How the technology opens up fintech loans and facilitates access to data
While the fintech sector may have started to become crowded with many players, industry insiders believe that many areas of the credit space are waiting to be disrupted through technology.
In a panel discussion at TechSparks Mumbai 2023, Alok Mittal, Co-Founder, Indifi; Bhavik Vasa, Founder, GetVantage; and Treasa Mathew, director of impact investment firm Omidyar Network, argued that the technology is changing the way lending is done, and entrepreneurs can take advantage.
“Real-time data has changed the game and allowed many technology-driven platforms to leverage liquidity by partnering with traditional lenders,” said Vasa.
He pointed out data sources such as GST filings, ad spend on Google, or even transactional data showing digital revenue for a company can help better secure small businesses. Such data sources were never available before, he added.
For liquidity, they can enter into interesting co-lending partnerships with traditional lenders, which can help create granular exposure and thereby reduce risk, he added.
Mathew from Omidyar Network talked about how her own portfolio companies have changed over time. The first generation of lenders that Omidyar invested in in 2014-15 were all physical players. But over time, startups began to focus on digital data sources.
They began to leverage supply chain financing and embedded financing capabilities. Startups have access to high-quality data that helps them build contextual credit products, Mathew claimed.
As the panelists discussed the opportunity, Indifi’s Mittal wanted to take a step back to analyze why India, which prioritizes MSME loans, still has a 50% unmet demand. He pointed out that although the market is large, it is heterogeneous in nature and therefore a one-size-fits-all product will never solve the problem.
“The definition of MSME is fluid and all these variations make MSME lending more difficult,” he said.
Mathew observed that new generation companies use technology extensively in three main areas:
- Better segmentation of target customers.
- Utilize supply chains and thereby work to reduce customer acquisition costs.
- Develop advanced data analysis functions to be able to utilize the data sources and understand them better.
Mittal added that fintechs should not concern themselves with doing everything themselves, rather they can separate out the entire fintech value chain and specialize in certain domains.
“So we don’t have to limit ourselves where we borrow at 14%, rather we can work with a bank that has a lower cost of capital,” he said.
The Indifi founder also added that there is a lot of private equity and venture capital money chasing fintech startups, so there is no shortage of capital.
Vasa of GetVantage added, saying that there is a need to build lending models that do not rely only on physical collateral. Speaking about the opportunity to generate massive revenue through lending, Vasa pointed out that almost all entrepreneurs, regardless of which part of the lending value chain they start from, ultimately intend to make money through credit.
So this goes on to show the huge opportunity in digital lending.