peer-to-peer lending: P2P companies log revenue jump, thanks to business partnerships

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Peer-to-peer lending, which has mostly remained confined to the margins of the financial services sector, has reported strong growth in the last financial year.

According to their regulatory filings, a bunch of P2P lending companies more than doubled their revenue in fiscal 2023 from the previous year. According to industry insiders, P2P lenders finally seem to have found a steady business model through partnerships with large consumer-facing applications.

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A P2P lender operates as a platform connecting individual lenders and borrowers. Instead of relying on open market sourcing, players like LenDenClub and Liquiloans started partnering with fintech startups with a large user base like BharatPe, Cred and PhonePe to source customers.

It seems these partnerships have helped boost business volumes, in turn both their revenue and profit. Platforms typically get a commission per disbursal.

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“Financial year 2023 was the first time when most of the large partnerships went live and the impact of Covid-19 had also subsided. This helped the companies grow their business significantly,” said the founder of a P2P lending startup on the condition of anonymity.

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Strong Top Line

According to financials reported to the Ministry of Corporate Affairs, accessed through data intelligence firm Tofler, Mumbai-based P2P company LenDenClub reported revenue of Rs 315 crore in FY23, up 114% from Rs 147 crore the previous year. Profit before tax, though, fell to Rs 20 lakh from Rs 10 crore.“Business loans and personal loans both showed sizable growth with 60% and 40% contribution to the revenue, respectively,” said cofounder Bhavin Patel. “Our D2C business remains the best to contribute towards the bottom line … three partners contribute more than 50% in the revenue generated through partnership as a sourcing channel.”

Matrix Partners-backed Liquiloans also reported a three-and-a-half-time jump in revenue at Rs 220 crore in FY23 from Rs 62.4 crore in the year prior. It reported a profit before tax of Rs 7.3 crore, up 82% from Rs 4 crore in the previous year.

Gurgaon-based P2P lending platform Faircent reported total revenue of Rs 41.7 crore last fiscal year. Albeit on a low base, even Faircent’s revenues almost doubled from Rs 24 crore the year earlier. It managed to control loss to Rs 51 lakh compared with Rs 2.9 crore in FY22.

New Delhi-registered P2P startup Lendbox also performed along similar lines. It reported total revenue of Rs 54 crore in fiscal 2023, compared with Rs 3.8 crore in the previous year. Its loss came down to Rs 2.4 crore from Rs 2.7 crore.

“In the P2P space, a couple of players raced ahead of competition by drawing massive demand by partnering with large fintech startups, now others are also trying to create their own affiliate models,” said a top executive at a fintech firm which works with P2P startups.

“On the whole the industry is reaching a tipping point as the network effect is kicking in, the drivers have been greater acceptance of P2P lending as an asset class by the lenders (investors) and by borrowers as an alternative form of credit,” said Faircent founder Rajat Gandhi. “Overall, Faircent’s strategy has been to build an independent brand without any dependence on any anchor or single partnership,” Gandhi added.

Working with partners

Founded in 2015, LenDenClub works with platforms like Google Pay, PhonePe, Cred and BharatPe. As per data shared by the company, in October its assets under management stood at Rs 1,119 crore with almost 3% of the assets being non-performing. According to the company, Rs 13,415 crore had been invested through it till date.

Mumbai-based Liquiloans, which is backed by the likes of Cred, Matrix Partners India and Venture Catalysts, claims to have disbursed more than Rs 4,400 crore with gross NPA of 0.43%. Liquiloans has built its affiliate programme with Razorpay, Rupeek, Cred, BharatPe, Khatabook and others.

But one section within the industry believes that these affiliate programmes run in contravention to Reserve Bank of India rules which mandate P2P startups to remain only as a platform and not take any exposure on their books.

ET wrote on August 30 that the RBI held back-channel conversations with P2P startups, asking them to diversify their partnership business to prevent any scope of an asset-liability mismatch.

Also read | After online payments, digital loans, now P2P lending under RBI lens

“The central bank has spoken to almost every player in the space to understand the partnership business and the thought process within the industry is that there could be some regulatory updates next year or so, but we are not expecting something drastic,” said the founder of another P2P lending startup.

The RBI has taken decisive action in the past to protect consumer interest. If it acts in a similar fashion to cut down these affiliate programmes, then it might drag the sector back into the slow lane. Otherwise, P2P startups might feel confident of finally getting into a stable business model.

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