ARNAB CHAKRABORTY

Peer-to-Peer Lending in India: An Industry Analysis

The P2P lending industry is in a nascent stage with no major regulations applied by the central
bank. The existing platforms leverage the network of retail investors and high net worth
individuals to disburse loans as the liquidity via the debt market or banks have been decreasing
over time (Palepu, 2019)

1 Industry Overview

Currently poised at €1.7 trillion, the Indian economy needs to have a diversified financial
structure to drive financial inclusion (Patel, 2020). The Reserve Bank of India(RBI) has linked
the banking sector, non-banking financial institutions, and the unorganized financial sector.
Cumulatively, these account for 19.2% of the total lending with 10,000 players. Of these, the
P2P lending platforms provide an alternate option. Recently, the government has increased the
limit of loan disbursal amount through P2P lending to €50,000. Over the past decade, many
startups have emerged in this space. The increase in internet penetration is a prime driver for
the growth in this industry. Emerging economies such as India and Japan shall grow
significantly with alternate financing modes demanded by small businesses and individuals.
According to KPMG and NASSCOM, the FinTech industry in India is expected to cross €1.8
billion in 2020 (Patel, 2017).

2 Understanding the Industry

Currently, the Indian market is wide open for an alternative solution in microfinancing. While
there are dreams to be dreamt by the young minds in the middle- income category, these dreams
are only found to be shattered due to lack of access to resources. PayLab is an effort to help
these people to dream again. PESTEL analysis in section 3.1 above shows the concerted efforts
of the Indian Government in promoting a supporting infrastructure for financial technology
firms. Additionally, there is a growing trend towards digital payment systems among the urban
middle-class post introduction of the UPI (Unique Person Identity) system on digital payments.
There is a growing surge in the demand for loans at a lower rate, however it is difficult to obtain
that. This demand has led to a proliferation of few P2P lending platforms already. Appendix 1
Figure A24 shows loan growth statistics month on month in the year 2019. The current size of
Peer to Peer lending in India is €20 million and is poised to grow up to €1 Trillion by 2023 at
a rate of 25% year on year (Acharya, 2020).

3 Competitor Analysis

3.1 Profile and Business model of Competitors

P2P lending space in the Indian market has approximately 10 major players in this space led
by Faircent, LendBox, Lendenclub etc. where borrowers can borrow anywhere between €200
to €10,000 with a minimum loan tenure of 6 months and a maximum of 36 months. Below
mentioned are the different online P2P platforms in India:

Online Platforms CEO / Founder Founded in Average returns

i-Lend Shankar Vaddadi 2012 15 - 24%

Faircent Rajat Gandhi 2013 18 - 26%

LendDen Club Bhavin Patel 2014 27.10%

i2ifunding Vaibhav Kumar Pandey 2015 18 - 24%

Lend-Box Khmeet Singh 2015 18.00%

Finzy Amit More 2016 15.50%

Monexo Mukesh Bubna 2016 15 - 24%

PaisaDukan Rajiv Ranjan 2017 18 - 26%

RupeeCircle Ajit Kumar 2017 26.00%

Table 4: An overview of the different P2P lending platforms in India

Currently, these P2P business models in India can be summarized to follow the two models in
Figure 1

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Figure 1: Two operating models for P2P lending in India (According to Deloitte, 2017)

While the Partner Assisted Model is basically targeted towards the rural segments of the
country, the Direct Disbursal Model is mostly targeted towards SMEs (Anand and Bhatia,
2017).

Figure 2: Risk margins in two operating models applied (Anand and Bhatia, 2017)

There is a notable difference between the loan processed by the traditional banking institutions
and those offered through the P2P platforms. The interest rates available through the traditional
institutions such as ICICI bank or HDFC bank are on average 12.30% while as demonstrated
by the graph above, those offered through the P2P platforms are at a minimum average of
17.25%. While the central bank of India maintains a cash repo rate of 6% with the traditional
banking system, there are no such regulations governing the P2P lending platforms. Since most
of the loan seekers are looking at the P2P service to meet their requirements fast, hence they
pick up these loans to satisfy their immediate needs, however at a higher price. Moreover,

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those who haven’t been able to build a credit score yet, they will have to pay a higher interest
rate for less amount.

Hence, although the peer to peer lending services have proliferated and are projected to grow
to €5 trillion over the next few years, the platforms haven’t addressed the question of financial
inclusion at the basic level.

3.2 Competitive Advantage

The two keynote opportunities that can be capitalize on are:

a) To make liquid cash available at a cheaper rate to the middle-class segment of the
society. The average salary of a graduate student from college who has joined work in the IT
industry in India earns a mere €700 a month. In case of emergency situations or marriage etc.,
he/she seeks a loan which is hard to get due to a lack of credit history. Hence, he/she seeks a
P2P lending platform where the seeker gets a loan at a 19% interest rate which approximately
would consume half the monthly salary thereafter.

b) An alternative investment tool for the middle-class. Uniquely poised, this business will
act as an instrument allowing the middle-class earner with an opportunity to make money by
depositing €100 of their regular income at a cumulative month on month interest rate of 7%,
marginally higher than the interest rates available on recurring deposits in traditional banking
systems. Mentioned below in Table 5 is a comparison of the different characteristic features
of the service providers in the P2P lending space in India.

S1. Online Loan Range Interest Time Frame Customer Processing Fee for Processing fee for Link to
No. Platform Rate Segment Borrower Lenders Credit
Score

1 i-Lend €400 - €600 15 - 20% 6 months to Personal / Business 4 - 4.5% + taxes €20 per €1000lend No
3 years

2 Faircent €200 - 14 - 28% 6 months to Personal / Business 3 - 8.5% + Taxes Registration Fees No
€10,000 3 years

3 LenDen €100 - €6000 15 - 35% 3 months to Personal 4% Taxes Registration Fees Yes
Club 2 years

4 i2iFunding €500 - 12 - 30% 1 year to 3 Personal / Business 4% + Taxes + pre 1% of investment Yes
€10,000 years EMI Interest amount

5 Monexo €200 - €6000 12 - 30% 6 months to Personal 2 - 4% taxes 2.5 - 5% + GST on No

3 years repayment

6 Paylab €500 - €5000 12 - 15% 1 year to 3 Personal (0.5* Service Tax) ( 0.5 * Service Yes
years Tax)

Table 5: Comparative Study of the different P2P lending platforms in India

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Additionally, the cost leadership Vs differentiation graph below in Figure 3 suggests that an
opportunity lies if a business model is positioned in the market as a cost leader for the loan
seekers providing a competitive advantage over the other P2P lenders by allowing lending rates
at par with the traditional banking services. However, in contrast with traditional banking
services, need is to offer a much easier and lucid way for seekers to avail loans.

Figure 3: Cost Leadership Vs Differentiation Graph

Thus, going into the Indian market, a business model can have a substantial advantage over its
competitors given its Price, Product, Place, and Promotion.

3.3 Competitors Strengths and Weaknesses

Each of the competitors mentioned below in the table has certain strengths and weaknesses as
discussed below:

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Company Strengths
Faircent ● Low processing time
● Easy paperwork
● The flexible time frame for
returns
● Loan range of €200-€10,000.
LenDen ● Borrowing for
Club unconventional purposes.
● Customer-friendly for credit- ●
challenged consumers.
● Join account holding
possible.
i2iFunding ● Principal protection to
lenders as borrowers is
tagged under a specific risk
category.
● Low-interest rates as
compared with other P2P
platforms.
● Split lending option available
to lenders.
Monexo ● Easy and fast loan processing ● Bad customer service.
● Lower processing fees for
borrowers as compared to
other competitors
Weaknesses
● No link to credit score.
● High-interest rates for early
borrowers.
● High processing fee levied on the
borrower.
● Hard to get a loan approved if you
have a low credit score.
● Bad customer service
● Does not take ownership of bad debts.
● Origination fee levied on Lenders
● Processing fee levied on borrowers.
Bad deal for poor credit.
● Competitive investing (investors will
feel the competition to earn a low-risk
borrower)
● Processing fees are high for
borrowers.
● Pre-EMI interest rates levied on
borrowers.
● More processing time as compared to
others.
● A formidable processing fee including
the tax charges is levied on the lender.
● Customer profile and returns are not
linked to credit score. So, customers
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 ● The loan amount as cannot link their return performance to
minimum as €200 can be boost their credit score.
sanctioned.

i-Lend ● Risk categories applied to a
borrower to protect lenders
interest.
● Lower variation in interest
rates received by borrowers.
● Flexible and customer
friendly service.
● The lower range of loan amounts can
be processed (€400-€6,000).
● Very high processing fee with taxes
levied on both- borrower and lender.
● Borrower performance not linked to
credit score.

Table 6: PayLab competitors Strengths and Weaknesses

3.4 SWOT Analysis

India’s Fintech industry is one of the top five markets by the estimation of capital subsidizing
and investments in the sector(Anand and Bhatia, 2017). Below is the SWOT analysis of the
PayLab P2P Lending platform positioned for the Indian market.

Strengths Weaknesses

● First in the market to introduce a new
financial instrument with recurring
deposit opportunity in the P2p
lending in microfinance.
● Offer Micro-credits at the lending
rate of a traditional bank.
● Offers the middle-class income group
an alternative investment instrument
competitive with traditional banking
● The Indian Market has other p2p
lending platforms, marketing and
communication need to be a keystone
in the strategy to reach out to the
target customer in a short period of
time.
● PayLab needs to grow first and
acquire customers with strong
customer service to keep competitors
at the edge.

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 services.
● Banks are still the key players in the
● The current Indian government has finance sector.
pro fintech policies and they are
making new policies in favor of the
fintech industry.

Opportunities Threats

● Indian Market is poised for P2p ● Existing Fintech startups, Banks,

lending to grow at a 25% y-o-y Unorganised Lenders.
growth with an opportunity to
capitalize on a projected €1Trillion ● Competitors can copy a similar P2p
over the next 5 years. Lending concept with better lending
options.
● No competitor offers recurring
lending in the Fintech Sector. ● Financial cybercrime threats.

Table 7: SWOT Analysis

3.5 Findings summary

In the competitive landscape of India, while competitors such as Monexo, and i2ifunding
follows a product differentiation strategy to a broad market segment, a competitive business
model can aim to provide a cost leadership through efficient use of technology and merge it
with a high customer service level in a narrow market segment. In contrast with the
competitors, the business model needs to link the borrower’s performance with their credit
score, interest rates, and lending quality so that a good customer can have an advantage over
the long-term. In addition to the general advantages provided by other p2p lending platforms,
Also, it needs to put customers at the center of its operations with flexible terms of returns.
Moreover, different from the competitors, an opportunity lies in taking the ownership of the
lender’s funds, its distribution across the borrowers, and its returns.

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References

Acharya, N., 2020. P2P Lending Achieves 10-Fold Growth With Returns As High As 25% In
1 Year. [online] Business standard. Available at: <https://www.business-
standard.com/article/finance/in-last-1-year-p2p-lending-achieves-ten-fold-growth-with-
returns-up-to-25-120021201166_1.html> [Accessed 29 May 2020].

Anand, V. and Bhatia, P., 2017. Fintech In India Ready For Breakout. [online] Deloitte India.
Available at: <https://www2.deloitte.com/in/en/pages/financial-services/articles/fintech-
india-ready-for-breakout.html> [Accessed 20 July 2020].

Palepu, A., 2019. P2P Lenders Grow Amid A Gloomy NBFC Environment. [online]
BloombergQuint. Available at: <https://www.bloombergquint.com/business/p2p-lenders-
grow-amid-a-gloomy-nbfc-environment> [Accessed 2 July 2020].

Patel, B., 2020. How P2P Lending Can Be A Route To Creating Financial Inclusion. [online]
Daily News and Analysis, India. Available at: <https://www.dnaindia.com/personal-
finance/report-how-p2p-lending-can-be-a-route-to-creating-financial-inclusion-2560256>
[Accessed 3 August 2020].

Patel, B., 2020. From People To Power: How India Is Building A Strong P2P Lending
Framework. [online] outlook Money. Available at:
<https://www.outlookindia.com/outlookmoney/banking/from-people-to-power-how-india-is-
building-a-strong-p2p-lending-framework-4307> [Accessed 3 July 2020].

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Appendix 1

Indian Economy Shaped for the Fintech market (Socio-Economic outlook)

Figure A21: Boosting the Fintech ecosystem in India(Henriques and Lele, 2018)

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Figure A22: JAM Trinity Projecting growth in number of users in Digital Banking Services.
Source: (Abraham, 2019)

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Figure A23: Trend in Payment Processes and Loan Requirements split by spends in India
Source: (Sanghvi, 2019)

P2P Lending in India. Growing Trend According to PWC,2019

Figure A24: Loan growth statistics month on month 2019, India

(Source: Aggarwal, 2020)

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