As someone who has been in the B2B lending game for just on a year, there is one thing that has become evident to me. It’s not the lending that’s hard, it’s the deciding whether to lend or not that creates the biggest headaches.
For those of you who are a bit longer in the credit assessment tooth than me, this wide-eyed observation will hardly come as a surprise. It’s why fintech startups are so keen to impress on the sophisticated investor the ‘dynamic credit assessment technology’, ‘data driven underwriting model’, and ‘automated decision making’ features of their businesses.
Assessing a SME online and in just a few minutes – the new attention span of would be borrowers thanks to companies like Iwoca and PayPal – compounds the challenge of lending to the small business sector even further. It’s possible to do but also complicated, potentially expensive and high risk. And with margins already slim, wouldn’t it be great to outsource that to someone who can do it better, and for less?
Indifi, one of the latest lending matchmakers to emerge out of the Indian subcontinent, seems to want to help lenders to do exactly that. And it was that promise that looks to have helped the company recently raise $10 million, with former ebay founder Pierre Omidyar a notable backer of the startup.
By partnering with supply chain businesses in the travel, ecommerce and hospitality sector, Indifi allows SMEs affiliated with those chains to apply for working capital loans of between 1 lakh rupees and 50 lakh rupees (~US$1500 to US$70,000).
To assess the business, Indifi accesses proprietary SME data from supply chain platforms, which it then uses to assess and match the business to one of its partner lenders. The startup’s recent tie up with hotel booking platform Djubo is an example of the model in action.
Companies like Indifi herald a new way for businesses to be ‘understood’ by would be lenders. Instead of being put through a rudimentary matching wizard online (like many online brokers are guilty of doing), Inidfi can use the right data to make the right lending decision, delivering insights about complex business models to lenders and reducing the risk all round. The ‘trust me, we know what a healthy hospitality business looks like’ is a strong draw card for a lender looking to diversify its lending book in a safe way, without building in-house knowledge.
Business models are changing far more rapidly than what they did ten, even five years ago. Banks are struggling to keep up while basic fintech lenders who take the one-size fits all approach will no doubt find themselves in a similar position soon.
My bet is that companies like Indifi, or ApplePie Capital, who offer franchise financing, will establish foot holds in quality, well understood niche markets. The learnings they establish here will help underpin expansion.
The only question left is the ethical one. Can a business with no direct exposure to a loan create problems in a lending ecosystem? One would hope the symbiotic nature of the partnerships created would mean the answer to this one is a no. But we are in new territory every month in the world of alternative finance, and anything could happen. And that is, after all, what makes the fintech sector so fascinating.