Peer-to-Peer Lending is emerging in India and will be successful if the Credit quality on these platforms have a reasonable default rate and provide good returns to the lenders.
Peer-to-Peer Lending is a new asset class and it is important to create Awareness, Education and Understanding for lenders on how to proceed further to add P2P lending in your investment portfolio.
At Citibank Consumer Bank, where I worked for close to 20 years, I learnt a concept of “Negative Self Select”.
In simple terms “Negative Self Select” means customers who choose your product and brand have poor credit track record. If most of the poor credit profile are choosing your product or brand your portfolio quality is bound to perform poorly over time compared to the industry peers.
Then the question arises, What leads to “Negative Self Select”?
As a Bank, we used to have 3 key criteria to understand if we were a potential target of “Negative self select”.
They were:
- 1. Heavy documentation / Cumbersome Application – asking for more information or documents then the industry.
- 2. Slow process – if the industry is processing a loan in 7 days your process take 10+ days or more.
- 3. Higher interest rate – if you price your credit product higher than others and information is seamlessly available then a good customer will choose the loan which costs them lower.
These 3 criteria could work in combination or stand alone. It is quite logical that the best customer would not want to be inconvenienced by Heavy documentation, wait for long or pay higher cost for borrowing until and unless s/he does NOT have a choice.
Only, poor credit quality customers would go through these inconvenience as they do NOT have a choice.
However, for Peer-to-Peer Lending platform there are 2 more challenges:
- 1. Brand Awareness: The belief that borrowers do not care about the brand from which they borrow – is not correct. A good borrower does not want to borrow from an unknown brand. They care about their personal information, kind of practices the borrowers adopt post disbursal of loan and how will they get serviced during the loan period.
- 2. Confidentiality of the transaction: Most cars and houses in India are sold with financing however no one puts a sign on the car or house the name of the bank they took financing from. Similarly, the good borrowers do not expect finance company to publish their name of their website.
At Monexo (www.monexo.co), we have solved for all of them before we launched our platform, namely:
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- Ur process is digital and fast. Approvals are given the same day and we can 100% guarantee disbursal once the loan is committed by our lenders. Monexo is the only company which can give this guarantee. This is NOT possible on other P2P platforms as they rely on lenders to transfer funds to borrowers. Lenders may forget, get busy or even change their mind. We are making the loan process “paperless”.
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- We rely on Data Science and ask for minimal documents on our platform. More documents does not mean better credit – it means more inconvenience to borrower and good ones will leave.
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- We price our loans across the spectrum of 13% to 30% which allows us to play across Banks and NBFC pricing. We also have launched 20% Interest Discount offer for Personal Loan Transfer – this could save customers as much as Rs. 20,000 over 3 years. Visit us at – www.monexo.co
- Yes we are young company however are trustworthy. Our Founders have 70+ years of Financial Service and Technology experience with Global Brands. Further, we believe in Education, Awareness and Understanding of our product and services is critical rather than selling. Every customer can connect with us as and listen to our Free Webinar.
- Finally, we respect our borrowers privacy and do not put their pictures or name on our website. We share the borrowers profile, Credit Score, Monexo rating and other key demographic and income details for lenders to make decision.
We are building a new paradigm for borrowers and lenders with our 3D’s – Digitial, Data Science and Democratisation of Finance at Monexo (www.monexo.co). Visit us, talk to us and engage with us in our vision of “making borrowing more affordable and investing more rewarding.”
