Three people in the know told ET that while the banking regulator has not spelt out any statement on the fledgling sector explicitly, back channel conversations between companies and the regulator have made many startups course correct.
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Issues such as promises of high interest returns and instant withdrawal of funds at will are things that many platforms are relooking into, the people said.
“The RBI has been keenly looking at the partnership models over the last one year. It does not have problems with sourcing customers from large consumer facing apps, but it does not want a closed ecosystem of borrowers and lenders to get created,” a senior executive at a P2P lending startup said on condition of anonymity. “They do not want any asset-liability management issues to crop up in this small sector.”
Overall assets under management (AUM) of P2P lenders could be about Rs 5,000 crore, industry estimates suggest. It has been more than six years since the sector got regulated.
ET reported on June 6 that the RBI had sent detailed questionnaires to the industry participants, trying to understand more about the partnership businesses.
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Players such as Liquiloans, Lendbox, LenDenClub and Faircent are active in building partnerships with consumer facing applications, including Cred, BharatPe Uni and PhonePe, who offer credit and investment options to their users. P2P platforms source lenders who need to invest money and borrowers who take money. Platforms such as Cred and BharatPe often supply both types of customers to these P2P entities.
ETtech“Platforms are looking to source borrowers and lenders from different platforms to ensure there is no arbitrage,” said the executive.
LenDenClub has significantly scaled down its business with BharatPe. LenDenClub founder Bhavin Patel said the company has scaled down sourcing from BharatPe for its ‘buy now pay later’ (BNPL) users as the platform is reducing its exposure to the BNPL segment.
“We were sourcing around Rs 600-700 crore of business for various BNPL offerings, which has now come down to somewhere around Rs 50 crore,” Patel said. “But our partnership with BharatPe is still on.”
Patel reiterated that he is relooking into some of the partnership plays since those need structural changes from a long-term view.
BharatPe said there has been no change in its relationship with LenDenClub.“BharatPe runs an investment
platform and acts as a referral party for its RBI regulated P2P NBFC (non-banking finance companies) partners, which include LenDenClub. We have a great working relationship with all the partners and the product is designed in line with the prevalent guidelines of the P2P industry,” a BharatPe spokesperson said.In the process LenDenClub reported that its AUM shrank to about Rs 1,400 crore in July from Rs 2,000 crore in January. However, Patel said the partnership business continues. The company is focusing more on personal loans than BNPL offerings now.
Till earlier this year, LenDenClub was getting 53% of its loans for the BNPL business and 40% for the merchant lending business. Personal loans have increased massively, from around 7% of its overall business, Patel said.
However, industry insiders said there has not been any direct instruction from the central bank. Most of the founders want to be clean, hence they are sticking to the industry guidelines in a more stringent manner.
Emailed queries to Liquiloans and Cred did not elicit any response.
Two founders, who are running credit partnerships with P2P platforms, told ET that they look at P2P players as a source of better returns on investments and cheaper credit for their users.
“Perhaps there is a need to relook at some of the liquid investment products and rather focus on long-term lock-in products to ensure that there is no mismatch between demand and supply,” said one of the founders, who did not wish to be identified.
Some platforms allow facilities like instant withdrawal of funds which means that P2P players will always have to keep a buffer to meet any such sudden demand. Besides, some offer very high interest rates on these investments. BharatPe runs the 12% club and Cred Mint offers returns of up to 9%.
“For us we have kept only 20% of our customer investments in liquid products – 80% is in fixed products, which are there for the long term,” said the other founder.
The fledgling sector has found a solid footing in the partnership business. Open market sourcing, given the cost of acquiring a customer and collecting from customers who do not repay on time, did not make business sense.
Given it is a new industry and as an asset class a pretty risky one too, the regulator is looking to put up guardrails.
Further, to reduce dependence on partners, LenDenClub is pushing its consumer loan app InstaMoney. Liquiloans is in the process of building its own app and should be able to go live in the next six to nine months.
