Instead of chasing customers for home and auto loans, fintech start-ups have caught on the travel bug that has bitten Indian millennials.
Start-ups in fintech and peer-to-peer (P2P) lending platforms are devising strategies of attracting more millennials towards small-ticket loans ranging from Rs 10,000 – 200,000, which are being mainly utilised towards experiential travel. Entrepreneurs say small ticket loans generally go towards home renovation, home decoration, home repairs, purchase of second cars/bikes, etc.. "But off late, the trend is tilting more towards utilisation of such loans for fulfilling travel ambitions,’’ say entrepreneurs.
"There is no doubt this segment (travel) is rising and more people are opting for this loan. Any customer would love a packaged deal which comes with financial support to go on a vacation, and this will also help them enjoy their vacation well,” says Bhavin Patel, co-founder and CEO, LenDenClub.
Millennials are increasingly investing in travel over purchasing big-ticket assets such as homes. The UN World Tourism Organisation predicts India will account for 50 million outbound tourists by 2020. India had 25 million outbound travellers in 2017.
Dhiren Makhija, co-founder and CEO, Cashkumar, says fintech start-ups are a popular source of travel loans due to their fast and efficient processes. “Normally, if you approach traditional financial institutions, it would take time for the process to fructify. Start-ups base their appeal on processing applications faster and quick disbursals. We have at times approved and disbursed loans worth Rs 50, 000 within a day.”
Adds Patel, “If someone wants to go for weekend travel, the person can apply for our instamoney loan on Friday evening, and take a trip on Saturday. Often, airlines come up with sudden discounts on particular days and travellers look to seize the opportunity by taking quick loans from start-ups.”
Although people going for longer vacations or to expensive destinations take loans that are in lakhs, during long weekends, the frequency of very small loans ranging from Rs 3,000 – 10,000 increases significantly, observes Bala Parthasarathy, co-founder and CEO, MoneyTap. The idea is to supplement their existing cash coffers, without causing any imbalance in their daily lifestyles, say experts.
These are "impromptu loans for impromptu plans such as weekend getaways’’ and “customers do not like disturbing their monthly cash flows. Hence, a small loan for say two months where the interest charged ranges from Rs 70 - Rs 250 is a very comfortable option,” explains Parthasarathy.
For MoneyTap, about 10-15% of their total loans go towards funnelling the travel plans of customers. “Our annual interest rates start as low as 13% (1.08% per month) and the interest is charged only on the amount actually used, not on the total credit limit,” says Parthasarathy, who feels the digital loan market will increase to 50-60% in the next few years.
Like MoneyTap, the travel loan disbursed by Cashkumar is also in "healthy double digits’’ comprising 13% of the total portfolio. “We definitely see a rapid increase. We will actively connect with travel influencers and provide promotional offers to their followers to enhance our travel loan component, ” says Makhija.
Travel loans comprised 9% of total disbursals for LenDenClub in 2017-18. Patel says in the current fiscal, travel loan disbursals already constitute 12% of their total disbursals.
Going by this trend, will vacation loans become the primary thrust for the fintech start-ups in future? Experts say it may not be the best strategy for a start-up to focus on one segment.
"Travel loans could become a strong product with the right type of partner integrations. But personal loans, which fintech firms specialise in, are versatile in nature. It might not suit a start-up to restrict itself to only a limited set of customers when the personal loan category has a wider appeal. Unless there is radical innovation in the product, startups will not choose to become specialist travel loan providers,’’ says Makhija.
WIND IN MY HAIR
- 50mn - Outbound tourists India will account for by 2020
- 25mn - Travellers had taken international trips last year
- 12% - travel loan disbursals constitute of LenDenClub total disbursals
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