Despite the pandemic, unsecured retail financing products, including personal loans, credit cards and consumer durable (CD) loans, have grown at about 25% over the past three years with the rising penetration of fintech apps.

As digital lending models gain momentum, short-term loans offered by BNPL apps and other fintechs have emerged as a preferred mode of consumption financing to new-to-credit customers across the millennial and Gen Z base due to their affordability and ease of use, according to consulting firm Bain & Company’s ‘India Fintech Report 2022’.

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BNPL apps Simpl, Lazy, Zest Money and many others have disbursed credit to over 15 million users in FY21, emerging as a preferred credit offering in the wake of Covid-19. This has had a direct impact on NBFCs working with personal and consumer durable loan providers, the report said.

“Average ticket sizes for various lending products, especially personal loans and consumer durable loans, are declining due to an increased focus on small-ticket-size lending, led by fintech and NBFC lenders. The average ticket size of NBFCs in the PL category decreased by 70% over the past two years,” the report said.

Yet, these short-term lending products offered by BNPLs will witness a tightening of the regulatory environment, resulting in conservative growth of fintechs in these segments.

“Recent regulations restricting prepaid payment instruments (PPIs) from offering credit lines and the new digital lending guidelines will adversely impact the current business models of these players, especially card-based lending and BNPL players providing a revolving line of credit…Additionally, regulatory oversight on consumption financing, specifically led by fintechs, is generally expected to increase going forward, with RBI expected to set up a fintech division,” the report said.

Overall, retail credit, including personal loans, credit cards and consumer durable loans, grew 29%, 19% and 13% CAGR, respectively. Semi-urban markets have been the primary source of growth for unsecured retail lending products, with about 32% CAGR growth in Tier 4 regions and 18% CAGR growth in Tier 1 regions over the past three years, the report added.

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Average ticket sizes for various lending products, especially PLs and CDs, are declining due to an increased focus on small-ticket-size lending led by fintech and NBFC lenders. The average ticket size of NBFCs in the PL category decreased by 70% over the past two years.

Small-ticket consumer durable loans have also recovered to pre-pandemic levels, with an 11% CAGR over the past three years. Over 70% of disbursements have been reported among the age group of below 40 years, around 36% of disbursements were made across to the 30–40-year age group and 37% across the below-30-year age group. Growth in semi-urban regions and in the new credit consumer segment also shows that “lenders are beginning to successfully increase their reach through digital channels and leverage alternate data for underwriting”, the report pointed out.

Overall, India has seen a significant rise in fintech investments, with about $35 billion invested across segments thus far, more than doubling India’s share of global fintech funding since 2016. The years 2021 and 2022 saw more than $19 billion of fintech funding and the addition of 18 fintech unicorns. The payments and lending sectors continue to attract the majority share of fintech funding ( with around 60% share. More than 30% of funding is now being directed into sub-sectors such as wealthtech, insurtech, and neobanking.

Indian fintechs witnessed record investment and deal activity, receiving approximately $10 billion in funding across more than 580 deals in FY21, which was three times the $3.5 billion received in 2020. The first half of 2022, has seen conservative funding of $4.2 billion, which is lower than H1 FY21, but twice the funding received in H1 FY20. While payments and lending continue to attract the bulk of funding (60%), other segments, including financial infrastructure, wealthtech, and neobanks, are now catching up.

Bain & Company estimates that Indian fintechs currently contribute about $100 billion of enterprise value (EV) compared to an overall financial services EV of $1.4 trillion, in 2021. The report further predicts that Indian fintechs to follow a similar trajectory to Brazilian fintechs, considering India has similar macro fundamentals and lower penetration of most financial products and services. “The Brazilian fintechs grew from a 2% share of financial services market capitalisation in 2017 to a greater than 35% share in 2021, reflecting tremendous gains in retail banking by Brazilian fintechs and neobanks. Similarly, we expect Indian fintechs to capture nearly $350 billion in EV by FY26, contributing more than 15% of India’s financial services EV,” the report added.