• Thu. Dec 1st, 2022

Fintechs are increasing their exposure to gig economy workers as inflation fuels credit demand

ByCindy J. Daddario

May 30, 2022

Fintechs and payday lenders are aggressively lending to gig economy workers, even as banks and large non-bank financial corporations (NBFCs) are becoming more conservative in this area. Fintech lenders have found executive demand for groceries and grocery deliveries using various app-based platforms increased by as much as 40% in Q4 FY22, industry executives said. Higher demand, in turn, is being driven by increased inflation, prompting suppliers to borrow more to bridge liquidity mismatches.

Lenders operating in this segment believe demand will stem from improving consumption trends as the pandemic abates. Bhavin Patel, co-founder and CEO of LenDenClub said that as consumption has increased, the need for delivery executives has increased across all industries for various app-based platforms.

Additionally, as the workforce grows, many delivery executives are looking for small loans or advance salaries and payday loans to help meet their operating expenses. The increase in demand is also due to the alignment of the product to the segment,” said Patel. According to Patel, there isn’t enough data to determine whether a surge in inflation has anything to do with increased demand.

Others, on the other hand, see the situation more bleakly. They point out that while the prices of fuel and other essential goods have increased, delivery drivers’ wages have not increased. To make matters worse, the rise in 10-minute deliveries has led to an increase in traffic norm violations and fines paid by delivery drivers.

A loan to a delivery manager can be up to 30-40% of their monthly income and terms range from one month to three months. Interest rates range from 18% to 30%. LenDen Club’s Patel says there is little to worry about indebtedness in this segment, as loans are only approved after reviewing the borrower’s credit bureaus and assessing the borrower’s ability to repay.

Still, concerns about the high level of debt remain. “The money they are borrowing now is essentially gap funding. It’s inherently prone to high churn rates, which means the guy keeps borrowing from new apps to pay off old ones,” said an industry leader on condition of anonymity.

Given the tight finances of gig workers, large lenders have recently turned their backs on funding them. CreditVidya co-founder and CEO Abhishek Agarwal said banks and large NBFCS are becoming cautious in this segment. “The segment’s risk perception has increased significantly in recent months as their cost of living has increased without a corresponding increase in their income. However, some fintechs and payday lenders continue to lend to gig economy workers, and interest rates on such loans are quite high,” Agarwal said.