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A quick short thread on #Collections piece of the lending value chain- 1/n
We recently had the opportunity to respond to an industry ask for representation to the Nilekani Committee on deepening digital payments. 2/n
So, I am like let me connect UPI 2.0, the promise it holds, to the collections piece of the lending, where we have much ground to cover. 3/n
Just to give you all a sense of the friction in numbers basis- 4/n
On a unsecured business loan of 1 year tenure, the cost of collections via the traditional DSA model is 0.8%. ( Omidyar-BCG , 2018) 5/n
Inject digital ( auto-deduct) modes of collections and the savings are to the tune of 20% ( relative to trad. Collection Route) 6/n
( the ticket is INR 1 million by the way). Digitized collections appear to be happening thru, A. what I may call, "anchor platform" model & B. NACH. Both have their respective pros and cons. 7/n
Be right back here.
Continuing; so, as previously stated, both the "anchor Platform" model and the NACH mode have their advantages / disadvantages
The anchor platform model has 3 pros: 1. Efficient ( distilled) discovery of borrowers thru partnering the Platform. 2. Collection @ source 3. Customized collection ( matching incoming cash-flow) thus relieving parties from the rigid monthly- EMI model 9/
However it also has following cons- 1. Reach in terms of size: Big retail may require turnover / vintage of a given size to be enlisted as sellers. So, not all small businesses can be discovered there. Also, sellers of atypical merchandise may not be enlisted. 10/
The other con: limited "cross-sectional" reach. Services that are offered via Platform model are narrow ( or at least not wide enough) for now- food logistics/ delivery ( Zomato, Swiggy etc) transportation ( Uber, Ola), travel portals ( MMT, Yatra and the like). Verticalized. 11/
Beyond the services that have "platformized", lenders can auto-collect via the NACH product of NPCI. But the e-NACH is not yet proliferated enough. Only #3 Banks are live. Setting up a NACH mandate other than thru e- NACH is a time consuming ask. Basis a BCG Report of 2018, 12/
It can take up to 30 days. To the extent e-NACH is available, the auth requirement can be a potential limitation given the User has to authorize basis Netbanking ( for now). Stickiness on Banking applications is low. 13/
Banking app use / familiarity have been found to trail E-commerce and Fintech apps, basis a BCG- Facebook Report of 2018. 14/
So, use of NACH mode while sufficient may not be optimal. 15/
UPI 2.0 can facilitate the collections use-case. Right now, it offers a one time mandate Is good for digitizing one-time purchases where buyers feel trusty only after receiving the goods for ex. To be amenable to collections, enabling Recurring feature on UPI 2.0 necessary 16/
