How FinMomenta plans to change the way financial loans are disbursed
The P2P lending space is expected to grow to USD4-5 billion in India by 2023. FinMomenta competes with at least 30 other players in the segment including Faircent, LendBox, IndiaMoneyMart and LoanBaba
November 14, 2017 / 06:48 PM IST
Durba Ghosh Moneycontrol News
It got to be destiny’s play when three friends meet by chance after two long decades and decide to build a disruptive fin-tech startup. FinMomenta is yet another online startup in a rapidly expanding fin-tech sector.
Ex-bankers Brahma Mahesh, Naveen Madgula, and a techie for 17 years at Hexaware - Praveen Krishnam founded FinMomenta last year, launching its loans platform Tachyloans in May.
The startup borrows from the emerging trend of servicing small-ticket loans online for individuals and SMEs.
“The loan approval process in banks is very subjective. It is dependent on a human perception of the loans officer. It kills the whole idea of credit scoring. That’s the reason banks are able to service just about 2%-5% of the huge working class of about 60 crore population. Others just depend on money lenders. Banks don’t touch these people because they don’t have a credit history,” says FinMomenta co-founder Brahma Mahesh.
The interest rates on Tachyloans range from 11.5% to 25% depending on the FinMomenta credit rating – the better the credit score, the lower the interest rate.
Lenders and borrowers can negotiate in a 3-day window, on loan tenure, interest rate, and principal amount.
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The startup has disbursed over 240 loans, worth Rs 3 crore in total, so far. It monetises the platform by charging transaction and processing fees from the borrower and the lender.
By the end of 2018, the company is targeting to service 1,500 loans and 34,000 loans in next 5 years, which will increase its loan portfolio to about Rs 500 crore.
The growth in loan portfolio will also be dependent on the new products that the startup is due to launch soon. In the next three months, FinMomenta plans to launch several need-based loans such as education loans for school education. The company has tied up with schools to help parents break up huge school fees into monthly EMIs.
The startup has also entered into a partnership with online education platforms such as SimpliLearn and Manipal to disburse loans for professional training and re-skilling.
FinMomenta is also supporting the National Skill Development Council to help students avail loans for vocational training.
The startup is currently in talks with two angel investors to raise about $1 million to aid this growth target. The round is expected to close by the end of December.
But an online loan disbursal platform wasn’t the first choice for these three friends. “Our first idea that we started working on was on payments. We were working on QR-code based payments,” Mahesh says.
Before the idea could reach fruition, the trio had lost the first mover advantage to banks who were already working on similar projects. Not to mention the meteoric rise of Paytm's QR-code mobile wallet.
“We couldn’t establish our core competence in payments. Then we thought of lending because of mine and Naveen’s past experience with banks and Pradeep’s engagement with building a lending software at Hexaware,” says Mahesh.
But a lack of vision and relevant technology made the trio falter a bit.
“Till April we were still thinking like typical bankers,” building a basic, mundane bank app.
In April, when we started re-building this platform we realized there are not much automation options for say identity verification, digital bank statement verification and so on,” Mahesh says.
Their first workshop the trio attended to understand the possibility of the venture was a dampener, “we came out of it very disappointed, wondering where all this is going to lead!” Mahesh adds.
The trio persevered to build the relevant technologies in-house and within one-year advanced technologies of artificial intelligence, big data processing, online verification was suddenly accessible. “Fintech is changing faster than the pace that I change clothes,” he says.
Apart from being in throes of technology innovation, FinMomenta touched upon one more crucial confluence point in the journey of peer-to-peer lending. The startup entered the growing fin-tech market at a time when the Reserve Bank of India was in the process of finalising guidelines for the sector.
Didn’t the policy uncertainty put the venture in reverse gear? “It helped us in fact,” Mahesh says.
“We are ex-bankers so we understand what RBI would want. While the consultation process was ongoing, we aligned our business accordingly. When regulations were formalised we had to do minor tweaks,” he adds.
For instance, RBI’s move to mandate data storage in servers located in India, and the need to have an escrow account for all fund transfers, had the industry players in a tizzy.
FinMomenta on the other hand, followed RBIs consultation process closely to anticipate its moves. “Since the beginning, all our data is stored inside the country. That’s something we knew RBI would want. Secondly, most players had chosen nodal payments. We read RBIs move right to set up an escrow-based funds transfer much before the actual guidelines were released,” Mahesh says.
But why choose a business model that a clutch of startups has already attempted? To start, the relatively young fin-tech sector has a huge addressable market to accommodate more than three players. According to KPMG and NASSCOM, the fin-tech sector is poised to grow to USD2.4 billion by 2020.
The P2P lending space, in particular, is expected to grow to USD4-5 billion by 2023. FinMomenta will compete with at least 30 other players in the segment including Faircent, LendBox, IndiaMoneyMart, LoanBaba among others.
Mahesh and his friends, however, are motivated by something more intangible.
In a country inhabited by 1.3 billion people, only a small percentage of people feature in the database maintained by credit bureaus that are just about a decade old in India. “Banks, however, only rely on credit bureau scores. The people who are not covered under the bureau are completely credited dry. It has become a monster today. We want to democratise this process of credit rating,” Mahesh says.
“If the credit score is so holy then why do banks declare NPAs amounting to 2-5% of their whole portfolio every year?” he questions.
The issue, Mahesh says, is that credit rating bureaus hardly refresh a borrower’s profile over the years. “I know several people who are in trouble for their pre-2004 financial behaviour when credit cards boomed without a monitoring agency. They are CEOs today but can’t get a credit card. That is bizarre,” he says.
According to Mahesh, credit rating bureaus only take into account the borrower’s repayment history, leaving out crucial parameters such as expenses and earnings for credit rating. Lack of verifiable data is one of the main reasons P2P lending platforms often fail to ascertain the quality of credit. “This usually results in higher loan delinquencies and frauds,” Mahesh explains.
To bypass the caveat FinMomenta has built its own credit scoring system that takes into account 360-degree aspects of a borrower’s life. There are four facets to it which include 'application scoring' which is based on the information provided by the user. 'Credit scores' are sourced from credit rating bureaus such as CIBIL. 'Social scoring' relies on a borrower’s digital footprint on social media, e-commerce and so on. 'Psychometric analysis' employs behavioural science to assess a borrower’s willingness to pay.
“We also monitor closely any change in borrower’s location, position, job, any high-value purchase, any additional loans being paid by the borrower. These are some alarm signals, so we get in touch with the borrower why that happened, try and understand their reason,” adds Mahesh.