PerkFinance Builds Complete Financial Solution for Bharat

Digital lending is one of the fastest growing segments in India’s fintech space. A BCG report predicted digital lending industry to hit $ 1 billion mark over the next five years.

Overall, fintech startups have come up with various digital lending models such as Faircent’s peer-to-peer lending model, NeoGrowth’s point-of-sale transaction-based lending model, partnership model Indifi banking and fintech and the Paisabazaar market model.

While most of these loan models cater to the needs of students and young professionals, which has rightly been identified as a major market gap, a significant portion of India’s population has yet to be overlooked. We’re talking about the entry-level skilled workers, the blue collar workforce, and those making a living in the app-supported gig economy. Startups such as PerkFinance are focused on providing digital loans to this truly underserved segment of blue collar workers.

Blue collar workers have found it more difficult to convince the credit market of their creditworthiness. While students and young professionals are Early adopters technology and enter the digital economy organically, the blue collar workforce who is more averse to technology is being ignored in this data-driven credit revolution.

Here is the scale of the problem: In India, 24 million households belonging to the elite and well-off income categories have access to up to 80% of all formal loans, or $ 202 billion in credit, while the 124 million Households with incomes between INR 1.4 Lakh and 4.5 Lakh, received only one credit worth $ 24 billion, which represents less than 10 percent of the total formal market. These figures were founded by Bala Srinivasa, a Venture Capitalist with Unity Helion, who brought together Socio-economic data from BCG with RBIthe aggregated credit data of to calculate the above figures.

Being excluded from the formal credit market, blue collar workers often have to take an erratic and risky informal approach, like unorganized pawn shops, their employers, and other quasi-legal avenues.

But data from PerkFinance showed that employers are viewed as the most trusted lenders by employees. This is why PerkFinance operates on a Payroll-linked loan model, where it partners with employers to access employee data points to get an exclusive score for the loan risk assessment. This salary-linked model means that PerkFinance is able to provide short-term loans starting at INR 5,000.

Bengaluru-based PerkFinance was launched by Vikas Kothari, Vivek Kandhur and Yogesh Keswani in 2017. The company raised a Start-up funding of $ 900,000 (INR 6.5 Cr) of Fosun RZ Capital, Eric Bunting, Krishna Vinjamuri and Karan Virwani in December 2018.

The fintech startup is also part of the Envision acceleration program of the Indian School of Business (ISB) DLabs, the United States Consulate and the government’s Department of Science and Technology (DST).

PerkFinance partners with organizations employing large numbers of blue collar workers such as hospitals where all para-nurses and paramedics are blue collar workers. PerkFinance CEO Vikas Kothari estimated the share of blue-collar workers in these organizations at 80% of the total workforce.

The fintech company has joined forces with Subcontracting (BPO), Information Technology (IT) companies and Knowledge Process Outsourcing (KPO), where it targets junior white collar workers. These entry-level employees are usually those who have moved from small towns to big cities and earn less than INR 2 lakh per year, and are also new to the credit market, Kothari explained.

More than 50 companies including LetsTransport, BikeNinja, Enamor, RBF edu, Affluent and Embassy group are registered with the fintech company. This enabled around 2 blue collar employees from Lakh to apply for loans on PerkFinance.

Building an inclusive product

In addition to offering micro-loans and lowering the eligible salary threshold to INR 12,000 per month, the fintech company has also launched a payday advance product. This product is intended for both freelancers or workers in the odd-job economy (drivers, delivery men) and salaried employees such as nurses and teachers.

Kothari says the payroll-linked payday advance product allows employees to get an advance on their wages (or income, in the case of freelancers), and the loan amount is directly deducted from their wages or income. .

There is no interest on the advance. However, the company charges a processing fee (between 200 and 300 INR), which is used for legal documentation and credit bureau reports.

“The other payday advance products in the market are payday loans that are independent from employers. By partnering with employers, we are able to offer better interest rates and faster processing times, as well as the convenience of salary-related deductions. he added.

The payday advance segment is more populated than other fintech verticals, with startups such as LoanTap, EarlySalary, FlexSalary, and KreditBee also offering payday advances with EMI-based repayments (equivalent monthly installments). The amount of activity in terms of new businesses and new products indicates how strong the demand is for such a product. Here’s how PerkFinance has done so far.

As for its other product, startups such as AvailFinance, backed by Matrix Partners, and Beenext’s portfolio, Shubh Loans, are PerkFinance’s competitors and are also working to enable easy credit options for blue collar workers in India.

However, according to Kothari, the differentiator is lower risk. “Payroll loans allow us to achieve a much lower risk rate than other players. This helps us reduce the delinquency rate to less than 1%. Another unique selling point of PerkFinance is the use of the reducing balance method for loan repayment, he added.

In the reducing balance method, the amount of interest is calculated on the balance of the capital and not on the initial loan amount, so the reduced balance with repayment of each loan tranche.

Another consideration that gives PerkFinance a slight edge is accessibility. Loan application is available in four Indian languages ​​- Hindi, Tamil, Telugu and Kannada – in addition to English. PerkFinance competitor Shubh Loans also offers regional language support in five Indian languages.

This is a crucial aspect for PerkFinance as it serves the blue collar workforce who have a very low level of English literacy. Interestingly, blue collar workers form a large part of the Indian language internet ecosystem, which is estimated at 75% of India’s total internet base. About 80% of drivers on the Indian platform of public transport company Ola, it is said to use the app in local languages. There is therefore a clear need to respond to this set of users.

Photo description: Screenshots of the PerkFinance app

To consider A complete financial product

Currently, the company is working on the launch of two new products for employees accustomed to PerkFinance services. The first is access to online courses with EMI payments. According to Kothari, a large portion of BPO employees are constantly looking to add more skills to their profile. Therefore, partnering with e-learning platforms will help users pay for these courses free of interest and accelerate their careers.

Second, the company plans to launch a “savings product” for users who are familiar with PerkFinance’s lending model. The app will offer them the choice of saving up to INR 3,000 each month by investing their money in a mutual fund, which can be used to pay off any loan amount owed.

“Once we have sufficiently large application datasets (around 100,000), we also plan to integrate a machine learning model that can take into account industry-specific attrition rates, insurance illness, number of dependents, etc. Kothari added.

The fintech industry has benefited tremendously from the successful adoption of KYC, UPI and other Aadhaar-based eKYCs. While this has made it easier for fintech startups to assess risks to potential clients, the need to access private user data such as banking transactions and Aadhaar-related phone records to decide creditworthiness, poses many risks regarding the security, sharing, storage and extent of data. collection. . The consent layer of India Battery, which plans to allow the free flow of user data in India, is still under debate and until there is a definitive solution, alternative credit risk assessment methods such as PerkFinance technology may prove useful. Especially when the customer does not have transaction or digital payment records like many blue collar workers do.

PerkFinance does not exclude this tech-averse segment and leverages the institutional trust between an employer and an employee to facilitate credit to those who have been largely ignored by the formal market.