Millennials are relying on apps and websites for loans but it’s also risky
Many young salaried professionals and students are opting out from borrowing from friends and family and instead going for a new breed of fintech companies like CASHe.
Bhavnagar, a city of about 6 lakh people in the Saurashtra region of Gujarat, makes headlines for being one of the hottest — if not the hottest — in the state. Seven years ago, Dhyey Chitalia left his home for Mumbai to study. The metropolis — and its monsoon — were a respite for Chitalia from the sweltering heat of his hometown.
Today, after a bachelor’s degree in mass media, the 23-year-old is working as a photographer in Mumbai, earning about Rs 22,500 a month.
In May, he decided it was payback time: to provide his parents relief from the heat wave in Bhavnagar, Chitalia wanted to get them an air conditioner on his trip back home. However, when he went to a showroom, he realised that he was falling short by Rs 9,000 for a spilt air conditioner.
Free 300 MB mobile internet daily
(Dhyey Chitalia, 23, Profession: Photographer; Cash course: Borrowed Rs 9,000 from CASHe; Purpose: To buy an AC)
Borrowing from friends didn’t appeal to Chitalia. “All my friends are in the same salary bracket as I am and borrowing from them would mean jeopardising their monthly expenditure plan,” he says. Instead, he decided to take a short-term loan from CASHe, an app his friend had been talking about.
(Amit Patil, 28, Profession: Executive at a software company; Cash course: Borrowed Rs 20,000 from CASHe; Purpose: To pay EMIs on his bike before due date)
CASHe is a financial technology (fintech) app that offers short-term loans, up to Rs 50,000. It is mainly targeted at young professionals and the salaried class between the ages of 24 and 36. The process is fairly straightforward: register on the app, upload copies of the relevant documents — PAN card, latest salary slip, address proof and the latest bank statement. In sync with the ways of the millennial generation, the photograph has to be a selfie.
Also read: Meet the alternative lending startups
Once a profile is approved, the app gives a credit limit to the user. It ranges from Rs 5,000 to Rs 50,000 or 40% of the person’s annual income, whichever is lower. Luckily for Chitalia, his credit limit was Rs 9,000 — just what he needed to buy that air conditioner.
(Vignesh Dinesh, 19, Profession: Student; Cash course: Bought stuff worth Rs 20,000 from Buddy, a website that offers EMI facility to students to shop on certain websites; Purpose: To buy electronics and apparel)
“The registration process was easy. I had 15 days to repay but I did it as soon as my salary for the next month was credited, which was before my due date,” says Chitalia, whose parents now have their first ever AC. The repayment, however, meant that Chitalia had to sacrifice his Uber rides to work and start taking the local train.
Like Chitalia, many millennials — young salaried professionals and students — are opting out from borrowing from friends and family and instead going for a new breed of fintech companies like CASHe. They have their reasons. Some are borrowing cash to maintain a certain kind of lifestyle. Some for an occasional splurge. And then there are students who are shopping online on EMI without credit cards.
(Shamith Prakash, 19, Profession: Student, Cash course: Bought stuff worth Rs 50,000 from Buddy; Purpose: To buy a mobile phone and a laptop)
Loan in an App
Thirty-one-year-old Vikitha Hegde lives with her two dogs Dorie and Zara in Ulsoor in Bengaluru. She is an account director at a social media and digital marketing agency but her dogs are what she comes back to after a long day at work. Her Twitter timeline and Instagram feed have more pictures of her with Zara and Dorie than with her friends. So, on their birthdays, you would expect Hegde to party. Not necessarily with the dogs, though.
“On Dorie’s birthday, I went out with my friends,” says Hegde, who borrowed Rs 10,000 from EarlySalary for the celebration. “I saw their ad once on Facebook and it registered in my mind. Later, I downloaded the app and kept it for the longest time before I decided to use it,” she says. The party was the second occasion when Hedge relied on EarlySalary.
(Vikitha Hegde, 31, Profession: Account director at a social media and digital marketing agency; Cash course: Borrowed Rs 40,000 from EarlySalary; Purpose: To finance a holiday and celebrate dog’s birthday)
A few months earlier, Hegde had tried EarlySalary when she decided to treat herself to scuba-diving in Puducherry — she borrowed Rs 30,000 via the app. “I had certain engagements prior to my holiday and I could not save up for the trip. I decided to try the app and it worked,” she says.
Hegde belongs to a group of millennials who are not comfortable swiping the credit card; they prefer cash transactions.
But when she told her parents back home in Mangaluru about the new lender she has found online, they were a little worried about the interest rates.
EarlySalary gives out loans of Rs 10,000-1,00,000 for a period of seven to 30 days, at an interest rate of 24-30%. “We charge by the day; the interest rate for Rs 10,000 per day is a little less than Rs 9. For example if you borrow Rs 10,000 for 10 days, we will charge an interest of Rs 84,” says Akshay Mehrotra, cofounder, EarlySalary.
Unlike Hegde, who resorted to a shortterm loan for an occasional need, for 28-year-old Prashant Gosavi, an assistant product manager with Volkswagen in Pune, the lending apps are a fund source whenever his monthly salary gets exhausted. “This is for the months when I pray that the next month’s salary gets credited early,” he says.
Gosavi drives a Hyundai i20 in the city and a major chunk of his salary goes into paying his credit card bills and the EMI on his personal loan, apart from fuel expenses. Add to this his weekend outings with friends, and by the 20th of most months, he is ready to borrow from EarlySalary.
He was introduced to the app earlier this year and it came most handy for his birthday in May. “A few expenses in the beginning of the month ate up all my salary,” he shrugs. That’s when EarlySalary came to his rescue, to pay a bill of about Rs 9,000 that he ran up treating 10 friends in a bistro at the upscale Koregaon Park in Pune.
According to Mehrotra of EarlySalary, nearly 75% of the millennials borrow to maintain a lifestyle. “Our loan application journey is completely non-invasive: we don’t ask customers the reason for the loan. But our analytics team derives the reason for the loan by reviewing customer behaviour,” he says. According to their data, 27% of their customers are borrowing to fund holidays, 20% to shop, 8% when they are between jobs while 17% have other miscellaneous reasons. But the reason that leads the wagon is the month-end cash crunch, which drives 28% to apply for a loan at EarlySalary.
It is a generation that is merrily taking credit, possibly oblivious to the huge interest rates they are paying — because the apps are relatively hasslefree and help them quickly tide over a cash-strapped week. V Raman Kumar, chairman, CASHe, believes there is a growing gap between the millennials’ aspirations and reality, especially when it comes to maintaining a lifestyle. “The loan is used as bridge cash to pay for expenses — whether it is lifestyle-related, medical emergency, travel or simply paying bills on time,” he says.
Amit Patil, an executive in a software company in Mumbai, says CASHe has been better than a friend to him. He often turns to CASHe when the EMI for his newly bought motorcycle, a Honda Hornet, is due. “I get my salary on the seventh of the month and the due date for the EMI is around the fifth of the month, so I borrow from CASHe and pay the bank. When I get my salary in the next few days, I repay CASHe,” he says.
(John Noronha, 19, Profession: Student; Cash course: Bought stuff worth over Rs 25,000 from Buddy; Purpose: To buy electronics and apparel)
If CASHe is a friend in need, Patil is proving to be a friend in deed. “Some of my friends are not salaried employees and their profiles got rejected by the company because they didn’t have a salary slip. So, I borrow for them and I repay through the app as and when my friends repay me,” he says.
To be sure, not everyone can borrow from apps like CASHe and EarlySalary. For example, to register one’s profile on CASHe, one has to upload one’s salary slip. That rules out freelancers and unemployed individuals. EarlySalary also takes into account one’s credit history and outstanding in credit cards and loans.
“Applicants will not be rejected as long as they have an annual salary of at least Rs 3 lakh and proof of employment, and if all the information that we have asked for on the app is in order,” says Kumar of CASHe. “Only when someone tries to rig the system by uploading fraudulent documents do they get rejected. We have also found a lot of defaults from Odisha, especially Cuttack. So we tend to be extra careful with applicants from there.”
(Parimal Raj, 22, Profession: Software developer; Cash course: Bought stuff worth Rs 20,000 from ZestMoney; Purpose: To buy a mobile phone)
EarlySalary, says Mehrotra, has three reasons for rejecting customers. “Poor credit history and outstanding on credit cards and loans, gap between income and expenses or inability to repay a loan taken in short duration, and internal scorecard showing lower scores,” he says.
While these apps are targeting customers in the mid-20s, there is also a smattering of middle-aged salaried professionals who resort to quick credit from these apps. Shayak Bhattacharya (name changed on request) is a 42-year-old businessman from Kolkata. He borrowed from Vote4Cash — a peer-to-peer lender — almost every month-end to pay for his and his father’s diabetes’ medicines. “I have borrowed for almost two years now, at 7 in the morning, at 7 in the evening and even 3 at night,” he says.
According to recent data from the Reserve Bank of India, as of March 2016, there were 24.51 million credit cards and 661.8 million debit cards operational in the country. Clearly, credit card penetration is still at low levels, and most millennials — particularly students and those who are just out of college — don’t possess the plastic. That, however, isn’t stopping them from indulging in ecommerce, where credit cards are a popular means of payment.
Parimal Raj from Patna went to Overcart, an online marketplace, to order a phone for his younger brother. Raj was hoping to do a net banking transaction or opt for cash on delivery. However, he was surprised to see that a company called ZestMoney had tied up with Overcart to allow its customers to buy stuff on EMI, without a credit card.
The 22-year-old software developer then decided not to settle for a lower-end phone and bought Asus Zen 2, which was a little over his budget. But ZestMoney saved the day. “I have recommended it to a lot of my friends. Most of them are not salaried and have found this easier to use,” he says.
ZestMoney is a consumer-lending platform that enables one to check out from ecommerce websites with EMI, without a credit card. It currently works with a dozen online marketplaces such as Overcart, Blue-Stone, ValueCart and Velvetcase.
Lizzie Chapman, cofounder and chief executive officer of ZestMoney, says their customers are all digital natives who are aspirational and embrace new ways of doing things. “Rather than pay lump sum and suffer big cash-flow volatility, the millennials prefer to shop and pay over time, splitting the cost. For them, this is a more prudent way to afford the things that they want and need in life,” says Chapman.
For Bengaluru-based Cyril Chacko, a 28-year-old manager for corporate relations, ZestMoney opened doors that his traditional bank would not.
When he was out of job for almost six months and his credit card bill was overdue, his credit rating got hit. Chacko duly cancelled his credit card and turned to ZestMoney, through which he bought a phone for his sister.
As far as regulation goes, firms like EarlySalary are governed by the Reserve Bank of India guidelines for non-banking financial companies (NBFCs). Fintech firms can’t lend; so, in the case of CASHe, the actual lending is by One Capital Limited, a Mumbai-based NBFC. Vote4Cash and Zest-Money also work with various NBFCs and banks.
While ZestMoney does not specifically target students, there is a category of such lenders, which include Finomena and Buddy.
When ET Magazine contacted Vignesh Dinesh, a final-year BCom student in St Joseph’s College of Commerce, Bengaluru, he suggested we talk to his friend John Noronha.
Noronha was introduced to Buddy — a website that offers EMI facility to students to shop on certain websites — through a Facebook ad, when the company was looking for interns. He decided to give the service a try. His first buy was a pair of earphones, then speakers, then a phone, then clothes, then shoes — the list never ended.“It depends on my needs, basically,” he says. “I experienced the financial flexibility that I never had.”
Meanwhile, Noronha took up the internship that Buddy was offering him. This internship programme is also a way in which Buddy ensures that defaulters pay up.
“Our army of college ambassadors reaches out to our customers, most of whom are in college, to follow up on their defaulted payments. In some cases, we call students’ parents as well,” says Rajan Bajaj, cofounder, Buddy.
Concepts like ZestMoney, Finomena and Buddy sound addictive, but they could also be a good source of financial learning for students. When Dinesh went on a shopping spree in online stores, through Buddy, he bought Bluetooth speakers, a cellphone, clothes, shoes and a phone case. “My parents were very excited since I was paying on my own and not asking them for money, but they also warned me not to get addicted to it,” he says.
Nineteen-year-old Shamith Prakash’s parents have offered him similar advice. An engineering student from Bengaluru, Prakash says: “I was looking to buy a phone. I saw an ad for Buddy and contacted them. I just had to fill two forms and that was that. I could order a phone on EMI.”
He is relieved that he does not have to approach his parents for money every time he wants to buy something; now he just banks on Buddy. When his parents saw that he is cutting down on his other expenses to manage his Buddy EMI, they approved of the process as they realised that it made him financially responsible.
They are Watching You
Kumar of CASHe says the company factored in a 5% default rate when it launched earlier this year, but it is about 3% now. For EarlySalary, Vote4Cash and Buddy, the default rate remains under 1%.
Social media plays an important role when they companies vet the applications. “A social media profile is very important in our application process, it allows us to do validation and match customer behaviour,” says Mehrotra of EarlySalary.
Adds CASHe’s Kumar: “There are enough indicators that we collect from clients’ mobile usage data: number of contacts, kinds of apps in use, frequency of usage and the like. They all provide invaluable clues to assessing trustworthiness in addition to providing a social profile.”
“It’s one of the metrics that helps us in building an internal reputation score of a customer, which ultimately affects the lending decision,” agrees Buddy’s Bajaj. For now, the millennials are not complaining: they are laughing all the way to the app.