What Indian lending startups & investors might be under-estimating

Going by the struggles of massive Indian financial sector organizations like banks, NBFCs etc., in terms of discipline around disbursal, risk assessment, collections & NPA management, I feel startups in this space should brace for serious shocks as they scale.

A mistake that founders and investors in this space will likely tend to make is to get carried away by the “fintech wave” phenomenon, approach these businesses like any other consumer internet one, and grossly underestimate the inherent risks and toughness of building a finance business. What I found funny was a few Indian investors boasting about their lending startups portfolio — “our portfolio has disbursed $X bn in loans”. If I stand with a stash of cash on a street corner and ask people to take a loan, am sure even I should be able to “disburse” quite a bit :).

I know everyone is trying to become the Ant Financial (Alipay) of India but many don’t realize how it really evolved as an organic extension to the commerce biz and how the entire set of Alibaba ecosystem use cases feed it with critical data that helps it tremendously. Also, Ant Financial gets a captive user base of both individual users and merchants/ SMBs (along with all their data) via the Alibaba commerce marketplaces (Taobao, Tmall, Tmall Global, Juhuasuan etc.), essentially for no cost as part of a juggernaut. It’s only in last 5–7 yrs that Alipay started following a dedicated Super Apps strategy, going up against WeChat Pay and adding a slew of O2O use cases via investments/ acquisitions. But by then, it had already become #1 in several fintech segments in China (eg. wealth management, credit scoring), courtesy the Alibaba commerce ecosystem.

It’s important for all India fintech/ lending founders and investors to be aware of Alipay’s history & playbook, as well as how tough Indian financial sector itself is and the risks involved. It should reflect in the way these startups get capitalized and operationally built out, including proactive risk management.