Repayment collection in India is a new field of tech innovation

It is becoming something of a post-pandemic mantra in India: A lender whose portfolio of unsecured retail loans is not increasing by 50% annually is not trying hard enough. All kinds of bank and non-bank lenders are heaping credit on household balance sheets even though the consumer economy is fragile. A tiny minority is in great financial shape, but low-income earners are struggling with two-wheeler purchases and smartphone upgrades.

Lenders have to make the most of this uneven K-shaped recovery, especially if the current crisis in US banking snowballs into something sinister. While it’s all very well to double down on consumer credit and extend it to subprime borrowers, the question is collection efficiency. How will they ensure repayments and prevent bad loans?

The answer: technology. Credgenics, a five-year-old startup on the outskirts of New Delhi, has taken a chaotic, labour-intensive activity run by tele-callers and field agents, and put the entire process on a digital collections platform. Its clients, which include large Indian banks, non-bank and fintech lenders, upload borrower data on a portal and set rules on when they want automated reminders sent and tele-callers to call.

The app maps out the field agents’ daily routes. Collection is a cash-heavy business, but if borrowers have bank accounts, Credgenics’ gateway can process online payments, reducing currency-handling costs and curbing fraud. And if a loan turns delinquent, the platform can help lenders’ legal teams issue notices and monitor arbitration and settlement.

India’s consumer credit culture is rapidly changing. What started out with financing of durables like vehicles, homes and fridges has lately stormed the services economy with catchy offerings like Housing.com’s rent-now-pay-later and even marry-now-pay-later credit for the big fat expensive weddings. Digital lending, worth $270 billion last year, will zoom to $1.3 trillion by 2030, according to Inc42.

Naysayers fret about the boom’s sustainability, but it’s unrealistic to expect lenders to sit it out. With low capacity utilization rates in manufacturing, wobbly global demand, tight financial conditions and increased scrutiny of conglomerates like Adani, the outlook for corporate lending is hardly great. Consumer credit is more attractive.

Smartphone penetration and cheaper online credit checks have deepened India’s consumer-finance market. Unlike just a few years ago, most customers now have bank accounts to receive credit. But that’s only one part of the equation. Repayment is the tough part. Troubles in collection stem from messy manual processes, but they are compounded by India’s size and diversity: The chatbots of Mumbai-based Spocto Solutions, another startup that helps lenders collect from villagers, grapple with a bewildering array of languages and dialects.

Automation is also helping financiers deal with misaligned incentives. An Indian non-bank lender was puzzled by an unusual bunching of repayments even though its loan contracts were spread evenly. It turned out agents were regular cash collectors, but would then deployed it in the informal credit market, pocketing the interest. They were running an unlicensed payday-loan business with someone else’s money.

Wrong incentives like these are fodder for entrepreneurs. Credgenics’ Rishabh Goel and Anand Agrawal are IIT engineers, while Mayank Khera is a lawyer. Their goal is to build a platform that can be used to collect loans—and insurance premiums later— anywhere in the world.

Putting coders in global client offices and managing their IT infrastructure and applications from Bengaluru was India Tech 1.0. That first chapter lost some of its sheen once customers began using cloud services. Tech 2.0 is about writing code to serve domestic e-commerce. But because Indians’ experience of digital payments in the last few years has been a huge success, there’s now a third chapter in the tale: Fintech software that would work in other emerging markets. Credgenics entered Indonesia last year.

India’s tech companies are faced with two opposing forces. Raising new money is becoming tough for startups, particularly those burning cash on digital commerce and education. At the same time, the fast-growing domestic consumer-loans market is proving to be a great incubator for firms providing business solutions. Cash flow from clients is creating room for funding future innovation. For instance, once the costs of tokenizing non-English words fall, ChatGPT can be a powerful tool to aid loan collections anywhere. Voice analysis of borrowers’ conversations with tele-callers can possibly predict intent to pay.

India’s Tech 3.0 is just getting started. Founders who were teenagers during the 2008 financial crisis can only hope that the ongoing turmoil in the West doesn’t end their dreams abruptly.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia.