Many Fintech Startups are sanctioning Payday Loans

Narendra Kumar

04 Oct, 2019

Many FINTECH Startups are sanctioning Payday Loans^[1] within a couple of days without any hassles. On can get loans up to several lacks ranging from a minimum ticket size to maximum ones. Even the documentation requirement & Due – diligence is managed by Fintech Companies.

They are very popular in western countries & Asian continent & intermittently used by BLUE – COLLARED workers who used to live from one paycheque to another paycheque.

How does IT work?

• It is to be availed as cash loans to meet emergency needs & had to be repaid, as soon as the next paycheque arrives.
• Any salaried individual can avail of such a loan if he /she feel a cash crunch or an emergent situation.
• Fintech startups offer such a loan irrespective of their credit status.
• Generally, the target customer is Young audience & salaried staff, even students.
• It is similar to getting a paycheck
• However, they charge really high-interest rates for such sort of lending.
• Generally, these loans are unsecured (no collateral/guarantee needed).

Why Payday Loans?

• To meet a medical emergency?
• Purchase some new gadget or appliance?
• Plan a short trip or visit?
• Funds for a short-term education course?
• Rent for a month or two?
• Advance someone urgently funds?

Features?

• Sanctioning of the loan within 2 -5 days
• Ticket size generally ranges between 10000 to 30000 and a fixed percentage of salary. Although some companies may sanction loans up to lakhs.
• One is expected to repay the loan within 5 – 30 days or after the salary depending upon the terms.
• They charge interest @ 1% per day approximately.
• Social media is tracked along with other relevant details for tracking the spending habits along with the nature & behavior of the borrower.
• FINTECH startups have algorithms that identify whether one is a secured borrower through, cell phone history, backcheck or even GPS Location.

Documentation Required?

• Loan Agreement (Virtual / Digital)
• KYC Documents i.e. Aadhaar Card
• PAN Card (Identity Proof)
• Bank Statement (Address Proof)
• ITR Copies of the preceding financial year
• A check on the credit history via CIBIL, EXPERIAN, etc.

A scenario in India?

In India, payday loans are at a nascent stage and just taking off with a host of startups like Rupee Lend, money in minutes, Quick Credit, Money4You, etc. It is relatively a New Market in India. But payday loans in India will be a different proposition, say FINTECH startups.

• For actual, they cater to a highly mobile, young, aspiring population, unlike in the US were it caters to low-income^[1] households and those living from one paycheque to the other.
• Secondly, startups in India are using technology to assess loan eligibility and interest rates, unlike in the West were payday loans are synonymous with pawn lenders and being caught in the debt trap.

Most payday loan operators do not have a non-banking license but make use of the services of NBFCs for loan disbursal by a tie-up with them for gaining authenticity in the market, they generally these days are ending up getting their own license for thriving in the market.