Digital lending is a trillion-dollar market opportunity in India

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India is one of the fastest-growing consumer finance markets globally. The proliferation of formal finance coupled with the rising internet penetration rate and per capita income are expected to drive the growth of the digital lending market in the country over the next three to four years. Furthermore, the innovative fintech landscape in India is fueling the adoption and popularity of digital lending among consumers.

The digital lending industry is projected to become a US$1.7-2 trillion market opportunity by 2030 in India. Notably, the growing demand for credit for e-commerce purchases is also driving the digital lending market growth in the country. As the e-commerce sector continues to record an upsurge in order volumes and new online shoppers, PayNXT360 expects the competition to further intensify in the space over the next three to four years.

Currently, many digitally lending startups are competing for market share in India. These players, especially BNPL firms and digital lending startups, are stepping up to plug the credit access gap. For instance,

• Easiloan, a digital lending startup in India, is offering home loans through its platform. Using the tech-enabled platform, consumers can source loan details, compare, select, and process loans digitally, end-to-end. Similarly, Kuhoo, an education-focused digital lending startup, provides digital loans to students that are pursuing education overseas. 
• MoneyTap, one of the leading players in the digital lending space, offers personal credit lines to consumers in partnership with leading banks. The firm currently has operations in over 40 cities in India and is offering small-medium cash loans, credit on mobile at affordable interest rates, and EMIs. LoanTap and RupeeRedee are some of the other digital lending startups competing for market share in the country.

To further accelerate their growth and the growth of the digital lending market in India, these startups are also raising funding rounds. For instance,

• In August 2022, EarlySalary, another digital lending platform in the country, announced that the firm had raised US$110 million in its Series D funding round, which was led by The Rise Fund and Norwest Venture Partners. The firm is planning to use the investment to enter into new markets and accelerate its loan book. Currently, the digital lending app has more than 12 million downloads and 80% of its users are repeat customers. Going forward, the firm is planning to add 100,000 new users every month. In India, EarlySalary competes directly with BNPL players such as Slice and ZestMoney and digital lending platforms such as MoneyTap.
• FlexiLoans, another digital lending startup, announced that the firm had raised US$90 million in its Series B investment round in June 2022. Like EarlySalary, FlexiLoans is also planning to use the fresh capital for boosting its loan book. Additionally, the firm is also planning to invest in technology and product development. By the end of 2022, the firm is planning to disburse over INR 5,000 crore. FlexiLoans also operates in the embedded finance space and offers financing to sellers on various e-commerce platforms such as Flipkart, Amazon, Nykaa, and Myntra.

While the market is expected to record strong growth over the next few years, the Reserve Bank of India is implementing stringent regulations to ensure consumer protection. For instance,

• After reports of consumers facing abuse from agents of digital lending platforms, the Reserve Bank of India set up a working group in 2021. Based on the recommendations from the working group, the Reserve Bank of India (RBI) has announced guidelines stating who can lend money to consumers and what data lenders can access. Furthermore, the RBI has stated that all digitally disbursed loans must be credited directly into the bank accounts of borrowers and not through third-party apps or platforms.

These regulations introduced by the RBI will protect consumers from abuse by bringing in more transparency. Notably, the RBI has announced that all digital lending platforms must comply with these regulations by the end of November 2022. In addition to these regulations, the RBI is also preparing a white list of digital lending apps. Only the white-listed digital lending platforms by RBI will be hosted on Google Play and the Apple App store.