The pandemic has altered the consumer lending behaviour which has shrunk the ticket size of loans with most loan requests coming from blue and grey collar workers and millennials. According to the joint report by credit bureau TransUnion Cibil and Google the disbursal of small ticket loans has been 70 percent with most borrowers belonging to tier-II cities and smaller towns, and a majority of millennials requesting retail loans. Since September the demand for small ticket loans from blue and grey collar workers and gig workers rose by 25-30 percent and the average ticket size loans have dropped by 10-15 percent, capping the maximum ticket loan upto Rs 25000. The tightening of unsecured credit policies is the reason behind the inclination for small-ticket loans. The lending space in India is devoid of formal sources of credit for the lower-income groups, but with new financing option like BNPL people from remote regions are now availing small-ticket loans which are good news for the fintech players.
Buy Now Pay Later (BNPL): Preferred short term financing option
The buy now pay later ( BNPL) – a short-term financing option for small ticket loans has gained popularity in the pandemic. The user base for BNPL financing option is expected to become 80-100 million by 2026 surpassing the user base for the credit cards is projected to become 75 million, according to a report by BCG. The BNPL market is poised to be worth $45-50 billion by 2026, according to consultancy firm RedSeer.
This short financing option is gaining ground among borrowers since it offers short-term loans without a credit history, and to individuals that belong to lower-income and self-employed individuals. Unlike credit cards, BNPL does not have charges such as joining fees and annual fees. In addition to this BNPL loans have an average transaction size of around 300-600 with zero interest charges.
According to the joint report by credit bureau TransUnion Cibil and Google the disbursal of small ticket loans has been 70 percent with most borrowers belonging to tier-II cities and smaller towns.
Small ticket loans are speaking opportunities for fintech players in smaller cities
Conventionally the loans offered by banks were for three purposes i.e.personal loans, home loans, and salary overdrafts. The pandemic has tightened people’s purses on discretionary spending due to job losses and paycuts, in which the fintech players are sensing this to be an opportunity to offer credit via BNPL for purchases in online grocery, e-commerce and food delivery. Fintech players like EarlySalary,Dvara Money, NIRA and Bueno Finance are growing steadily in this space with new customer acquisitions monthly with a growth rate of 25-30 percent. Other fintech players offering BNPL such as Simpl, Lazy,PostPe are acquiring customers aged 18-25 years who are novices to the banking system and at the early stage of their credit journey.
The small ticket loans space holds ample opportunities for the fintech players as advancement in technology and digital access is helping the players locate, reach and engage with new customers from smaller cities and towns. As per the joint report of TransUnion Cibil and Google, 77 percent of all retail loan enquiries were from tier-II cities and beyond. In addition to this online searches for loans from non-tier-I cities went up by two-and-a-half times between 2017 and 2020.