Digital lending startups may undergo a wave of consolidation with smaller digital lenders and non-banking financial companies (NBFCs) scouting for buyers as the virus crisis and the ongoing moratorium on payments severely dents business.
While larger startups may see this as a value opportunity, smaller ones have been finding it tough to procure capital from their partner NBFCs, as uncertainty on the extension of the moratorium grows.
The supply of capital will continue to be a challenge for the next 3-4 quarters as banks and larger traditional NBFCs are expected to become more conservative in giving capital to digital lenders, said industry executives and analysts.
This has pressed the smaller lenders—who disburse loans worth up to ₹50 crore each month in segments such as blue-collared workers, micro-financing as well short-term (1-3 months) credit—to look at the stress sale of their loan books and overall operations.
PayU Credit, the digital lending arm of PayU India, is looking to acquire smaller digital lending NBFCs, which continue to show differentiated distribution or collection capabilities in segments like education and car financing, which would otherwise take six months to a year to build.
“NBFCs can raise debt corresponding to how deeply capitalized they are. For short-term lenders, whose books and operations are predominantly dependent on the collections they receive, are going to find it tough during this period. Also, most young fintech lenders are witnessing almost 60% of their customers opting for the moratorium," said Prashanth Ranganathan, CEO, PayU Finance, who also co-founded PaySense. PaySense was acquired by PayU in January this year.
MoneyTap, a digital consumer credit line provider, is currently vetting acquisition opportunities and looking to add complementary products to its offerings, through acqui-hiring smaller lenders, which refers to acquiring companies to recruit its workers instead of just products and services.
“Larger digital lending NBFCs may be looking at acquiring smaller lenders, as it is a good time for some well-capitalized firms to strengthen their technology capabilities through acquiring differentiated market plays," said MoneyTap co-founder Anuj Kacker.
While digital lenders are looking at deals from an acqui-hiring perspective; using it as an opportunity to add talent to their operations, traditional NBFCs are also having early discussions with small digital lenders to snap up their technology offerings.
Non-lenders, including edtech and healthtech startups, might also look at acquiring smaller lenders.
“Firms that have raised substantial capital over the past few months might look at acquiring smaller lenders, since none of them are profitable, and they may look at adding lending as a feature to boost demand and make their core business profitable," said the founder of a digital lending startup on condition of anonymity.