P2P lending has become the next big thing in Fintech with the likes of Funding Circle and Zapo raising millions at unicorn valuations. The fervour has spread to South East Asia, where tech driven P2P ventures are popping up to serve customers from the Philippines to Indonesia.
In Indonesia alone, the credit market is USD300 Billion which is forecast to grow at 14% in 2016 (1). The funding gap of micro SMEs there is valued at USD27B (2) while in the Philippines the SME credit gap is valued at USD12B with 40% of SMEs unserved (3).
While the opportunity to disrupt the financial sector in Indonesia is luring thanks to the sector’s sheer size and the risk averse nature of the incumbents, there are two major challenges facing P2P players:
A lack of credit information (official or otherwise) required to model credible risk assessments
The Challenges of collecting overdue fees (a necessity given the first challenge)
This latter issue makes it difficult for established companies looking to enter the P2P market as their reputation can quickly be damaged by engaging in aggressive collection behaviours which tend to occur outside the purview of the law. Both issues together lead to the industry currently having limited liquidity which in turn restricts its ability to grow.
How can telcos who are already on the periphery of financial services use their technical know how and other assets to grab a share of the huge credit market while keeping reputational and financial risks at a minimum?
Telcos can act as enablers instead of principal players to help the industry take off while minimizing their direct exposure.
Telcos can sell their customer data to P2P platforms who can use this data to build vital credit related models on consumers based on amount spent on phone bills, repayment cycles, and top up amounts for prepaid users
Telcos with consumer trust and strong balance sheets can leverage their technical capabilities to provide a secondary e-market for trading P2P loans to increase the liquidity in the primary P2P market while staying at arm’s length from the underlying loans and therefore reputational risk of the collections aspect of the business
Existing companies such as telcos can leverage existing relationships with their corporate clients to offer P2P lending services to employees of their clients, working with the clients to offset overdue collections through payroll deductions, a much more transparent approach than working through gangster like collection agencies.
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