Financial Lending or P2P Lending is going to play important role in the economy of entire world including India. Artivatic conducted Lending (P2P) research to understand the sector specific problems, growth and opportunities and also the use of technologies. #lending #p2p #fintech #banking #insurance #payments #accounts #bfsi #deeptech #artivatic #startups #technology

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Contents
Preface............................................................................................................................................. 3
Alternative credit scoring: The game changer ................................................................................ 4
Spotlight 1: Lending based on data from mobile phone records.................................................... 5
Spotlight 2: Rise of social media scoring ......................................................................................... 7
Spotlight 3: Assessing your personality........................................................................................... 7
Latest trends/news of Peer to peer lending.................................................................................... 9
Why peer to peer lending in India?............................................................................................... 13
2015 Source of loans..................................................................................................................... 15
Bad Loan Pile-up............................................................................................................................ 15
How does peer to peer lending works .......................................................................................... 18
Operational challenges for lending firms...................................................................................... 18
Peer to Peer lending Global Chart................................................................................................. 20
Peer to Peer lending in India: The Proposed RBI guidelines ......................................................... 21
Blockchain in Peer-to-peer lending ............................................................................................... 22
How does tokenisation work?....................................................................................................... 23
How Machine Learning can Redefine Lending.............................................................................. 24

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Preface
“Expected Global and Indian peer to peer market
size – 150 billion USD and 5 billion USD (By 2020)
respectively”
The world has witnessed the meteoric rise of a new category of
companies belonging to what is commonly called the ‘sharing
economy’ in past few years. These companies neither own
products nor provide services; rather, they are simply aggregators
who act as intermediaries between the consumer and the
provider, offering a platform to connect the two. These firms act
as ‘matchmakers’ between lenders with an unconsumed supply of
money and borrowers with an unmet demand of cash. This
emerging segment has the potential to completely change the
landscape of the industry in the coming years. The interest being
shown by traditional powerhouses of the financial services
industry in this niche segment is testimony to its relevance. More
firms are entering into this space with each passing day, and
regulators across the globe are scrambling to keep pace with the
innovative offerings and business models being created by these
firms.
Source: Alternative lending: Key considerations from a technology
perspective
Asia Pacific
• More than 2000 P2P firms in China, 25% share in finance for
SMEs sector.

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• Approx. 30 firms in India expected to grow clarity on
regulations.
• Large potential in the East Asian Market (Singapore, Hong
Kong etc.)
• 22 billion loans – expected market size in Australia and New
Zealand.
Europe
• UK has a 72% larger loan volume on a per capita basis
market growth rate of approx. 144% annually.
US
• Largest market for P2P lending growing at approx. 125%
annually.
Africa
• Has less mature markets
• Highest potential in South Africa and Mauritius.
Source: Alternative lending: Key considerations from a technology perspective
Alternative credit scoring: The game changer
All data is credit data.
This concept is increasingly followed by lenders to use
nontraditional sources of data. These nontraditional sources of
data, coupled with advanced analytics, can be used to assess the
creditworthiness of large and previously untapped customers.

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Different transaction-based lending models, especially those
centered on peer-to-peer (P2P) lending are being rolled out in
India in order to allow good applicants to demonstrate their
quality.
As per the Tracxn report on alternative lending in India, the
number of startups in the online consumer lending space has
grown significantly from merely 2 in 2013 to 30 in 2015.
Source: Non-Banking Finance Companies: The Changing Landscape; Assocham India
Spotlight 1: Lending based on data from mobile phone
records
Every time an individual make a phone call, send a text, browse
the Internet, engage social media networks on their phones, or
top up their prepaid cards, they deepen the digital footprints they
leave behind.
Data from mobile phone records, prepaid top-ups, mobile bill
payments and mobile browsing or app download history can be
used to assess consumer risk and determine the creditworthiness
of underserved customers.
First Access offers an instant risk scoring tool for low-income
customers by leveraging demographic, geographic, financial and
social network data from a subscriber’s mobile records.

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Source: Non-Banking Finance Companies: The Changing Landscape; Assocham India
Source: Non-Banking Finance Companies: The Changing Landscape; Assocham India
Customer
applies for the
loan in
financial
institution
Loan officer
texts to
customers
number to
first access
Customer
receives a SMS
from first
access
requesting to
use phone
records for
credit
assessment
First Access
conducts credit
assessment based
on various
parameters like
~Demographic
~Geographic
~Financial
~Social
First access makes recommendations to
the loan officers in a text messages
If the customer gives consent

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Spotlight 2: Rise of social media scoring
Out of 350 million active Internet users in India in 2015, 134
million actively use social media platforms—a number which is
growing exponentially. Increasing Internet and mobile
penetration, growing acceptability of online payments and
favorable demographics are expected to lead the e-commerce
sector in India to a record revenue of 120 billion USD by 2020.
This explosion of e-commerce, Internet and social media usage in
India has led to the emergence of online lending platforms in India
and abroad that leverage social media and Internet browsing data
to assess the creditworthiness of customers.
Source: Non-Banking Finance Companies: The Changing Landscape; Assocham India
Spotlight 3: Assessing your personality
Psychometric survey that uses a set of questions to evaluate a
potential borrower’s ability and willingness to pay are becoming
increasingly popular as a credit risk assessment tool. Psychometric
tests are used to judge a person’s reputation, character and
credibility across sectors, especially in hiring, marketing, or sales
functions.
The Entrepreneurial Finance Lab (EFL), a Harvard University
incubated firm, leverages psychometrics to evaluate the
creditworthiness of borrowers in over 20 emerging countries,
including India. EFL entered the Indian market in 2013 and has
entered into partnerships with several NBFCs claiming that
lenders using its screening tool have shown up to a 50% reduction
in the default rate.
Ethics

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Source: Non-Banking Finance Companies: The Changing Landscape; Assocham India
Collaborate or Compete?
Traditional financial institutions have two course of action:
collaborate with peer to peer platforms or compete with them.
Some of the financial institutions are beginning to make decisions
About peer to peer lending, some the existing decisions are
Intelligence
Personality
Character
Business skills
Collaboration could consist of purchasing loans as an
investor or forming alliances and competing could take
the form of competing directly with peer to peer lending
platform or learning from their business model and
adopting leading practices in order to attract the same
customers.

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• Purchasing Loans
Banks and institutional investors are buying block of peer to
peer loans.
• Forming alliances
o Fund loans
o Provide customer referrals
o Partner to create credit products for both companies
customer
Source: peer pressure; how peer-to-peer lending platforms are transforming the consumer lending industry
Latest trends/news of Peer to peer lending
ICICI Bank patterns with Truecaller to
launch a UPI based payment service
• Integrates Unified Payments Interface (UPI)
in Truecaller app; available to 150 million
customers of Truecaller app
• Any user, including non ICICI Bank customers
can send money from the app
• First bank globally to associate with
Truecaller in their foray into financial
services
Source: https://www.icicibank.com/aboutus/article.page?identifier=news-icici-bank-
partners-with-truecaller-to-launch-a-upi-based-mobile-payment-service-
20172803122522994

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HDFC has now launched its UPI service on Chillr
App. Previously HDFC has its UPI on its own
personal mobile app.
Chillr App is a multi-banking mobile app that enables
the users to send and receive money from the
contacts. The fund transfer is between the users
bank account. Chillr app is looking forward to add 33
more banks. Chillr apps goal is to reach the total
transaction of $1billion with millions of users.
Source: http://www.youthensnews.com/hdfc-banks-upi-now-available-chillr-app/
Monexo bets big on Indian market
Monexo to reach 3000 customers in India.
P2P lending Monexo partners with IDBI trusteeship
in India
Source:
https://www.monexo.co/in/blog/p2p-lending-platform-monexo-partners-
with-idbi-trusteeship-to-launch-in-india/
www.pressreader.com
Axis Bank set to acquire FreeCharge for $62 mn
By acquiring Freecharge, Axis Bank will get to access to about
40-50 million mobile wallet users.
Source: www.vccircle.com

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Fintech startup Trupay raises $700K from Kae
Capital, others
Gurgaon-based Protinus Infotech Pvt. Ltd, which
operates payment platform Trupay, has raised Rs
4.5 crore (around $700,000) from a clutch of
investors including Kae Capital. The firm provides
a plug-andplay payment platform that helps
businesses transact with customers online or
through mobile devices or in physical stores.
Source: www.vccircle.com
Federal Bank has introduced the ‘Selfie’ feature,
first of its kind in India. Selfie is a mobile based on
Savings Bank Account opening facility through
Fedbook. It lets customers open an account on the
go, using their Aadhaar and PAN Card. Similarly,
Kotak Bank has launched its 'Kotak Now' feature -
the country's first end to end digital, paperless
account opening process carrying out verification
of KYC documents and other formalities via a
video call with the bank. The mobile device’s
photo and video features are aiding banks
strengthen their relationship with accountholders,
generate new revenue streams and reduce service
costs.
Source: Fintalk, Bank of Baroda

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UIDAI launches mAadhaar app for android phones
The hassle of carrying an Aadhaar card everywhere
for verification and availing Aadhaar-based services
will be a thing of the past as UIDAI has launched
mAadhaar app. Unique Identification Authority of
India (UIDAI), which issues Aadhaar numbers, has
launched mAadhaar app for mobile users that will
allow them to carry the unique identification profile
on mobile.
Source: http://www.livemint.com
Uber riders can now pay with UPI
Uber has integrated the Unified Payment Interface
(UPI) to allow riders who already have virtual
payment addresses for UPI transactions to start
paying using the bank-to-bank payment platform.
ET had reported earlier this month that Uber was
among several global companies looking to
integrate UPI. AP Hota, CEO of the National
Payments Corporation of India (NPCI) had said that
Uber is also expected to integrate the government-
backed BHIM app for UPI payments.
Source: http://economictimes.indiatimes.com

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Why peer to peer lending in India?
More than 78% of Indian population cannot get a personal loan
from a bank. The banks typically reject loan applications for
various reasons such as low income, no credit history, no savings
account with that bank etc. They are also not keen to provide
loans of smaller amount, for example below Rs. 50,000. Even if a
bank accepts your personal loan application, it levies heavy
penalties for pre-payment. And as for the money lenders, it is
well-known the extent they go to harass the borrowers and
sky high interest rates they charge which may go up to 100%+ in
some cases.
P2P has been able to reduce the cost by bringing technology to
the front like never before. They are able to cut down high
overhead costs of running a bank and are able to match multiple
lenders and borrowers in real time which is not possible in any of
the prevalent legacy systems. On one hand borrower gets funded
at the lowest rates as a direct benefit of increased efficiency,
while on the other, individual lenders get interest rates higher
than available on any debt investment. Hence, this is a win-win
situation for both of them.
Source: http://blog.loanmeet.com/why-do-we-need-p2p-lending-in-india/
https://www.i2ifunding.com/blog/peer-to-peer-lending-in-india/
Peer to peer lending (P2P), is a technology which provides alternative
mode of financing. This technology has recently started in India to
address the problem mentioned above. A P2P platform typically gets the
borrowers funded in 12%-25% range depending on their risk profiles in a
hassle free manner.

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Despite more customers having valid bank accounts, the banks
find it difficult to service a large population of people who need
money for their small businesses, farms, education. That in turn,
makes this segment of people who are denied such loan access,
turn to other alternatives:
- Money lender
- Chit Funds
- Microfinance Institutions
1. Lack of creditworthiness: A CIBIL score of 750+ is considered
a good creditworthy score for getting a loan. The real
problem then is that barely one fifth of India has a credit
score and hence is not eligible for capital they need from
individual expenses for growth of their small and medium
enterprises. Banks and NBFCs find it difficult to service this
market.
2. Even if they do lend, with the increased bad loan pressure
on banks which stands at a staggering $180B, banks are
obviously wary of entrenching deeper into these segments
which might show a lower repayment rate and also increase
the chances of fraud. The bad-loan pile-up is reaching an
unsustainable level of more than 10% of total loans as of
2017.
Source: Tlabs

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2015 Source of loans
Bad Loan Pile-up
Source: Tlabs
0% 10% 20% 30% 40% 50% 60% 70% 80%
Community
Money Lenders
Banks
Savings or Lending group
MFI
percentage of loans approved
Community Money Lenders Banks Savings or Lending group MFI
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
2010 2011 2012 2013 2014 2015 2016 2017
Bad loans
Bad loans

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According to Tracxn, alternate lending market seems to knock on
the doors of the traditional banking system, consisting of 200
companies in India currently and is the 2nd highest funded
segment, post payments
Source: Tracxn
The companies are structured as:
• Direct Lender Platforms that have a lending license and take
the loans on their own books.
• B2C Marketplace Platforms that tie up with third-party
lenders for loan origination. Lenders include financial
institutions and banks.
• P2P Marketplace Platforms that allow individual investors –
accredited as well as retail.

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At the heart of these companies, is their often-proprietary
data models, data that goes beyond traditional Credit
Bureau data to find a glimpse of people who could be
“Future Prime” (People who either do not yet have any
credit score or do not have a strong credit score but will in
future become the prime lendable segment.) Being able to
identify this Future Prime segment would give the
Alternative Lending firms an ability to address the financially
excluded population in a very unique way. Once they prove
creditworthy, other financial services options become
available. While alternative lending could cover both the
corporate lending (small and medium business lending) and
personal lending, for the purpose of this article, we will
discuss personal lending only.
Source: Tlabs
Source: CIBIL, June 25, 2015; the number in blue background is the CIBIL score.
Loans in banks are denied if the CIBIL score is less than 750, but
the best part about P2P lending is that along with CIBIL credit
score, it evaluates 30+ other parameters such as financial
behavior, future financial prospects, education, demographics,
socio-economic conditions, etc.

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How does peer to peer lending works?
Source: google images
Operational challenges for lending firms
• Regulatory norms
• Sector is unregulated in most markets (India, China,
the US – most states)
• Uncertainty in regulations is a threat to the growth
and fund availability
• Funding
• Lack of funding opportunities
• Interest of the Investor depends on regulator’s support
and innovative business models.
• Customer acquisition
• Identification of the customer is difficult
• Lack of segmentation causes high acquisition cost
• Credit and risk modelling
• Lack of historical data

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• Time and cost of employing advanced data mining and
analytical tools
• Customer acquisition
• Inability to come up with differentiated offerings
• Process gap and inefficiencies lead to high turnaround
time
Source: https://inc42.com/buzz/p2p-lending-fintech-loans
Fintech Revolution is making way for a potential $5
billion online P2P lending empire in India
The fintech market is undergoing a phase of a rapid growth and it
is forecasted that the market will cross $2.4 bn by 2020, as per the
reports of KPMG and NASSCOM.
More than 500 fintech startups are currently operating in India.
Encompassed by the rising class of digital wallets, UPI, mPoS, peer
to peer sector is slowly and silently raising its head.
The online P2P lending market has picked up pace over the past
two years. While the overall internet-based alternative
transactions worth more than $57 million between 2013 and
2015, online peer-to-peer or marketplace lending saw loans
with a cumulative value of over $2 million disbursed during the
same period.
The total loan value in the corresponding two years has grown by
around $2 million, with an estimated $4.5 million worth of loans
disbursed through online peer-to-peer lending platforms by the
end of 2016. “Currently peer to peer market worth $3.2 mn (INR
20 Cr), the countries peer to peer lending industry is projected to
increase to around $4 bn-$5 bn by 2023.” – Plunge Daily reports
Source: https://inc42.com/buzz/p2p-lending-fintech-loans

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Peer to Peer lending Global Chart
Country Year of origin Lending platforms Market size
UK 2005 Zopa, Funding
Circle,ThinCats,
RateSetter,
LendingWorks
$9.42 Bn
US 2006 Prosper, Lending
Club, OnDeck,
Kabbage, LendUp,
SoFi
$32.8 Bn
China 2007 LuFax, WeLab,
Ppdia.com,
Credittease.cn
$103.43 Bn
Australia 2012 SocietyOne,
Moneyplace,
ThinCats Australia,
RateSetter
$22 Bn ( by
2020)
India 2012 I-Lend, Lendbox,
Faircent, LendClub,
Rupaiya Exchange,
Monexo, CapZest
$4 Bn- $5 Bn (by
2023-2025)
Canada 2016 Lending Loop,
Lending Arch, Fund
Through, Lendified,
Vault Circle
No data
available yet
Source: https://inc42.com/buzz/p2p-lending-fintech-loans

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Peer to Peer lending in India: The Proposed RBI
guidelines
• Permitted Activity
The peer to peer lending platform could be registered only
as intermediary. This platform will be prohibited from giving
any assured return either directly or indirectly and any
cross-border transactions will also be prohibited.
• Prudential Requirements
This includes a min capital of INR 2 Cr, with a prescribed
leverage ratio and prudential limits on contribution by
lender/borrower activity.
• Governance Requirements
The guidelines in this regard include fit and proper criteria
for promoters, directors and CEO. A reasonable proportion
of board members having financial sector background could
be suggested. The guidelines may also require the P2P
lender to have a brick and mortar place of business in India.
The management and operational personnel of the platform
would need to be stationed within the country.
Source: https://inc42.com/buzz/rbi-guidelines-p2p-lending/ https://www.rbi.org.in/
• Business Continuity Plan
The platforms need to put in place adequate risk
management systems for its smooth operations. BCP and
back up for the data needs to be put in place since the
platform also acts as a custodian of the agreements/cheques
etc. In case of failure of the platform to continue its
operations, it should have a ‘living will’ or alternative

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arrangement in the form of an agreement for continuation
of its operations.
• Customer Interface
Confidentiality of customer data and security would be the
responsibility of the platform. P2P lending platforms may be
prohibited from promising or suggesting a promise of
extraordinary returns.
• Reporting Requirements
Peer to peer lending platforms will need to submit regular
reports on their financial positions, loans arranged each
quarter, complaints etc. to the Reserve Bank. The bank may
come out with a detailed reporting requirements.
Source: https://inc42.com/buzz/rbi-guidelines-p2p-lending/ https://www.rbi.org.in/
Blockchain in Peer-to-peer lending
Leveraging technology to create a new asset class has been done
a fair amount in the financial world – most notably in recent years
by the P2P industry, which makes credit more accessible, faster
and cheaper for individuals and businesses while delivering a
return to investors via increasingly accurate risk profiling.
Blockchain logs in every single transaction between the lender
and the borrower.
Sydney-based platform Othera goes a step further: the
blockchain lending platform allows lenders and investors to access
digital loans. It then chops up those loans – which are backed by
businesses’ cashflows – in a process called tokenisation. These

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tokens can then be sold on an exchange, turning a traditionally
fairly illiquid asset into a highly liquid digital asset.
Source: www.cityam.com
How does tokenisation work?
Tokenisation in the context of Othera platform links the rights to
loan repayment cashflows (the principal and interest of the loan)
to a digital cryptographic token similar to a bitcoin. So if a person
holds (owns) the token, that person will receive the pro rata
portion of the loan repayment that the token represents. Tokens
represent a digital form of fixed-income alternative investment.
Tokens can be bought and sold just like an equity, bond or
cryptocurrency.
Why did you launch Othera?
The overarching reason for launching Othera and building a
blockchain lending platform is to unlock the alternative
investment assets class and help it become mainstream. I see
the potential for this new class of assets (Othera is building just
one of them) to become like the ETF market. But we need to
solve the problems of lack of transparency of risk and deal
structure, and the platform of lack of liquidity.
- Founder and chief executive John Pellew, a former investment
banker
Source: http://www.cityam.com

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How Machine Learning can Redefine Lending
A per McKinsey Quarterly report, June 2015, more than a dozen
banks have replaced older statistical-modeling approaches with
machine learning techniques in Europe. By doing this, some of
them have experienced a 10 percent increase in sales of new
products, 20 percent saving in capital expenditures, 20 percent
increase in cash collections and 20 percent decline in churn.
Machine learning helps in predicting credit scoring. Credit scoring
is an important process in loan management. While the
traditional credit score uses statistical tools to conclude on the
results, machine learning involves data mining at a large scale. It
aggregates the data from social media activities and reading
personality traits. This delivers more accurate results for credit
worthiness.
Machine learning helps make the lending process aerodynamic,
notifying errors, eliminating errors and expediting the loan
application approval process.
Banks take 3-6 days to respond to a loan request and much longer
in determining the creditworthiness and acceptance of the loan.
Machine learning reduces human work efforts and simplifies the
work. It can also help in predicting bad loans and monitoring the
on-going loans. Machine learning can also categorize non-
traditional borrowers that are currently not being catered to, but
should be considered, resulting in potential growth of business.
Source: www.cloudlendinginc.com

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