A joint report by Transunion CIBIL and Google titled “Credit Distributed” released today provides trends and insights on the increasing reliance of consumers on the internet for purchasing credit products caused by the unprecedented rise in digital adoption by consumers in recent times. This unique research report combines the power of data based on credit related searches on Google along with TransUnion CIBIL’s credit information insights.
Signaling a shift from traditional channels to online, this report identifies multiple new and under-tapped segments of credit demand which are distributed across loan product constructs, geographies, CIBIL score-based risk segments, end-use requirements, and borrower profiles.
The increased diversity in borrower profiles is indicated by the fact that, in 2020, 49 per cent of first-time borrowers were less than 30 years old, 71 per cent were based in non-metro locations, and 24 per cent were women. Further, these profiles vary when analyzed at credit product level based on credit appetite, credit experience, credit discipline, and channel of consumption, and have made segmentation increasingly nuanced and complex. Underlining the report’s insights is the 2.5X surge in searches for loans from non-Tier 1 cities than from tiered cities across 2017-2020. Overall, growth in searches for car loans between the two halves of 2020 grew the fastest at 55 per cent with home loans following with 22 per cent growth.
With this rapid evolution in India’s financial ecosystem, lending decisions are now powered by data across parameters and dimensions. This evolution is driving investment by lenders in technology automation, machine-learning powered scorecards, and analytical models to rapidly scale sustainable business growth in today’s dynamic market.
Commenting on the findings of the report, the Managing Director and CEO of TransUnion CIBIL, Mr. Rajesh Kumar, said: “We have collaborated with Google to combine the power of online credit-related search data with credit enquiry data from TransUnion CIBIL to create this rich research report which is a powerful reflection of consumer demand, intent and approach to accessing financial opportunities. Consumer credit demand and access has undergone a paradigm shift over the last few years, with the post-pandemic circumstances having further accelerated this change. We are excited about the potential of this partnership to help credit institutions and policy makers in strategizing for resurgence and growth in India’s emerging credit landscape.”
Adding to these insights, Mr. Bhaskar Ramesh, Director, Google India, said, “In India’s post COVID-19 journey back to growth, access to credit is crucial. With more and more consumers now coming online, the demand for credit has also dispersed and moved outside of predictable demographic pockets. The traditional customer contact model is constrained in locating, reaching, and engaging these new customers, particularly those beyond tier 1 cities. End-to-end tech-enablement by lenders to create digital paths of purchase for easy and timely disbursals is the need of the day.”
Distributed credit marks the evolution of India’s credit industry
The report captures the shifts in consumer demand that underpin the distributed nature of the post-COVID-19 credit market across five key areas:
Small is big: The report identifies the significance of small ticket (INR <=25k) loans, characterized by searches for “phone on loan”, “laptop on EMI”, and “mahila loan 30000”. The share of these loan disbursals amongst all personal loans has gone up from ~10per cent in 2017 to ~60per cent in 2020. With disbursal speed and convenience being the hallmarks of these loans, the digital-first sellers have the largest share in this category with 97 per cent of all personal loans disbursed by them being under INR 25,000. Interestingly, small loan borrowers demonstrate higher loyalty with 42X growth in repeat customer base amongst lenders in CY 2020 versus CY 2017. Moreover, this growth is as high as 64X for digital-first lenders i.e FinTech NBFCs (non-banking financial company) indicating higher stickiness driven by convenience, over the same time period.
Beyond urban India: There is a perceptible acceleration in credit demand from non-metro locations, with 77 per cent of all retail loan enquiries on the TransUnion CIBIL bureau originating from tier 2 cities and beyond in CY 2020. Also, 70 per cent of total credit enquiries are from existing-to-credit borrowers1 outside tier 1 cities. Alongside, loan-related searches from tier 2 and tier 3 locations grew by 32 per cent and 47 per cent respectively in 2020 over those for 2017. Interestingly, ticket sizes on loan products like personal loans, auto loans and consumer durable loans are geo-agnostic. In line with the geographical expansion of new digital users in tier 2/3/4 locations and rural India, and a preference for the mother tongue, local language searches for credit showed an exponential increase. Searches in local languages and for translations of terms such as ‘Credit’, ‘Term loan’, and ‘Moratorium’ have also witnessed an uptick.
One size does not fit all: For the past year, the report showcases an extraordinary diversification of demand for consumer credit, with 49 per cent of new-to-credit retail borrowers being less than 30 years old, 71 per cent of them being located in non-tier 1 cities, and increasingly, more women availing credit opportunities.
Re-iterate trust: In the consumer survey2 accompanying the report, customers rate trust in the brand higher than other traditional parameters like low interest rates, which came second, before recommendations, disbursal time, and online process, all considered to drive value perception with customers.
- 64 per cent of credit buyers say that brand is a major factor in choosing their loan provider
- Considerable time and effort goes into choosing the lender brand with 76 per cent of borrowers taking a minimum of two weeks between exploration and finally choosing the lender
- Almost a third (32 per cent) of borrowers consider over five providers before proceeding to apply
Tech is the future of lending: Leveraging technology solutions to identify the most valuable customers, digital-first lenders have been able to move up the CIBIL score tiers, traditionally fulfilled by other providers. In 2020, 38 per cent of loans disbursed to the ‘prime’ credit tier was through FinTech NBFCs (non-banking financial company). Additionally, these FinTech NBFCs no longer have only ‘urban youth’ as their primary audience – 70per cent of disbursals are outside tier 1, with 78 per cent of customers being Millennials (between 25-45 years of age).
Technology to pave pathways for tapping distributed credit market
The report highlights a 2.5X surge in online searches for loans from non-tier 1 cities between 2017-2020, with 77 per centof all retail loan enquiries in 2020 coming from tier 2 cities and beyond. With reference to product type, growth in searches for car loans between the two halves of 2020 grew the fastest at 55 per cent, with home loans following at 22 per cent growth.
Data shows digital-first financial players have forged ahead in capitalizing on this demand from beyond tier-1 cities, especially for small ticket personal loans (under 25,000 rupees) – with 70 per cent of their disbursals in 2020 occurring in these locations. They also successfully scaled their lending up the credit tiers with nearly 40 per cent of these loans disbursed to “prime” borrowers3.
As demand for consumer credit, after a brief decline in Q2 2020, continued to rebound to almost 90 per cent of the pre-COVID-19 levels towards end of the year 2020, 55 per cent of users’ surveyed2 for the study reported using an online tool or recommendation to aid their credit purchase decision. Alongside the uptick in online discovery, the 1,000 consumers surveyed for the report continued to rank their trust in lenders as the top factor in decision making, with 64 per cent of respondents stating that brand is a major factor in choosing their loan provider. This is over other traditional and measurable parameters such low interest rates and speed of disbursal. In addition to the internet, customers continue to rely on various offline sources such as family and friends, before proceeding with a purchase, with 86 per cent of them taking a minimum of two weeks between exploration and finally choosing the lender and applying for a loan.
With profitable credit literally now being distributed along multiple dimensions and exhibiting a rapid nuanced disaggregation, technologically-led enablers become paramount for market players in order to tap these opportunities at scale, conclude the findings of the report.
 TransUnion-CIBIL data
2 The consumer survey across 1,000 users was conducted by Google to map the key drivers that influence behaviours of credit consumers.
3 Credit Tiers based in CIBIL Score range: NTC: No Score, Subprime:300-680, Near Prime: 681-730, Prime: 731-770, Prime Plus: 771-790 , Super Prime: 790+