Fintech lenders turn tap off to new customers, conserve cash

Bengaluru: Payday lenders, which provide personal loans at high-interest rates, have turned off their funding tap for new customers despite surging demand, as layoffs loom and households face a liquidity crunch in the wake of the Covid-19 pandemic and resultant nationwide lockdown now extended till May 3.

EarlySalary, KreditBee and LoanTap are focusing only on servicing their existing clients and collect the loans back, in a bid to survive the economic downturn.

Fintech lenders charge 1.4-2.5% per month.

As loan repayments get delayed and many customers opt for a moratorium, fintech lenders are cutting back on risky products, strengthening collection teams, looking closely at customer profiles for repeat lending, and delaying marketing spends.

Employees from the travel, hospitality and mobility industries will face difficulty in borrowing.

“We need to save enough firepower to fight the battle later,” said Akshay Mehrotra, co-founder and CEO of EarlySalary.

“2020 is about survival. Growth is for 2021. If I come out of this with all my people and capital, I’ll be in a strong position. Half the competition will be wiped out and the other half would have reduced in size,” he added.

EarlySalary, which is backed by Eight Roads Ventures and Chiratae Ventures, has halted marketing expenses, doubled its collection team and stopped its 12-month product. It is only continuing with its core 3-month product.

“We expect companies to cut salaries or reduce the variable pay structure. We are connecting with customers to check on their stress and help with additional facilities. We continue to lend to existing customers. Until the lockdown ends, we won’t be able to onboard new customers,” said Satyam Kumar, co-founder of LoanTap.

Loantap has decided that once the lockdown ends, it will stop lending to “near-prime” customers and double down on “super-prime” customers as it does not expect the economy to bounce back till the festive season later in the year. It has moved its business development team to the collection team.

Loantap counts Shunwei Capital, Kae Capital, India Quotient and Tuscan Venture as investors.

In the lending business, consumers are classified as super-prime, prime, near-prime and subprime based on their repayment capability.

“The market is going to take six months to come out of this. Those six months are going to be tough and will see a lot of changes,” said Madhusudan E, CEO at KreditBee. “We are not lending to new customers. Data prior to March does not work for underwriting new customers.”

KreditBee, backed by Alpine Capital, MI (Xiaomi) and Unitary Helion, has delayed its aggressive hiring plans and may start reducing salaries of the top 150-200 people in the company.