Fintech delinquency rates are not alarming: LenDenClub CEO Bhavin Patel

The government is focusing on certain sectors like, say, infrastructure, and you will have a boom as a result of this: Patel

LenDenClub, a peer-to-peer (P2P) lender, plans to scale up its business five-fold over the next 18 months, taking its loan book to $1 billion and 10 million customers. It raised $10-million in Series-A funding, co-led by Tuscan Ventures, Ohm Stock Broker, Artha Venture Fund, CRED founder Kunal Shah, Policybazaar co-founder Alok Bansal, and cricketer Hardik Pandya. BHAVIN PATEL, the firm’s co-founder and chief executive officer, spoke to Raghu Mohan. Edited excerpts:

The Reserve Bank of India’s (RBI’s) bi-annual Financial Stability Report has pointed out that fintech delinquencies are higher when compared to legacy lenders. What explains this, as fintechs claim to be better with technology and data-mining?

In financial services, especially on the lending side, there’s not much by way of innovation. The view all along has been that it will lead to incremental bad loans. But unless and until you experiment, you can never have a solution to this lack of innovation. Whether it’s buy-now-pay-later, card- or UPI-based loan products, or, for that matter, P2P lending, you will see a higher default rate.

The majority of fintechs use algorithms to choose their customers, backed by data, but it takes time for results to kick in, even as you onboard historical data at the back-end. I believe it’s absolutely fine that you may have higher default rates at inception. This would have happened with banks also — say, when ICICI Bank transitioned from ICICI Ltd, a financial institution. But today, nobody talks about it.

Does that mean your plans to ramp up growth will not be affected by such issues? If so, what makes you so bullish?

I have all the reasons to be bullish, and remain so. The government is focusing on certain sectors like, say, infrastructure, and you will have a boom as a result of this. It will impact the services sector as well. And, the more money people get, their aspirations will go to another level; and this will lead to higher credit growth. The RBI is also holding on to its key policy rates (at their current level). We believe the central bank is promoting growth in overall average household debt. If we are to become a $5-trillion economy from $3 trillion now, this (household debt) has to go up.

And, as I said in response to your earlier question, when you innovate, some products will have a cost associated with it. But the system will eventually become more efficient. Starting from a portfolio-at-risk default rate of 5 per cent, within the next 6-12 months, the algorithms will become so efficient that it will take this rate down to two-and-a-half or three per cent — the acceptable level of default. And that’s what we have been building (into our portfolio) at LenDenClub as well.

RBI data shows an uptick in P2P lending. Is it because, on the liability side, investors are seeking higher returns owing to inflation, even as many borrowers are not getting credit on their terms from legacy players?

Investors in debt mutual funds are getting lower returns and this holds true for bank fixed deposits as well. Then, P2P platforms now have a seven-year track-record to show. And you also have to factor in the distribution channels. We are available not only on platforms like GooglePay or BharatPe, but are also working with the likes of Vakrangee.

These companies have millions of people using their mobile apps and websites. We have strengthened our distribution network over the last two years and are able to reach those looking at P2P as an additional investment option. All of this came together, and this explains the boom in P2P lending of late.

Do you think there’s a case for allowing P2P players to get into secured lending?

Absolutely. Almost 99 per cent of fintechs are into unsecured lending only because a huge amount of capital has been infused into the sector. And that’s the reason for the boom in a lot of different lending options. But in secured lending — like loans-against-property, housing and auto-loans — the traditional products continue to hold sway. If we are to see changes in secured lending, the RBI needs to intervene. If they were to allow P2P platforms in secured lending, I think it will lead to good results over the next couple of years.

You have just raised $12 million and you are also incubating startups! Can you flesh out this aspect?

We have a very strong leadership team with a demonstrated ability of not only scaling up numbers, but creating a profitable business. I will not be able to share the numbers with you right now. If we look at China, a lot of startups prefer to source capital from big companies — like, say, from a Flipkart, and not even from technology funds. The reason for this is that they can benefit from the experience of a Flipkart, its ideas and the user-base — and this, it is felt, is a better way to add to a product or business line.

We want to do likewise. For instance, compared to the US or European markets, out here only a few companies have sizeable data on the overall borrower ecosystem. If we are able to scale up on this front, others can underwrite loans based on it. In all this, we are least bothered about capital. What we feel is that if there are good product companies, we should provide them with the right platform and guidance.