According to a report by Credit Suisse, the Indian consumer lending market is going to grow at a CAGR of 18% to $1.2 Trillion by 2020. This prediction highlights the mammoth size of the market. But Indian financial system has been under scrutiny because of the high default rate of loans despite the fact that 80% of approved loans have a CIBIL (Indian equivalent of FICO) score of 750 and above. In addition to this, only 25% of losses are recovered from defaulting parties.
The 341,641 Crore INR in the graph represents almost 51 Billion USD in NPAs. This underscores the fact that there is something missing in terms of credit analysis. The Indian lending sector is in a catch-22 situation because the majority of customers are either new to credit or with a thin file and only 20% of the population is part of the Credit Bureau data. This translates into 80% of Indians having no access to credit because they don’t have a CIBIL Score. Therefore it is becoming imperative to integrate Big Data and detection models in response to new opportunities &threats and to ensure that creditworthy person can have easy access to credit.
An Indian financial technology start-up CreditVidya harnesses the power of advanced machine learning techniques and big data to re-imagine and re-build credit scoring to provide credit scores to millions of un-scored Indians. CreditVidya’s technology platform helps lenders assess the risk of new-to-credit and thin file customers more accurately than ever before. It was established in 2013 by Rajiv Raj and Abhishek Agarwal. Rajiv Raj has working experience of more than 17 years in reputed banking institutions such as HDFC Bank, Citibank, IDBI Bank, and Canara Bank. He is a specialist on home loans; however, his interest in credit analysis urged him to be in the segment and he was part of the core team that setup India’s first credit agency, CIBIL (Credit Information Bureau of India Limited). Rajiv also worked at Experian India after his stint at CIBIL. Abhishek began his career as an engineer with Thomson Reuters and then worked as an analyst with a top inter-firm dealer brokerage on Wall Street. After his Wall Street stint, he helped scale up various startups in domains as diverse as retail banking, fashion, digital design and mobile VAS across India, the US and the UK. Abhishek was Head of Products and Data Strategy at Experian India before taking the plunge as a fintech entrepreneur.
CreditVidya was seed funded by Siddharth Parekh from Paragon Ventures and Silicon Valley-based angel investor Munish Mehta. In May 2016, they received funding of INR 14.4 Cr (USD 2 million) from Kalaari Capital. The company provides underwriting as a service to its clients in the lending space. Its platform helps lenders accurately assess the risk of the thin file and new-to-credit customers. Lenders benefit from more effective product cross-selling and up-selling, lower cost of underwriting and increased approval rates. The pricing model is per transaction, similar to that of a Credit Bureau.
CreditVidya started out by servicing NBFCs and banks. The current clientele of the company includes banks and non-banking financial institutions such as IDFC Bank, Bajaj Finserv, Fullerton India, Shriram Housing Finance and Tata Capital. The company has been revenue positive from the second year of the operations. Its revenues grew by 400% in the last financial year. Their goal now is to reach out to newer segments such as Insurance, e-wallets and payment banks who can use their solutions for customer acquisition and management. They also provide services like trust score, verification of services, fraud checks, and propensity models.
Main features of CreditVidya platform are:
Higher Approval Rates: It helps the lender to grow his loan portfolio responsibly by accurately assessing the risk of new-to-credit and thin file customers.
Lower Credit Losses: Improvements in the credit line, approval, portfolio management decisions, pricing, and pre-screens helps to decrease credit losses.
Lower Fraud Rates: It clears legitimate customers faster and reduces fraud rates by focusing on high-risk applicants.
Higher Cross-Selling: The client can leverage insights into client behavior and life events through the CreditVidya platform for cross-selling and up-selling.
Primary competition of the company is from traditional credit scoring agencies which still dominate the market and which rely heavily on traditional data streams such as details of reimbursement of advances and credit cards to generate credit scores. The demographic profile of India consists primarily of people without a credit history. Therefore, solutions of the company enable lenders to increase profitability by more accurately assessing the credit risk of these customers.
What sets CreditVidya apart from other players in the space:
- a) The focus of the company is solely on credit underwriting and scoring models. They are not involved in lending, like many other players. This focused approach enables them to provide superior offerings and more granular credit decisions insights to lenders.
- b) Their Insights platform uses up to 10,000 data points, making it one of the richest, most robust and superior credit underwriting services on offer.
With the new wave of growth in India set to be driven by credit and the country increasingly becoming data-rich, CreditVidya believes that they have only just scratched the surface with the depth and range of their offerings. The aim of the company is to serve 100 million customers in the next 5 years across various segments. At present, they are in the process of expanding the team and building a strong team of Data Science analysts and investing in technology.
Analysis: NASSCOM (Premier Indian IT trade Association) has predicted that Fintech software market will double from $1.2 Billion to 2.4 Billion by 2020. Investment in Fintech sector has also grown by 500% from $247 million in 2014 to $1.5 Billion in 2015. P2P in India is focused on consumer, micro and SME lending.
Considering that India has a population of more than 1.25 billion, more than 55 million SMEs; and a minuscule penetration rate of financial services as highlighted by the graph above; it’s a huge market waiting to be tapped.