Can this be beneficial to fintechs? Will this bring BNPL services under the regulation?
Let’s take a look.
Yes, this is indeed a positive sign for fintechs. How?
1) Linking credit cards and UPI can boost credit card usage and make digital payments more prevalent in India. A win-win for both fintech platforms like Paytm, PhonePe and credit card firms. 2) Users are benefited too. Now UPI payments can take place with the choice among savings account, debit, and credit card. NPCI’s RuPay credit cards will be the first to be linked. 3) Banks also have their slice of advantages via merchant transaction fees from credit cards and UPI credit.
But there are a few challenges that I observe here –
1) Can users accept paying merchant fees on UPI credit instead of free UPI transactions? 2) What if credit card firms are not ready to waive that fee? 3) Identifying the root of payment (credit/debit/savings account) will be complex. 4) Dispute management and refunds are another story altogether.
After smartphone penetration, people are not watching their SMS at all. They use SMS only for OTP related transactions. That’s it.
But What can a Lender see in your SMS after you consent to them?
Lender can see income, expenses, and any other Fixed Obligation like (EMIs/Credit Card).
1) Income – Parameters like Average Salary Credited, Stable Monthly inflows like Rent
3) Fixed Obligations – Loan payments have been made for the past few months, Credit card transactions.
It also tells the Lender the adverse incidents like
1) Missed Loan payments
2) Cheque bounces
3) Missed Bill Payments like EB, LPG gas bills.
4) POS transaction declines due to insufficient funds.
A massive chunk of data is available in our SMS (more than 700 data points), which helps Lender to make a credit decision.
An interesting insight on vehicle loans for lenders.
A trend we are seeing today – the first-hand vehicle ownership is decreasing with time. Why? People are upgrading their vehicles in every few years because of technological advances. And, this can be seen more with the millennial generation.
So, what should a lender do in terms of financing?
– Estimating the residual value of the vehicle at the start of the financing period.
– Charging a borrower only for the residual value (which is the difference between the value after a few years and the current value)
Example: A bike currently is INR 1 lakh. You want to buy the vehicle for 2 years. A lender will estimate the residual value of that bike today and what it would be after 2 years. If the estimated residual value = INR 45,000, the lender will charge you only that (say, INR 55,000 with interest for this instance) during your tenure.
At the end of 2-year period, you have 3 choices:
1. Return the bike and upgrade to a new one without going through the struggle of selling it.
2. Pay the lump sum remaining amount to own the vehicle outright.
3. Extend the financing and own it by keep paying the EMIs for the remaining amount of the vehicle for the next 12 or 18 months.
Benefits for the borrowers?
– Flexibility to use a vehicle and upgrade to a new one.
– Affordability to not pay for the complete value of the vehicle with the intention to use for a lesser amount of time.
– Convenience in owning the vehicle.
Say goodbye to the old lending option and embrace the new way of financing for vehicle by lenders!
1) Tiktok does Lending ( is it an entertainment company or social media company or a fintech company?
2) Youtube China does Lending
3) Top 100 internet companies in China(no matter what business they are in) do Lending
The team which was heading Lending in Tiktok was the Advertisement team. If we do Ads, we do X no of revenue. But if we do lending, we’ll get X+30% more revenue. This is on the same Ad spot.
Ad team has transformed into a lending team, and in today’s world, it’s possible because the subject matter expertise can be put in as an API and given to you.
Embedded Lending as a service is becoming popular in India too, and I am happy to be part of this ecosystem.
The answer is No. Only the top 10 crore people have access to many credit products in India. Almost all Banks focus on this market.
Once you go beyond that, the credit access rate has dropped significantly due to multiple factors.
1) Customers who are having low income(30-40K per month)
2) Not earning from an employer who belongs to Category A or B
3) Not from Tier 1 or 2 cities
NBFCs and Fintechs focus on the above segment, pushing another 10 crores of people.
But in India, 70 crores more people are formally or informally employed, which still needs to be tapped.
RBI has proposed linking credit cards to UPI.
Can this be beneficial to fintechs?
Will this bring BNPL services under the regulation?
Let’s take a look.
Yes, this is indeed a positive sign for fintechs. How?
1) Linking credit cards and UPI can boost credit card usage and make digital payments more prevalent in India. A win-win for both fintech platforms like Paytm, PhonePe and credit card firms.
2) Users are benefited too. Now UPI payments can take place with the choice among savings account, debit, and credit card. NPCI’s RuPay credit cards will be the first to be linked.
3) Banks also have their slice of advantages via merchant transaction fees from credit cards and UPI credit.
But there are a few challenges that I observe here –
1) Can users accept paying merchant fees on UPI credit instead of free UPI transactions?
2) What if credit card firms are not ready to waive that fee?
3) Identifying the root of payment (credit/debit/savings account) will be complex.
4) Dispute management and refunds are another story altogether.
All in all, it’s a mix of pros and cons. What do you think about this proposal? Curious to know.
#manispeaksmoney #RBIproposal #creditcard #UPI #fintech