Fintechs hold steady in changing terrain as unsecured credit business grows

Growth fueled by digital infrastructure and co-lending, as fintechs shift to asset-light models amid tighter funding

Personal loans given by fintechs continue to grow. Data from the Fintech Association for Consumer Empowerment (FACE) shows an expansion both in scale and value in the first half of FY26 over the same period in FY25. Volumes grew to 6.4 million (accounts) from 5.9 million; value was up at ₹97,381 crore (₹78,084 crore); ticket sizes were higher at ₹15,177 (₹13,327). 

The catalysts are “the positive regulatory landscape and digital public infrastructure. And that digital-first shadow banks have scaled credit and sustained growth by providing faster, cheaper and better customised loans,” according to Sugandh Saxena, chief executive officer (CEO) of FACE. The chief of the country’s first self-regulatory organisation for fintechs feels the importance of this space will get bigger down the line. She cites the ‘National Strategy for Financial Inclusion for 2025-30’ report released earlier this month. It recognised the role of small-value loans: “To strengthen financial resilience of people, suitable and fair credit products with easier documentation process and quick disbursals should be launched, especially for small-ticket loans.” 

Funding declines 

But there also appears to be a marked shift in the unsecured credit business dynamics. Take the matter of funding. Data from Tracxn Technologies — a data intelligence platform for private market research — show fintechs’ equity funding continues to fall. A sum of $1.6 billion was raised in the first nine months of calendar year 2025, a drop of 17 per cent and 20 per cent compared to the $1.9 billion in the same period of CY2024 and $2 billion in CY2023.

 

At the systemic level, Mint Road’s hiking of risk weighting on unsecured lending in November 2023 — personal loans and credit cards — is said to have played a part in this. And its commentary in the Financial Stability report of June 2025 on retail lending was not rosy. “Even as unsecured retail lending has moderated — it forms 25 per cent of retail loans and 8.3 per cent of gross advances — its asset quality has relatively weakened compared to the overall retail portfolio — gross non-performing asset ratio at 1.8 per cent vis-à-vis 1.2 per cent in March 2025.” If banks with a larger share of the better-rated customers were in a twist, it stood to reason that fintechs — which cater to the new-to-credit with thin-file credit histories — could only have fared worse. 

But since then, the plot appears to have changed in the unsecured segment. Swaminathan J, Reserve Bank of India (RBI) deputy governor, said in a post-policy press conference that overall retail loans have not shown any deterioration in asset quality; that growth in the unsecured retail has moderated significantly. Unsecured retail loans account for less than 25 per cent of the overall retail book of the banking sector. As a percentage of the entire banking system’s credit, it is about 7-8 per cent. This, then, is the larger setting. 

Back to fintechs. If their exposure in this segment is buoyant, despite an equity crunch, it is because they are moving away from equity-funded balance-sheet lending toward asset-light, partnership-driven, capital-efficient models. “Co-lending has grown significantly in the last couple of years, with banks and non-banking financial companies (NBFCs) taking 80 per cent of the loan and the balance being funded by fintech, limiting their capital requirements,” says Rohan Lakhaiyar, partner (financial services-risk) at Grant Thornton Bharat. 

More business 

Then, as Ranvir Singh, founder and CEO of Kissht, put it, “Banks and NBFCs have gone slow in this segment (unsecured lending). This has opened more business for us.” But what he adds may be an early indicator of what’s in store. “We have already seen a great deal of benefit from the account aggregator (AA) system. As it scales, it will help in underwriting and attract high quality customers.” 

AAs are Mint Road-regulated NBFCs that act as a secure intermediary facilitating consent-based sharing of financial data between institutions. If you as a customer are to sign up, lenders get to have more visibility and target you with offerings. Nikhil Kurhe, cofounder and CEO of Finarkein, points out: “We are anyway seeing movement of customers from legacy-regulated entities (REs) to fintechs. I feel when the AA system gets scaled up, we will see such movements happening both ways. And this may not be limited to unsecured loans alone.” There is a turn in sentiment at larger traditional organisations to now understand their prime customers better. “The consequence here will be tougher competition for fintechs to further differentiate their product offering as large banks will catch up on the personalisation curve.” 

What comes through is as follows: The gap — be it in underwriting credit or targeting customers between legacy RBI REs and fintech — is narrowing. If this holds up, the fintech funding winter may soon be over for better players. And there will be more co-lending. But fintechs will also have to tighten the game. As Saxena says, “the new success metrics demand not only safer, more sustainable credit with customer protection at the forefront, but also more impactful credit that demonstrates improvements in customer well-being and resilience.” This requires integration with real sectors and economic value chains through collaboration to serve customers and small businesses more effectively in their progress. 

The unsecured credit story is changing fast.