India’s fintech sector poised for next phase of growth with product diversification, smarter risk mgmt: Report

NEW DELHI: India’s fintech sector continues to grow rapidly and is now entering a new phase focused on product diversification, smarter risk management, and deeper financial inclusion, according to a report by TransUnion CIBIL.

The report mentioned that as of December 2024, Fintech lenders, defined as digitally driven NBFCs, had an outstanding loan balance of Rs 1.3 trillion, marking a significant 32 per cent year-on-year growth.

Though they currently contribute only about 1 per cent of total industry loan balances, their dominance in small ticket personal loans (STPLs) is striking. Nearly 89 per cent of personal loan originations under Rs 50,000 were issued by fintech lenders.

The report said, “Business loans and property loans being popular products opted by FinTech consumers continue to present opportunity for product diversification”. The report highlighted a strategic shift among Fintechs toward offering more secure loan products, such as loans against property and business loans.

These segments saw an increase in their share of overall balances, indicating Fintechs’ intent to meet broader credit demands. In fact, business loan originations by Fintechs now make up 12 per cent of all such industry loans.

TransUnion CIBIL also pointed to a growing base of younger and rural borrowers among fintech customers, a trend that strengthens financial inclusion. It said, “Fintech lenders are attracting younger and rural consumers, thus promoting financial inclusion. FinTechs have reduced average loan amounts across risk tiers”.

However, the average loan amount disbursed by Fintechs has declined across all risk categories. Even customers with top credit scores received loans below Rs 50,000 on average.

One of the key suggestions in the report is the need for Fintechs to diversify further, particularly by expanding into higher-ticket personal loans, consumer loans, and secured products. While customers are exploring these segments, their loyalty to Fintech brands beyond STPLs remains low.

The report said, “Foraying into personal loans of higher ticket size could also help in addressing consumer preferences”. In terms of risk, early delinquencies in STPLs remain stable, but there is a noticeable increase in overdue accounts in business loans and loans against property.

The report stressed the need for stronger portfolio risk monitoring and smarter debt collection strategies to ensure sustainable growth. To navigate the evolving lending landscape, the report recommended using advanced data analytics, like its CreditVision algorithms, which provide a trended view of borrower behavior. This can help Fintechs make better lending decisions and manage risks effectively.

Overall, the report paints a positive outlook for India’s fintech sector, provided it adapts swiftly by broadening its product base and tightening its credit risk frameworks. (ANI)