his loan application approved in one business day.
These players started out as aggregators but have gone beyond that. Most now use proprietary algorithms that analyse consumers' credit scores and connect them to the most suitable service provider. They also do the initial KYC through Aadhaar. "Our biggest USP is our proprietary paperless process that makes applying for a financial product instant," says Adhil Shetty, founder and CEO of BankBazaar. For customers, this is attractive because they get to choose from a range of products by different brands, including a few that are not available online otherwise. "The application and documentation process is completed in minutes and approval takes less than a day. This means fewer customers drop off in between the process," says Shetty.
Similarly, Rubique has a proprietary Online Plus model that creates a technology-driven ecosystem to support the entire loan journey through advanced technology interventions and makes it simpler and faster for the customer. Rubique has done around 40-plus deep integrations with financial institutions' systems; the approval in principal is given on the online platform itself. The shortest time for loan disbursal is 48 hours.
Partner banks also help these platforms by providing them data for testing their algorithms to make their systems more robust. "Sanitised data of existing portfolio is shared with partners to test their algorithms and lead generation capabilities to ensure that the leads generated adhere to certain minimal quality standards," says Amit Shah, Head of Corporate Strategy, Fintech Marketing and Communication at Yes Bank. It is like working backwards. You start the journey knowing what the desired conclusion is and then figure out factors that will help you arrive at that conclusion.
Another company that is adding a lot of value in this space is Paisabazaar.com. It offers a complete spectrum of financial products based on the customer's needs -- whether it's to borrow, invest or save. Paisabazaar.com works with over 75 partners that include top private and public banks, NBFCs, digital lenders and AMCs and offers around 300 products on its platform. Rubique, on the other hand, has tied up with 90-plus financial institutions for 300-plus products. It has facilitated loan disbursements of around $450 million and realised $8.4 million revenue till date with around 2,00,000 customers across 32 cities.
The common element with these players is that they all leverage latest technologies. "Data analytics on hundreds of data points on Rubique's platform assess creditworthiness of customers (loan origination qualification), bringing predictability by giving them eligible offers to choose from. All credit policies are fed into the matchmaking algorithm which does base-level underwriting checks before passing them to the financial institution's system," says Sheetal Mayekar, founding member, Rubique.
"Rubique has 300-plus such policies digitised. With rise in the number of digitised policies, the approval rate of applications passing through the platform is increasing. For retail loan products, the approval ratio is around 90 per cent, while for SME loans, it is around 60 per cent," she adds.
"An aggregator's true worth is to provide a vast choice for the consumer, which means having many banks and NBFCs on their platform. Whereas it is a vital part of an aggregator's services to ensure that the customer can comfortably compare & contrast available alternatives, they also need to work with the customer. This can only be possible if the aggregator has an in-depth understanding of each bank's/NBFC's core competency," says Raj Khosla, Managing Director, MyMoneyMantra.com.
In most cases, however, the credit assessment is done by the lending institution and not these players. "Our algorithms direct the right consumers to our partner banks and NBFCs by analysing credit scores and profile information like income, city, employment, etc. Bureau check, credit assessment and underwriting is, of course, done by the lender bank or the NBFC," says Naveen Kukreja, Co-Founder & CEO of Paisabazaar.com. BankBazaar.com also does not conduct credit appraisal or assessment. However, it provides credit tracking services on its site through its partner, Experian.
The role of such platforms is not limited to being an aggregator. For example, Paisabazaar.com, through its matching model called 'Smart Match', directs borrowers to the right lenders. This is done on the basis of the consumer's profile and credit score and the eligibility criteria of various banks and NBFCs. The model tells the consumer his chances of approval against each lending option. "We disburse $1 billion worth of loans a year. At current volumes, we are around 2 per cent of the unsecured loan market. Our objective is to reach 10 per cent of the unsecured market in three years," says Kukreja.
The Bank View
While banks find such partnerships lucrative, many believe greater value is being added by fintech players that are providing innovative tools for assessing credit risk and underwrite. "When you create solutions that are bespoke, fintechs become useful, especially the early stage players, because they are happy to go beyond cookie cutter solutions," says Shah. "At present, a very small percentage of loans disbursed is actually sourced from such platforms". This begs the question - how many leads convert into loans disbursed?"
While there is not much data available to arrive at a conclusion, Kurkeja says, "The industry approval rate for unsecured loans will be around 40 per cent. At Paisabazaar.com, we have an acceptance rate of over 62 per cent."
The business model of these platforms requires a B2B as well as a B2C interface. Most players earn revenue either through fee or fixed commission.
"We charge 3.5 per cent commission on personal loans and 1.1 per cent and 1.5 per cent on home loans and loans against property, respectively," says Mayekar of Rubique.
Some platforms like BankBazaar.com have adopted a hybrid model where they generate revenues through both fees and commissions. "While most players work on a lead-sharing model, Paisabazaar.com works on a model where it earns money only if a bank or NBFC approves a loan. Hence, it's crucial for us as a business that we match every prospective borrower with the right product and the right lender," says Kukreja. It is important to note that most players provide free services to the customer.
Digitisation takes away the tangibility element. "The idea of paperless, presence-less, digital finance was as disruptive as it was revolutionary way back in 2012. Not just customers, but the entire ecosystem was sceptical of taking a long-drawn documentation-intensive process online and making it simple, instant and transparent. Our biggest challenge has been to prove that this is possible with the right technology and checks," says Shetty.
Additionally, personal finance awareness continues to be low. In most cases, consumers tend to have an inherent fear of getting cheated when it comes to financial products. This fear gets exacerbated when financial products are offered through digital technology. The biggest challenge the industry faces is addressing this fear among consumers so that they can be trusted.
The Indian fintech space is nascent but exciting. "The whole industry, especially the fintech ecosystem, is at the start of a hockey stick growth. In the coming days, there will be more collaborations between banks and fintechs that will make purchase of financial products extremely easy and convenient," says Kukreja. There is a huge potential in the fintech space for companies with the right offerings and services. Post demonetisation, there has been a positive change in the way people view digital financial services. It started with digital payments and spread to personal finance as a whole. This is evident in both urban and rural India. "Over the last two years, our services have been accessed by people from more than 1,300 cities across India. There has been a six-fold increase in traffic from Tier-II and Tier-III cities over the last two years. The contribution from these markets has increased from 26 per cent in 2016 to 43 per cent in 2018. As mobile phones and internet services proliferate, the contribution from these markets will increase even more," says Shetty.
The way India has embraced digitisation has changed the growth trajectory of fintech companies. "Today we get enquiries for unsecured loans alone from over 1,000 cities and towns across India. This was less than 100 only 18 months ago," says Kukreja.
While the space is seeing exponential growth, fintech players that are creating a market place for financial products will have to continuously innovate to stay ahead of the curve. Technology will continue to play a crucial role in this growth.
Deepika Asthana is a freelance journalist based in Mumbai