Global tech giants are now betting on the loan market

The Fintech space is evolving with every passing day in India. In particular, fintech companies that engage in lending activities are witnessing a flurry of activity. Last year, many of these companies had to reduce their loan portfolios due to the drying up of funds flows from banks and NBFCs due to the pandemic. However, things are slowly returning to normal with an increase in demand for loans. As the end-of-year holidays approach, the momentum of lending activity should pick up strongly.

Currently, the total valuation of the fintech industry is estimated to be around $50-60 billion. According to a Boston Consulting Group report, Indian fintech companies are expected to reach a valuation of $150-160 billion by 2025. While there are different types of fintech operating in the ecosystem, the lending segment is witnessing interesting events in recent days.

India’s digital lending market is becoming a battleground for global giants. After a successful entry into the payments space, companies like Facebook Inc, Google, and Xiaomi Corp are looking to gain a foothold in this emerging opportunity. According to projections, the digital lending market is estimated at around $1 trillion.

In July this year, Facebook said India would be the first country where it would roll out its Small Business Loan Program offering loans through a partner to businesses that advertise on its platform. These loans will range from Rs 5 lakh to Rs 50 lakh with interest rates ranging between 17-20%. This decision is important because many small and medium businesses advertise through its platform and any working capital loan support will certainly create a win-win situation for Facebook and small businesses.

Global search engine Google is also upping its game. After offering various financial products such as digital gold, mutual funds on its Google Pay payment platform, it has now partnered with small Indian lenders to open term deposits to its customers. Now, Chinese maker of various electronics, Xiaomi, also plans to offer loans, credit cards and insurance products in partnership with India’s top banks and startup digital lenders.

E-commerce giant Amazon.com has also signaled its intention to enter the financial services space with its first investment in the country’s wealth management sector in July. The American company participated in a fundraising of 40 million dollars by the fintech start-up Smallcase Technologies.

Such an aggressive entry into the Indian financial services space bodes well for the fintech ecosystem as well as Indian SMEs. Traditionally, SMEs do not get adequate lending support from India’s banking system, which is heavily geared towards business lending. Although things have changed a lot in recent years, there is still a lot to do. Therefore, the entry of global giants into credit is good news for the Indian economy.

Moreover, as the fintech ecosystem matures in the country, traditional banking institutions need to recalibrate their strategies. With the opening up of many other avenues of financing, the relevance of the traditional banking system may diminish in the years to come. To remain relevant, the Indian banking system needs to actively support and collaborate with fintech cos to increase the flow of funds which will not only enable them to gain new customers but also create cross-selling opportunities of various other banking products.

Priscilla C. Carnegie