Fintech startups crowd NBFC queue to enter credit lane

These startups intend to join fintech majors such as Cred, Groww and Jupiter that have recently bagged the lending licences. Stock investing platform Upstox is also looking to enter the credit domain, initially in partnerships with other NBFCs and banks but eventually on its own.

Also read | Stock broking startups Groww, Upstox eye lending, payments to expand revenue base

Credit card unicorn OneCard and WintWealth, which helps retail investors buy corporate bonds, did not respond to emails seeking comment.

ETtech

Regulatory domain

After the Reserve Bank of India came out with digital lending licences, large fintechs started taking steps towards getting more regulated and increasing their stake in the game.

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“With regulations, fintechs will have to be cautious about their approach towards experimentation … fintechs are adopting both approaches of having a credit card strategy as well as doling out personal loans on their platform,” said a fintech founder, who spoke on the condition of anonymity.The idea is to provide a wide stack of lending solutions to retain customers on their platform, he added.

Also with an NBFC licence, fintechs can enter into co-lending partnerships with large banks.

For OneCard, getting an NBFC licence would help it build exposure in personal loans and offer other products.

Currently, OneCard offers premium credit cards on behalf of mid-sized lenders like Federal Bank, South Indian Bank and CSB Bank. It also works with BoB Cards, the card division of state-run Bank of Baroda.

According to one of the people cited earlier, OneCard has so far issued around 1.5 million cards on which it has recorded monthly spending of about Rs 1,500 crore.

News website The Arc wrote recently that OneCard is also scouting for a fresh funding round of $50-100 million. The Sequoia Capital-backed startup has till date raised $233 million and achieved a valuation of $1.3 billion.

“Unlike its competitors in the space (focused on new-age audiences), OneCard is focused on salaried professionals leading to a more stable retention cohort. In the short term, they might be burning on rewards, etc., but on a portfolio level, they have managed to generate revenues,” said a person aware of the new round that OneCard was stitching.

With its own NBFC, OneCard can use its app to offer retail lending products like check-out finance or buy-now-pay-later (BNPL) options. Even consumers who might not qualify for a credit card, which has very stringent background checks, can be offered small personal loans.

Expand the universe

For any fintech that has managed to scale up the user base, the next big challenge is to retain them and keep them engaged. With the lending licence, platforms are looking for just that.

Also read: Neobank Jupiter secures NBFC licence; will raise debt to push lending business

WintWealth is a platform where retail customers can pick up debt issues from large companies. With an NBFC licence, it can put more skin in the game by offering loans against the corporate papers held by customers. This helps its customers generate value from their debt holdings.

“For a Groww, an NBFC business is a gateway to a larger fintech operation beyond just broking; this will help them expand their revenue lines and strengthen the balance sheet,” said one of the people cited in the story.

Also read | Kunal Shah’s inhouse NBFC ends first year with a small profit

Jupiter founder Jitendra Gupta had earlier said that considering its existing customer base of over 2 million, the NBFC licence would help it “operate at scale to drive business growth”.

Even for Cred, its in-house NBFC Newtap Finance is the means to expand the revenue sources. Cred has grabbed a large customer base and now needs to monetise them better. Quick credit and BNPL are avenues which founder Kunal Shah is betting on through Newtap Finance.