P2P Lending Platforms To Gain More Credibility In Coming Years

In this competitive world, efficiency matters a lot and P2P Lending Platforms are giving tough competition to traditional banking systems.

If your performance goes down often and you miss your deadlines frequently, your employer may give you the sack. If you are self-employed, your competitors will outpace you quickly.

In the recent past, banks have repeatedly flunked on their performance.

Has the time come to squeeze them out?

They are expected to make the efficient use of deposits they collect and offer win-win deals to borrowers and depositors both.

But in reality, the picture looks exactly the opposite.

When it comes to passing on the benefits of falling interest rates in the economy, banks are reluctant, almost always. As a result, your borrowing cost remains higher until interest rates actually start sliding down to a point where banks are compelled to slash the interest rates on loans.

In complete contrast, they are lightning fast in cutting interest rates on deposits.

It’s an open secret that banks try to maximize their profits without caring much about their customers, especially the retail customers who have less bargaining power.

Banks deny loans to many small-time borrowers for the reason of short or weak credit history. However, the massive Non-Performing Assets (NPAs) have exposed the flaws in their risk management systems.

As a result, despite having relatively better margins, profitability ratios are unattractive in most cases.

Are things different for borrowers with better risk profile?

Pre-approved and instant loans are available to borrowers with the safest risk profiles. For the rest, credit approval and disbursal processes are usually slow.

The contrast discussed above tells us that, by and large, banks are inefficient.

Peer To Peer (P2P) Lending—the need of the hour

The P2P Lending industry is relatively new to India. However, in the developed nations, it’s been hugely popular. As the name suggests, it allows borrowers and lenders (investors) to connect directly with one another, eliminating the role of banks altogether. This is a win-win situation for both borrowers and lenders, as good borrowers get loans, albeit, at a higher rate, investors get higher returns for retaining the risk associated with lending.

P2P Lending platforms make the optimum use of technology to connect borrowers with investors.

But make no mistake. This is not to say that P2P Lending platforms are a place meant only for sub-standard borrowers. High-quality borrowers come to P2P Lending Platforms in search of better deals.

Wondering why?

Here’re the answers…

Banks have a pre-determined reference rate called ‘Base Rate’—a rate below which banks don’t lend. Depending on the risk profile of the borrower, banks add a risk premium to this rate while calculating the lending rate. Therefore, when a borrower with sound risk profile approaches a bank for the unsecured loan account, he/she gets a bad deal, as banks are inflexible.

And as you would appreciate, the risk profile is not a static number. As the income improves or old liabilities get paid off, the risk profile can improve. Borrowers falling into such category often approach P2P Lending platforms in search of cheaper loans to retire their old high-interest bearing loans.

P2P Lending platforms are extremely flexible about such changes.

At i2iFunding, we pay close attention to the borrower’s profile while underwriting a loan proposal. Our in-house credit analysis team meticulously identifies the risk involved in lending. Based on the assessment, every qualifying project is classified in one of 6 risk grades from ‘A’ to ‘F’—where ‘A’ denotes the highest safety.

Loan underwriting is an area where i2iFunding scores well above most of its competitors. We understand the value of hard-earned money of investors and thus take no half measures in listing the loan proposals on our platform. We maintain principal protection fund to meet contingencies in case of loan defaults, thereby offering up to 100% principal protection depending on the risk category.

Needless to say, not all loan proposals are accepted which is why we are able to maintain the minimum default rate.

 i2iFunding is at an inflection point…

After working incessantly to tighten up our risk processes and understand the market better, i2iFunding is gearing up for a leapfrog jump now. So far we have been disbursing around Rs 7.5 crore worth loans annually, but we have set a realistic target of achieving 20 times growth over next two financial years. Sooner the RBI issues regulatory guidelines for the P2P sector, faster would be the growth rate of i2iFunding.

What are the growth drivers?

• Technological Prowess
• Excellence in loan underwriting
• Footprint expansion
• New products
• Customer satisfaction

The use of technology improves efficiency and brings the cost per transaction drastically down in the long run. This is a reason why we have continuously been investing in technology. Besides, upgrading the experience of present interface, we have planned to launch one mobile app each for investors and the borrowers.

These technological upgradations will also facilitate better customer experience due to improved navigation. Moreover, investors will be well-equipped with more efficient analytical tools and in-depth reports.

At present, the investor and borrower base of i2iFunding is mainly concentrated in few metros and tier 1 cities. Going forward, we will be keen to grow beyond cities where we are already present, with a particular focus on southern cities. i2iFunding is likely to open an office each in Bengaluru and Hyderabad.  We are planning to tie up with Non-Banking Financial Companies (NBFCs) to ensure that borrowers get faster and greater access to credit.  i2iFunding has been trying to rope in customers through offline route as well to tap the tremendous untapped potential.

As for new products are concerned, we have done an extensive market study to understand where the current product portfolios of banks, NBFCs, and P2P platforms fall short. Based on our findings we are working on new products. They will be unique and will address the borrowers’ demand.

Talent acquisition will be a great enabler in the growth of i2iFunding over next two years. We are looking to hire more people in sales and have been speaking to financial advisors too for affiliation.

This multi-prong strategy is likely to help i2iFunding attain exceptional growth in coming years making it one of the most credible P2P Platforms.