Tech giants battle for share of India’s $1 trillion digital loans market

Some of the biggest names in technology are vying for a piece of India’s huge digital payments market, which is expected to be worth $1 trillion industry soon.

A surge in online transactions during the pandemic and reluctance to lend on the part of traditional banks singed by bad debts is drawing global players, including Facebook and Google, into the industry.

Facebook this month announced a new programme called the ‘Small Business Loans Initiative’ to help small and medium businesses that advertise on its platform to get quick access to credit through independent lending partners. India is the first country where Facebook is rolling out this programme, which is open to businesses registered across 200 towns and cities.

The loans will range from  ₹5 lakh to ₹5 lakh with interest rates of 17 per cent to 20 per cent, potentially without collateral.

Facebook’s foray into India coincides with Xiaomi’s. The Chinese maker of everything from rice cookers to gaming monitors plans to offer loans, credit cards and insurance products in partnership with some of the nation’s biggest banks and startup digital lenders, the Press Trust of India reported, citing local head Manu Jain.

Amazon.com also made its maiden investment in the country’s wealth management sector this month, participating in a $40 million round by fintech startup Smallcase Technologies. Amazon’s backing comes out of the $250 million corpus it announced as part of its Smbhav Venture Fund for Indian small and medium enterprises last year.

After offering wealth management products such as digital gold, mutual funds on its Google Pay platform, Alphabet’s Google has now tied up with small lenders for opening time deposits for customers.

Digital lending in India is expected to treble to $350 billion by 2023 and reach $1 trillion in the five years since 2019, according to estimates from the Boston Consulting Group, a global management consulting firm.

“The payment business hardly makes any money, but lending makes a lot of money,” Bloomberg quoted Saurabh Tripathi, managing director and senior partner at BCG’s financial institutions practice, as saying. “Indian consumers are waiting for more appropriately designed digital experiences and many players are jumping at this opportunity.”

While the market has a huge potential, there are potential risks. India’s bad loan ratio is expected to rise to 11.3 per cent by March 2021, making it the worst performer among major countries for a second consecutive year.

As well as addressing loan collections by digital firms, the Reserve Bank of India is also planning to regulate online lenders.