In the pre-Covid days it was hard to always justify being a digital lender because it was cheaper for the consumer and some businesses to lend in the “old-fashioned way”. That came to a head when the country went into a lockdown and even when the lockdowns were lifted, people preferred a contactless process.
You'll see us come back as a personal loan, cash loan lender both for our partners and for loans sourced directly.
PayU Finance India has invested in its ‘Buy now pay later’ (BNPL) business and is extending digital credit lines to its customers, CEO Prashanth Ranganathan told Shritama Bose. While delinquencies are still high, the share of customers slipping into the 30 days-past-due (dpd) category is small, he added. Edited excerpts:
Covid has been a game-changer for all digital businesses. How has it changed things for digital lenders and for your company? The impact has definitely been quite profound. The single-largest change is that we are now seeing a lot more appetite for all things digital. In the pre-Covid days it was hard to always justify being a digital lender because it was cheaper for the consumer and some businesses to lend in the “old-fashioned way”. That came to a head when the country went into a lockdown and even when the lockdowns were lifted, people preferred a contactless process. In that sense, we have benefited from all the tracks we have laid down for many years and couldn’t justify the investment until Covid came around. From that perspective, it’s been great.
How has it changed the way you do financing? Most lenders, including us, have taken a conservative stance. Back in February, we started to pull the throttle back and changed the shape of the portfolio we wanted to build. We went into a wait-and-watch zone and every week, we were taking decisive action towards becoming a lot more conservative. By mid-March, we had pretty much pulled the stick all the way back to zero. We went back to basics, where proof of employment and flow of funds were important through this period. Unfortunately, we were unable to serve communities that were self-employed or new-to-credit. That was the first few months, but as the moratorium started to pass and as we got visibility into repayments, we went back into the market.
Right now, we are still serving salaried customers, who are employed and have a clear need. They must be able to demonstrate that this loan is not meant to pay off some other loan. We are opening up into other segments as we get positive signals from the credit bureaus. You’ll see us back to pre-Covid levels of lending as early as January-February, but we’ll do it in a conservative way.
Once the moratorium ended, how soon did you see repayments bounce back? Bankers say that the auto-debit bounces data is skewed by fintechs’ borrowers and their own collections are okay. We’ve gone through a macro-shock and anybody who says “It isn’t us; it’s just the rest of the world” is either kidding you or kidding themselves. All lenders have gone through a little bit of a shock. Our initial bounce rates were double of what we would have seen in the pre-Covid times. It doesn’t always indicate the lack of an intention to pay. During this time, people were quick to swipe any money that came into their bank account. They were holding it in cash balances, in ways they could have access to it. People had also switched bank accounts in many cases. The true measurement for us is what flows into bucket 1, or the 30-dpd. That resolution is back almost at the pre-Covid level for us. So while the bounce is concerning and means we need to do more in terms of soft and hard collections, the resolution rates are well and truly in the zone we had budgeted and predicted.
In terms of your growth strategy for 2021, what do you plan to do and not do? Through 2020 we have understood the synergies between our BNPL business and everything that connects to it. The BNPL business has done phenomenally well this year. It created millions of consumers for us. We have systematically invested in BNPL to get these consumers, who are doing deferred payments to do KYC with us, and then give them something like a digital credit line attached to UPI. We are giving them the ability to revolve or convert to EMIs all those large purchases. In 2021, we will continue to double down on this.
Through 2020, we have built out a platform and a set of APIs that allows any digital DSA or partner to put in a loan application. Since we are connected in the back-end to all these lenders, we can get the best out of those applications. That is starting to scale much faster than we expected and that’s another area we will not take our eye off. It’s only if we lend based on our proprietary intelligence that we’ll continue to win. You’ll see us come back as a personal loan, cash loan lender both for our partners and for loans sourced directly.