• Thu. May 26th, 2022

Startups help you bridge the shortage of money with quick “payday loans”

ByCindy J. Daddario

Mar 9, 2021


CHENNAI: Sagar Sanai, 24, from Pune needed Rs 10,000 for a personal emergency. It was only the 16th of the month and he would have to wait another 14 days for his next salary. After seeing online advertisements for short-term microcredit loans, he turned to Earlysalary.com, a platform that offers urgent, unsecured, and fast personal loans at low interest rates to those who are broke towards the end of a month.
“I was very happy with the experience. I just had to upload my pay slip, bank statement and PAN card details. One person came home to have some documents signed. I got the money in 24 hours. And I had until the third day of the next month to pay it back, ”says Sanai. He hasn’t waited that long. As soon as his salary on March 30 NS the same month he repaid the loan.
This type of loan is known as a “payday loan“. The primary security is simply the fact that you are a permanent employee. Much of the process is automated. In some cases, a digital signature is enough, in which case you can sanction your loan in less than ten minutes. Loans are usually sanctioned for 5 to 30 days with an interest rate of 1% per day. And the expectation is that you will pay when your next salary comes up.
It is often a great option for young people – to finance short vacations or to buy cell phones.
THE MARKET
The payday loan market in India is valued at $ 10.27 billion (Rs.70,000 billion) with projections to hit $ 14 billion by the end of 2017.
“There are 84 start-ups in the payday sector, up to 30 of which were only founded in 2016. They use disruptive technologies to cut costs and acquire customers, ”says Rishabh Lawania, Founder of the startup research company Xeler8. “Up to 21 of these startups, including Finomena, Buddy India, EarlySalary and ReBase, will be funded,” he adds.
Demonetization has given a further boost. The scarcity of money forced many to knock on the doors of these startups to deal with personal emergencies. “We were sold out within the first eight hours after the demonstration. In the past two months we’ve seen a dramatic increase in inquiries, ”said Akshay Mehrotra, co-founder and CEO of EarlySalary.com, based in Pune, which has 8,000 customers.
While some lenders act as front-end technology providers for larger non-bank financial firms (NBFCs), many like EarlySalary and InstaPaisa have purchased NBFC licenses from Reserve Bank themselves. “FinTech and e-lending platforms will lead the next push in innovation,” said Ashok Agarwal of Transcorp Group, which invested $ 1.5 million in EarlySalary.
THE USP
Why Choose a Digital Lender? “Banks never lend people money for just a few days. And it is not cost effective for them to service small loans of Rs 15,000-20,000. An alternative would be credit cards, but they come with high interest rates, ”says Vikas Sekhri, Founder, CashCare. Teens, he says, use them for different needs – education, travel, honeymoon plans. Accordingly, he is also associated with players like MakeMyTrip, InfiBeam, Manipal University and Coursera.
And how much credit can a teenager get? It depends on the salary. The average newbie would be eligible for a loan between Rs 5,000 and Rs 50,000. “We also give out loans up to Rs 1 lakh, or 40% of the salary, but that’s over a 90 day period. For loans with a maturity of 15 to 30 days, the upper limit is 50,000 rupees, ”says V Raman Kumar, founder of CASHe.
Players like InstaPaisa, who are currently lending to employees with salaries between Rs 20,000 and 35,000 a month, are hoping to expand their base. “We’re seeing tremendous demand from those earning between Rs 10,000 and Rs 20,000,” said Nikhil Sama, CEO of InstaPaisa, which was recently acquired by InCred for an undisclosed amount.
TECHNOLOGY ADVANTAGE
Payday lenders offer speed and convenience. On many platforms, the loan approval process is completely automated. If the lender’s algorithms find the applicant creditworthy, loans are granted in less than 8 minutes. However, if additional details are required, the process may require manual intervention and take 24 hours.
“There are traditional data metrics like IT returns, bank statements, credit scores. But we have also developed algorithms to identify borrower risks through social media, mobile usage patterns, GPS locations, SMS notifications (if the customer grants access), “says Sama.
The system checks that the address on the application form matches the location given in the social profile. Even the number of followers on social media, networks, and comments on the timeline help the digital lender’s algorithm get a score for the person.
This banking model, say the players, has been very successful. Bad loans range between 1.7% and 3%; at the level of the NPAs normally reported by banks.
POSSIBLE LOAN HAIKEN?
One potential problem is the flat rate, which can burn a hole in the pocket of the borrower if he is not careful. The US and UK payday loan markets are considered predatory and a debt trap for the unwary borrower. The regulators are taking action against usurious interest rates levied by payment lenders in these countries. It could also happen in India if some go overboard. SS Mundra, Deputy Governor of the RBI, recently spoke about the need for more regulation of electronic platforms. He warned that disruptive technological innovations should lead to an irrational exuberance in lending.


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