Low base and huge demand will aid the alternate lending market in India in 2023 and beyond

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The alternate lending space has continued its upward growth trajectory in H1 2023, with increasing disbursements and the entry of new players, supporting the market growth. The surge in disbursements is also an indication that the market is poised for accelerated growth from the short to medium-term perspective. Investment in the sector is also rising significantly, which shows that venture capital and private equity firms are also foreseeing growth opportunities in the Indian alternate lending market.

In India, the alternate lending sector is being driven by business models like peer-to-peer lending, small and medium business financing, and short-term credit. In addition to this, the rising buy now pay later sector is also aiding the growth of the alternate lending market. The low credit penetration and huge demand among consumers are the primary growth drivers of the alternate lending market in India. With this demand projected to further increase over the next three to four years, new players are also entering the market to accelerate their revenue growth.

• Jio Financial Services, one of the recent entrants into the alternate lending space, is expected to focus on the consumer lending segment. Although the firm is projected to take time to scale and expand into other verticals, PayNXT360 also expects the firm to have a presence in the merchant lending and buy now pay later sectors from the medium to long-term perspective.

In the merchant lending, Paytm and PhonePe are expected to be the biggest competitors for Jio Financial Services. In the SME space, Paytm entered into a strategic collaboration with Shriram Finance in July 2023. As part of the collaboration, the two firms will provide lending solutions to Paytm merchants who are using the sound box facility. As of July 2023, Paytm has 34 million merchants, of which 7.5 million are using the sound box facility. This is a significant growth opportunity for Shriram Finance to tap into from the short to medium-term perspective.

PhonePe, on the other hand, also announced the launch of its merchant lending platform in 2023. This will enable NBFCs and banking institutions to provide credit to its vast merchant base of over 35 million. Since May 2023, PhonePe has facilitated the disbursal of more than 20,000 loans, with an annualized loan disbursal run rate of INR 10 billion, since its launch. These numbers are a testament to the growing demand for credit among SMEs in India and the huge growth opportunity in the alternate lending market. With PhonePe's in-depth understanding of merchants' transaction behavior, the firm is well-positioned to tap into the high-growth industry over the next five years. 

With every quarter, the alternate lending space is becoming crowded in India. Given the massive demand for credit, the market is also showing signs to accommodate all of the new entrants like Jio Financial Services. To enter the market, many of the firms are opting for the NBFC route.

• OneCard and WintWealth are among the fintech firms that have applied for an NBFC license (non-banking finance companies) to mark their foray into the fast-growing lending market in India. These firms have joined the long-list of fintech firms like Cred, Groww, and Jupiter, who have recently bagged lending licenses from the Reserve Bank of India.

The NBFC license will enable firms like WintWealth to provide more value to their users, which will subsequently result in higher revenue for the firm. Cred, Groww, and Jupiter are all looking to accelerate their revenue growth through their presence in the alternate financing space. Going forward, PayNXT360 expects more and more fintech firms to adopt the NBFC route to enter the fast-growing market, which will further drive the competitive landscape in India.

From the short to medium-term perspective, PayNXT360 also expects venture capital and private equity funding to increase in the alternate lending market. The NBFC arm of RupeeRedee, the alternate lending platform in India, raised US$3.5 million in a funding round from Digital Finance International.

• FincFriends, the NBFC arm, announced that the firm will deploy the capital to scale its business and drive financial inclusion in emerging markets. The firm, by the fiscal year 2024, is aiming to disburse INR 10 billion in loans. 
• The investment round will enable RupeeRedee to broaden the range of its products while appealing to a larger customer base. Furthermore, the investment will also allow RupeeRedee to enhance its customer acquisition strategies in India.

Newtap Technologies, another new entrant in the alternate lending sector, is seeking to raise funding in the range of US$50 to US$70 million to scale operations and accelerate growth in the segment. The infusion of fresh capital in the sector will further aid innovation and the competitive landscape, thereby accelerating the growth in the industry from the short to medium-term perspective.

Over the next five years, PayNXT360 expects India to lead the growth of the alternate lending market across the Asia Pacific region. However, the growth rate is also expected to remain high in other markets like Indonesia, Malaysia, and the Philippines. Overall, PayNXT360 maintains a robust growth outlook for the alternate lending market in India and across the Asia Pacific region from the short to medium-term perspective.