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July 28, 2016

P2P Lending Beckons Indian Banks

Posted by Anirban Dey (View Profile | View All Posts) at 1:49 PM

Who hasn't borrowed from a friend or family in times of need? P2P (peer to peer) lending concept is probably as old as money itself. But why is it attracting so much attention now?

Technology is fundamentally disrupting the long established business models of yesterday. Today the largest cab company does not own a single cab (Uber), largest hotel company does not own a single hotel room (AirBnB)...so it is conceivable that tomorrow the largest lender may not own dollar of deposits with them. It is all about connecting the demand with the supply at a large scale and technology is exactly the thing that is fueling this transformation at a rapid pace. P2P lending marketplaces, which connect individual borrowers and lenders bypassing the traditional financial institution, are bringing this disruption to the lending world. Globally, the peer-to-peer lending market is gaining traction and is expected to cross US$ 1 trillion by 2025. Leaders, such as Prosper and Lending Club, have originated loans worth US$ 9 billion so far.

The Indian scene is also warming up. In 2015, about 20 online P2P lending firms came into being. At present, about 30 P2P lending start-ups are operational in India.

Seeing the momentum, the Reserve Bank of India (RBI) recently made a move to regulate the country's so far unregulated P2P lending business. The RBI is being proactive in regulating online P2P lending because of its potential impact on both traditional banking channels and Non-Banking Finance Companies (NBFC). At the same time, there is the realization that P2P lending could fulfil at least a part of the nation's rising credit demand, and that too in a cost effective manner. The regulator's viewpoint on P2P lending is evident from its recent paper which seems to suggest that while seeking to regulate, it will not be heavy-handed in defining the rules for this new business.

How should our banks view these developments? Banks clearly have multiple opportunities here. Firstly, they could cater to potential borrowers whom they (or their traditional peers) may have previously returned for want of 'amply high' credit scores or 'lack thereof'. Secondly, P2P networks provide a high-risk/high-return alternate investment mechanism for banks customers who may be willing to diversify their funds and become potential lenders in this upcoming arena. Thirdly, banks can also expand the scope of P2P Lending as a potential marketplace, wherein they get to push their current products/services to visitors on P2P network. The marketplace model ensures that unlike traditional banking where borrowers used to reach out for banks' products, quite the reverse takes place i.e. banks get to proactively pitch their products to an expanding network of potential customers. Fourthly, with the tech-savvy young generation taking center-stage, P2P Lending is aptly suited to be pushed as a well-knit mobile app, to transform the borrowing and lending experiences of this generation and increase stickiness. Further, banks are realizing that the borrowing of future may not solely be for traditional reasons spread over mid-to-long term. It could be for 'here and now' reasons such as:

• A shopper opting for a peer loan, right at the point of checking out of an online shopping cart.

• A consumer seeking instant loan for an exigency, to be paid back immediately upon receipt of salary.

• A small business seeking short-term capital to cater to a large purchase order and gradually expand their business.

• A medium-to-large company wanting to establish a trust-driven fraternity among its employees, to provide for each other's needs in times of exigency, with salary-deduction considered as a recourse measure to mitigate non-repayment risks.

A plethora of such emerging needs of day-to-day nature may not be high-value in nature, yet lie somewhere above micro-financing needs, thereby providing a tangible business opportunity for banks operating such P2P networks. Those are arenas where Indian banks can disrupt the emerging fin-tech disruptors and tap new opportunities. Leveraging their existing infrastructure for credit know-how and associated decisioning models, banks are most suitably placed to play a larger role in establishing P2P networks.

As the technology partner of a very large number of banks around the globe, including several in India, EdgeVerve offers full support to clients on this journey. We also offer the EdgeVerve marketplace lending network to co-create a P2P lending network of retail, SME and corporate customers. In a world that is connecting and collaborating with increasing intensity, there is no way that Indian banks can stay on the fringes. Through this platform, we hope to help them become an important part of the P2P lending ecosystem.

July 26, 2016

Winning the Digital Wallet War

Posted by Puneet Chhahira (View Profile | View All Posts) at 10:48 AM

The past couple of years have seen the launch of several mobile wallets in India, one of Asia Pacific's fastest growing markets in this space. Researchers forecast that the country's mobile wallet business will grow to about US$ 11.5 billion by 2022.

As opposed to credit cards, which were languishing at about 21 million at the end of 2014-15, mobile wallets have galloped to more than 135 million users already. This is the broad outlook that has motivated every kind of financial services player, from payments focused startups (MobiKwik, Oxigen) to banks (SBI - Buddy, ICICI Bank - Pockets, HDFC Bank - PayZapp etc.) to telecom operators (Airtel Money, Vodafone mPesa) to digital platform companies (Paytm, Ola Money), to invest in a digital wallet of their own.

Although the opportunity is undoubtedly interesting and there's a reasonable chance of success, India's digital wallet providers should take into account a very important market reality - customers are flooded with choice, and are unlikely to maintain more than a couple of digital wallets, especially given their common and limited functionality. Therefore there is a need to expand focus in terms of proposition, target audience, and data usage. As wallets evolve, they have the following options:

Integrate forwards and backwards: Paytm, with a lion's share of the market at 126 million users, has grown from a pure-play wallet to an ecommerce player and will start a Payment Bank in coming months. The CEO clearly articulates the company's goal to spread financial inclusion by onboarding a total of 500 million users across its services. Future plans include a facility to enable customers to withdraw money at a variety of retail outlets, debit cards with QR codes for those without smartphones, and further integration with partner, Alipay. Paytm has clearly recognized the need to build a sustainable model over the long term.

Expand capabilities: At present, the digital wallets operating in India are largely about cashless payment and cashback incentive. Providers should look at integrating various loyalty programs from credit cards and retailers, for example, into the wallet so that customers also have the option to pay for purchases with reward points. This would enable customers to optimize their purchases, and increase their loyalty to their wallet providers. It would also allow merchants to influence the behavior of customers and engage with them better.

The United States market, which had more than 3 billion loyalty program memberships in 2015, has made some progress in including a loyalty element into mobile wallets. Apple, Android and Samsung all enable customers to store loyalty cards on their mobile wallet apps.

Besides consolidating their loyalty programs, digital wallets could also enable consumers to redeem offers, deals and location-based promotions, and further optimize their shopping by comparing prices across merchants and brands. In a survey conducted three years ago, 54 percent of smartphone users said that the alerts sent by the mobile wallet - about coupon expiry, for example - was one of its best features.

Put data to work: Mobile wallets are a great source of consumer spending data. They also track events, such as redemption and "check-in", for instance. Product companies, resellers, banks and other members of the commerce ecosystem can mine wallet data using a number of analytical and statistical tools and use its insights to create personalized, relevant and targeted offers and experiences. Finally, they can close the loop by pushing those offers directly into their customers' wallets.

Target the right market: All digital wallets in India are eyeing the same urban, tech-savvy, high-income customers. While that market is far from saturated, wallet providers could seize early advantage by venturing into other markets where there is limited competition. Paytm has already announced its intention to look at the inclusion segments. Perhaps providers could look at targeting customers in the SME and corporate segment, or based on other factors, such as life stage, and spending preferences.

Improve customer confidence: Fraud is one of the biggest challenges for digital wallets in India. Around September-October 2015, mobile wallet fraud touched a high of between 3 and 3.5 percent of transaction value, making wallets 15 to 20 times riskier than ecommerce. With the Indian consumer being more gullible than his counterpart in other countries, wallet operators have to take extra precautions.

These include measures such as biometric recognition of users, card and device ID checks, and tracking of user behavior to detect suspicious patterns. Wallet providers have also disbarred a very large number of merchants and customers indulging in fraud.

As wallet usage increases, so will the risk of fraud. Digital wallet providers have to necessarily strengthen their security systems and processes to retain customer confidence. This is arguably one of the most important factor in spurring wallet adoption in the country.

The article was originally published in The First Post

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