Lending Fintechs : Aadhaar KYC challenges, Privacy issues and Tight Liquidity : What next?

In last one year, massive amount of funding has been provided to Lending Fintechs in India across Retail and SME segments. I believe more than 100 new fintechs would have started in last 12 months in these segments. In addition, Leading Payment Fintechs have also moved their business model to lending as there is not enough revenue in Payment business.

Last one month has been tough for Lending Fintechs, with the following challenges impacting their model:

- Lack of clarity around Aadhaar KYC : This is impacting customer on-boarding process, which is critical for the growth in low ticket segment. In the absence of Aadhaar eKYC, there would be dramatic increase in costs, friction and turnaround time for on-boarding, thereby restricting the value that the Fintechs can bring.

- Change in Google Policy on SMS / Call data: Google has restricted access to SMS / Call data to external applications. Many lending fintechs were using this data for underwriting the customers. They will have to find alternatives to this data now for enabling credit.

- Liquidity crunch & Valuation impact : Post ILFS saga, there has been liquidity challenges in the market along with increase in cost of capital. Valuations of many NBFCs / HFCs have come down by more than 30% in the aftermath of the crunch.

Impact on Lending Fintechs:

• Lending fintechs with decent customer base / access to capital / unique business will do well as there would be generically lesser competition from new startups. 
• New Lending Fintechs would become a rarity till clarity on Aadhaar KYC emerges.
• Many bootstrapped Lending Fintechs may collapse due to lack of funding. Many others would get merged with larger Lending fintechs or Payment Fintechs.
• Larger NBFCs may buy out some of the Fintechs as valuations may be far more logical now.
• There would also be mergers amongst peers as they will look towards reducing employee / tech costs.