Aim to connect lenders, customers for financial needs: PhonePe Lending CEO

In unsecured loans, there is no asset or underlying security that is taken from the customer, said Gala

PhonePe has launched secured lending products on its platform by partnering with banks, non-banking financial companies (NBFCs) and other fintech firms. In an interview, with Peerzada Abrar and Ajinkya Kawale, Hemant Gala, chief executive officer (CEO) of PhonePe Lending, said this initiative provides the Walmart-owned fintech firm the opportunity to connect lenders and millions of its customers across the country on a single platform to meet their financial needs.

You expanded your loan distribution offering with the secure lending part. How big is this opportunity?

It is a very varied space. A growing number of new users with new use cases are coming up. There are also existing ones like home loans, loans against property, gold loans and for mutual funds and vehicles. As we engaged with the partners, we realised there is a massive shift in their focus on digitizing the secured loan products. The aim is to build a one-stop shop for of your lending needs like loans related to education, mutual funds, homes and vehicles. We are trying to cover the complete gamut of loan products that could be made available to our customers. We've taken a slightly different approach, where we've let partners define the journey inside PhonePe and experiment with different offerings. Some of these products are completely digital. Others are hybrid, where some offline interaction is needed. Overall it is a massive opportunity.  We are looking for partnerships. There are already large banks, NBFCs (Non-bank financial companies), who have come on board. Customers have varied kinds of needs based on their life stage, demographic patterns, the geographies they live in, and investment and financial profiles. There are events in life for them like marriage or education. We bring in our expertise and technology prowess and go deeper in simplifying the experience for partners in each of these cases to make it seamless and digital.

Reserve Bank of India’s (RBI’s) digital lending guidelines show concerns related to the unsecured loans category. The growth of unsecured credit in the overall loan portfolio of Indian banks remains elevated. How do you view those concerns?

In unsecured loans, there is no asset or underlying security that is taken from the customer. It is underwriting the customer based on the Bureau report or the understanding of the customer's bank statements or transactions. In the secured loans category, there is some kind of underlying security. It meets the financial needs of the customer and the lender is also comfortable. Regarding the RBI guidance that has been coming out,  there has to be a fair mix of secured and unsecured (loans) in the ecosystem. Disproportionate growth in any category especially unsecured (loan space) typically worries regulators. We are 

trying to balance the secured and unsecured categories. While we are investing in working on the unsecured side for our customers and merchants, we are also opening up secured (loan) products for our partners. For the merchant loan category, we are doing close to  Rs 300 crore a month of disbursement and an annualized run rate of about Rs 3600 crore. RBI's guidance is there so that there is a balance in the economy and ecosystem. Disproportionate growth doesn't help. We first launched merchant lending. Consumer lending we would be launching in the next 3-4 months. For secured loans,  the platform has 15 active partners and we aim to scale to 25 by the next quarter.

What does your lending strategy look like; is it distribution first, or a mix of collection and distribution?

It's a distribution first. We are a marketplace where we create platforms. Our DNA has always been partnership-oriented. We've always been in all lines of business. We'll partner with everyone in the ecosystem, create a very robust platform and try to invest in creating a differentiated experience for the customer in a way where we help them understand the product and simplify the journeys with the partners. So it's going to be a marketplace approach for us.

Within the industry, incumbents like Paytm moving away from the collection of loans for their partners owing to the lack of collection bonuses. Do you see a similar case at PhonePe?

We will be deeply invested in creating the marketplace. This includes integrating with getting partners on board across all the lines of businesses including merchant loans, consumer loans and secured loans. Secured loans in itself have six categories. We would do this in the next 6-12 months. While there are learnings (from other players) we chart our journey based on our understanding and experience. We want to be very gradual and stable in the growth so that we understand the nuances of the business and regulatory space and move in that direction. We would define our playbook and see what is the right model for us. No one is focusing on secured products right now and we've thought there is an opportunity and there is a need. That's why we've invested here. Right now, what we do for partners is digital nudges on repayment. We would later see how it evolves.
 

The industry is seeing some asset quality deterioration on small-ticket personal loans. What have your lending partners communicated to you on the same?

For us, there are no specific guidelines. I think partners look at their portfolio and decide on the segment that they want to operate on. When we get them on board, we are giving them the platform. They will decide the kind of customers that they want. This is the cycle and basis, the asset quality that they're seeing in their portfolio. If they are looking at a particular segment of customers, we'll give them the platform to be able to target and onboard those customers. So we'd be driven by the policy and underwriting strategies and guidelines that the partners are following. For most of the partners, they are right now figuring out and defining their policies and we are working with their guidance on the segment they want to operate in.