Faircent.com: India’s largest and innovative peer-to-peer (P2P) lending marketplace for loans
Karan
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Tuesday, June 28, 2016
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Tags: Faircent.com Business Model Analysis, Faircent.com Operations Model Analysis
What is Faircent.com?
Owned by Fairassets Technologies Private Limited and founded in 2013 – Faircent is an innovative peer-to-peer (P2P) lending marketplace for loans.
Peer to peer lending (or P2P lending) is one of the most innovative financial products of the recent times, where Borrowers and Lenders interact amongst themselves to decide a mutually agreeable rate for their transactions.
Since interests on the principle amount is one of the only source of revenues for the financial institutions like banks, they are forced to charge high interest rates to maintain their profitability, and have reached to a position where they now dictate all terms and conditions for both borrowers and lenders.
Faircent eliminates the high margins and unfair terms and conditions levied by banks, and leverages you to interact directly with fellow borrowers/lenders, negotiate terms and conditions, tenure of loans, etc, and strike a deal on your own. Without any intervention or imposition!
Such a model helps creditworthy borrowers lower their cost of loans and individual lenders to lend directly to their peers and community thereby earning higher returns.
Simply put – Faircent provides a virtual marketplace, and acts as a mediator for the borrowers and lenders.
Other than the uniqueness of the model – what attracts both lenders and borrowers to the platform is Faircent’s promise of transparency in rates, reduces costs and increases returns!
During the initial stages, the address and phone number of both the parties aren’t revealed, but they can contact each other through the Faircent messaging system and chat/email directly.
As a lender, you can start investing from ₹10,000/- onwards, and their returns usually range between 12% and 36%, and can even go higher or lower.
While as a borrower, for personal requirements, the loan amount can vary from ₹30,000 to ₹500,000, and for business purposes, the amount can go upto ₹2,500,000. Loan disbursal begins only after minimum 75% of the borrower’s fund requirements have been fulfilled.
To make sure every member on the platform is verified and registered with them, Faircent collects their personal, professional and financial details from each potential member and then authenticates the details.
But they do not, in any way, help or influence the members in making the decisions. They do not guarantee any fixed or minimum rate of returns, or for that matter, the principal amount to lenders to any lenders, as well. Their job is to facilitate the deal only.
However, Faircent does provide the lenders with the maximum interest rate at which each borrower could be funded. This is decided with the help of Faircent risk analysis, and lenders use these benchmarks while bidding to fund the borrowers.
Although, this is unsecured lending, Faircent also goes one step ahead, and also helps the lenders with smooth collection and recovery of loans.
They also help with stricter actions too. The most common legal action being, filing of a cheque dishonoured case against the borrower (who has submitted post-dated cheques for his/her monthly repayments).
How do they perform their DUE DILIGENCE?
To begin with – the company has partnered with global brands like –– Transunion, Yodlee, Lendo and Jocata, for different services.
Yodlee provides the bank scraping technology, with the help of which multiple bank accounts can be linked, along with loan accounts, credit accounts, etc. Transunion helps Faircent for completing the process of e-KYC and bureau scores. Lendo helps them with the social scoring of the borrowers, and Jocata helps with getting out the income tax details.
Interestingly, Faircent is the also the only company in Asia to whom Transunion and Yodlee are providing these services.
So once an interested individual seeks to register, Faircent performs a detailed verification process that includes following of all the KYC (Know your customer) norms, as laid down by various regulators. And all the personal and financial information that one would see on the site have been thoroughly verified by Faircent.
For Lenders, all they have to do is, complete a simple registration process, provide the required documents as mentioned on our site, and pay the registration fees; post which, they can start contacting potential borrowers on the site.
But for Borrowers the process is more stringent! They have to first complete the registration process, pay the registration fees and provide the required documents, post which the Faircent team gets in touch with them.
On the basis of the collected information, every borrower is then identity-verified, credit-checked and risk-assessed. Then an automated underwriting engine is also used by Faircent to determine the maximum recommended loan amount, rate of interest and the loan tenure at which the borrower can take a loan. Only after the completion of all these processes, a borrower can begin applying.
What is their Operating Model?
So this is how their process works…!
To use their service – visitors can either register as lenders or borrowers, but not both.
Accordingly, Faircent then performs a thorough verification of their personal, financial and professional information.
Post the success of their candidature, Lenders can make offers to fund borrower’s requirement at similar or lower interest rates than assigned (by Faircent), which the borrower can accept or refuse, or Borrowers can approach willing lenders with their loan proposals. The company as a whole, works on a reverse auction model, wherein a borrower equally has the power to accept or reject a lender’s offer.
Both borrowers and lenders can strike deals with multiple members. This way – lenders get to fund a portion of the total loan requirement of multiple borrowers (thus minimising their risks), and borrowers can seek to raise money from multiple lenders.
Once the offer is accepted by the borrower, the lender is contacted by Faircent to re-confirm the deal. Only, when both the parties give a go-ahead, the process of signing the formal loan agreement is initiated.
Post that, Faircent helps them to legalize the transaction by signinga formal contract. The borrower also has to provide the lender with PDC’s (Post dated cheques) as well. To know the exact contents of the agreement and its process, please visit here!
After all this, the loan is disbursed. The EMI period is usually between the 1st and 15th of every month.
In cases if a borrower fails to pay an EMI on time, then the borrower is charged with a penalty which ispayable directly to the lender.
What is their Business Model?
Faircent does not intervene in any bilateral negotiations, and neither does it take any payments from the interest rates or EMI. Their revenue model is a little different!
From Lenders: They charge 1% for the lending amount. Simply put – they charge a listing fee of ₹1500 to invest up to ₹150,000, which is taken at the time of registration. Post that, ₹1000 is collected for every ₹100,000 that is invested.
From Borrowers: Again, they charge a one-time registration fee of ₹1500, which is also taken at the time of registration, Faircent also requires the borrower to link their bank accounts to help them to gain a read-only electronic access to borrower’s bank statement. If they refuse to link it, then an additional ₹500 is also charged. Also, in cases when the profile is not accepted then a part of the payment is refunded (~1,000).
What regulations are applicable to them?
As of now, there are no specific regulations for such a model, but it is a completely legitimate business, because the contracts are enforceable and people can lend money, people can return money, and there is a “Section 138” in “The Negotiable Instruments Act”, for that as well. Other than that, Faircent also comes under the Information Technology Act, and abides by it too.
Having said that, looking at the massive growth in the sector, RBI has proposed several regulations! Some of these include: –
- Registering P2P lending platforms as non-banking financial companies (NBFCs), as they follow a similar operating model
- P2P role must be limited to bringing the borrower and lender together, and that P2P lenders cannot take on the functions of a bank and seek and keep deposits
- Funds must move directly from the lender’s account to the borrower’s account
- The companies must have a minimum capital of₹2 crores
- There may be limits on maximum contribution by a lender to a borrower/segment of activity
- Promoters, Directors and CEOs of P2P platforms will have to meet some criteria, and may need to have a background in finance
- They may be required to have a physical presence in India
- Platforms will need to submit regular reports to RBI
- Loan recovery practices will need to adhere to existing guidelines on recovery practices
Who leads the brand?
Faircent was cofounded by Rajat Gandhi and Vinay Mathews in 2013, but is currently lead by Rajat! Other than that, they have Nitin Gupta and TV Mohandas Pai on their Advisory Board as well.
Nitin has worked as the Country Manager and CEO for MasterCard (South Asia), President of GE Capital India’s Retail Financing operation, President of Rediff.com, etc. in the past, and has also been involved with early-stage companies as a mentor, angel investor and Board Director.
And Mohan is the Co-Founder of Aarin Capital Partners, through which he acts as the Chief Advisor and Chairman to the Manipal Education and Medical Group, and also serves on the Board of several Group Companies, as well.
Rajat comes with a 17+ years of work experience, and now serves as the CEO of Faircent.
This includes companies like Times Group (14 years – VP / Group Business Head / Marketing Head for brands including – Simplymarry.com, Ads2book.com, Yolist.com, Goodlife Centers, Timesjobs.com, Magicbricks.com, etc…), Zed Digital (2+ years – India Head and Senior Vice President) and Performics, (2 years – India Head and Senior VP).
While, Vinay Mathews comes brings with him a 15 years of working experience with companies like Times Jobs (A Times of India Group Company), Sify Technologies Limited, Rediff.com, etc…
How has Faircent’s growth been so far?
The company had started with an idea that hit Rajat in 2011, when he saw his friend using Facebook to arrange contributions from family and friends to buy a Royal Enfield motorcycle, because he did not want to pay high interests while seeking a loan.
The DNA of the company was to provide “credit on demand”. He wanted to do the same thing what his friend did, but on a larger scale, where even complete strangers could help one another.
The bootstrapped idea was launched in April 2013!
Within just 3 months of operations, Faircent managed to grab more than 100 Lenders and 200 borrowers, and also distributed over ₹20 lakhs of loans, as well.
In a short span, the company also managed to partner with global players like Transunion, Yodlee, Jocata, and Lendo, and also launched their Android app for their lenders to do real-time trading, as well.
By Sept 2015, they have had lent over ₹1.25 crores, had registered over 12,500 borrowers and 2,500 lenders who were committing over ₹2.6 crores, and they were at a run rate of more than ₹40 lakhs/ month.
This has further grown to 5,000 lenders, who are touching around 22,000-23,000 borrowers, as a whole the company has disbursed more than ₹2.5 crores since their existence, are at a run rate of about ₹1 crores/month, and they do not spend any money on marketing.
By the end of this year, the company is looking at an annual run rate of ₹100 crores, which they further wish to extend to ₹800 to ₹1000 crores in the next 1000 days.
So far, the company has had 4 rounds (2 disclosed and 2 undisclosed) rounds of fund, ahd have raised a total of $4.25 Million from investors including: Ashish Tiwari, Devesh Sachdev, JM Financial, M&S Partners and T V Mohandas Pai.
How peer-to-peer (P2P) lending platforms could fuel India’s growth?
Now, India is a capital starved country where the access and cost of capital are both deeply unresolved issues. As per various reports of RBI, formal bank credit in India is accessible to only 10% of the Indians.
Since most Indians don’t have access to formal credit, they end up paying very high interest rates. Plus, banks do not like to give personal loans below a certain quantum, and their loan rates vary between 13.5% and 22%, with a minimum application amount of ₹50,000. Additionally, many customers also struggle to secure bank loans because of employer credentials, salary requirements or credit history.
And the individuals who have the surplus money to help the ones in need, end up keeping their money in dead assets like saving banks.
Due to such circ*mstances, India has had a long tradition of relying on unorganized ways like community-based financing and lending in the forms of chit funds, thrift societies, community associations, co-operative societies and lastly family & friends.
To worsen the situation more, as per a report in 2012 by RBI, there were around ₹3.8 trillion ($61 billion) worth outstanding personal / educational / credit card loans, in India.
Now India needs about a trillion dollars in investment to ramp up its infrastructure in the next few years. And if the general population helps each other out in financing; this would potentially free up funds for nation building.
And P2P platforms like Faircent can come of great help here!
This is already a prospering industry in the developed markets such US, UK and China, and the US market alone is valued over $20 billion. Although, the market is still at its budding phase in India, but should reach about $4-5 billion in the next 5-6 years, and in fact, the Angel investors and VC’s have already begun betting on this business model too.
