P2P lending during and after Covid-19

The Covid-19 pandemic has brought the world as we know it to its knees. While most sectors have been impacted adversely, the altered dynamics have thrown open new opportunities for certain other sectors. Online lending is one such sector that has been agile and responsive to changes. As a result, it is likely to rise faster than most in the post Covid-19 era. 

This crisis has uncovered the gaps in traditional banking and financial institutions, who either ceased or severely curtailed lending during the lockdown. Hamstrung by outdated processes, they still depend on physical processing, verification and disbursal of loans which was no longer possible in the era of Janata curfew and social distancing.

New age fintech to the rescue

This is where new age fintech took advantage of the resources and time they had invested in developing an online infrastructure. 

P2P lending has adopted digital models such as e-signature, e-verification, e-mandate, API based data integration, block chain and machine learning to create an ecosystem that enables fully contactless financial transactions.

As a result, for example, Faircent launched products tailor-made for the situation that arose out of the pandemic. Our anti-lockdown loans had an inbuilt three-month moratorium, post which borrowers could choose to repay either through lump sum or easy EMIs. We launched Education Premium Loans to help professionals working from home, with time at hand and interested in adding to their skill sets and enroll for premium online courses.

The economic slowdown does not bode well for timely repayments by borrowers whose business is shut, or salary has got delayed. However, collection in these times needs to be sensitive and it’s important not to turn repayments into another pain point. We believe in positive reinforcement and incentivization. We are rewarding borrowers who are repaying their EMIs on time even during these times by giving them a chance to win exciting prizes such as gold coins.

Our aim is to celebrate and encourage responsible debt management practices that will enable borrowers to access fast and low-cost credit even in the post Covid-19 era. 

Alternative supply of credit

While initiatives and processes were being implemented to ensure that the demand and collection side of the business works smoothly, supply has not been a real concern. Lenders continue to add money to their escrow account and fund online loans. The confidence imposed by lenders and partners is heartening. 

The objective when we pioneered the P2P lending sector way back in 2013 was to unlock the alternative credit supply in the country stuck in low-yield asset classes such as cash or bank deposits and to direct this towards filling the huge credit gap that exists in the Indian economy. 

At a time when the credit supply from brick-and-mortar institutions has dried up, alternative supply stepped has in to help individuals and businesses across India.

Lending post Covid-19

In the post Covid-19 era, there will be a paradigm shift with respect to all aspects of lending, whether it is demand and supply of credit or the processes that enable it. 

The failure of debt funds and equity to survive this shock will force Indians with surplus funds to turn to alternative investment opportunities such as P2P lending. At the same time, as restrictions ease, demand for credit to enable economic recovery will rise exponentially. With both demand and supply on the rise, platforms will have to structure their products in a manner that ensures quick, smart and easy funding. 

Processes born out of necessity may stay forever. E-verification where geo-tagging, location mapping, video interviews and selfies are used, instead of physical verification of borrowers is a time saving, cost-efficient and contact-less process that is here to stay. Similarly, lenders would want loans to be classified not as per PIN codes but as per Covid-19 zones. We are already ensuring quick funding and disbursal of loans originating from the green zones by tagging them as ‘low impact Covid zones’.  

Loan origination is also set to change. Platforms will seek partners through open stack API integration to keep cost of acquisition low. Data-driven, more efficient underwriting models will emerge. These will be supported by greater adoption of online banking and payment models by Indians. 

This terrible crisis has created an opportunity for complete digitization of one of the oldest financial institutions – lending. P2P lending platforms who demonstrate foresight and an astute understanding of the situation and combine it with innovative application of technology will emerge as clear winners.

Rajat Gandhi

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Rajat Gandhi is founder and CEO of Faircent.com. The views in this article are his own.