The last few months have seen some of India’s leading fintech players showing an interest in securing a Non-Banking Financial Company (NBFC) licence from the Reserve Bank of India (RBI). Ftcash, 4Fin, GetVantage, Jupiter, BharatPe, Cred, Uni and LendingKart are among the players who have been successful in this endeavour. Fintech companies are looking at entering the lending business by acquiring small NBFCs or getting NBFC licenses as they seek to deploy their expertise and experience in a growing credit market.

It is believed that the RBI’s guidelines which tightened digital lending back in September 2022 caused many fintech players to reassess their business models and attempt to future-proof them from regulatory shocks. Additionally, the RBI had also barred First Loss Default Guarantee arrangements between fintech players and traditional lenders. (The ban has been lifted with the RBI announcing guidelines around the same in June). This prompted major fintech players to explore directly lending off their books rather than relying only on service commissions from banks and NBFCs.

NBFCs along with banks are key constituents of India’s financial sector. As of October 2022, 9,500 NBFCs were registered with the RBI with a total asset size of ~US$ 500B. NBFCs have stepped in to bridge the credit gap by offering credit to individuals and businesses that might not meet the stringent criteria of traditional banks. Digital lending is estimated to grow to ~US$ 1.5T by 2030. Consumer lending remains one of the most attractive segments for Indian startup investors due to the growing demand for credit-led consumption in India. Fintech players are in a good position to provide a wide stack of lending solutions based on a deep understanding of their customers based on data generated through their current business (payments, investments, etc.). This can help them have an edge over traditional NBFCs and potentially disrupt the market with innovative technologies. Additionally, an NBFC license will allow fintech players to enter into co-lending partnerships with large banks.

Neo-cards player OneCard and bonds distribution platform WintWealth have recently applied for NBFC licences. In April, neo-banking player Jupiter secured an NBFC licence from the RBI. Previously, microlending startup Ftcash received the licence in November 2022. Investment platform Upstox is also looking to enter the credit domain, initially in partnerships with other NBFCs and banks but eventually on its own. Following are some of the other prominent fintech entries into the NBFC space that happened recently.

For any fintech that has managed to scale up its user base, the next big challenge is to retain them and keep them engaged. UPI payments, though unprofitable, are a major data lake that can help build superior underwriting models to offer regular credit to users. While fintech players may secure NBFC licences for the central bank, they will need to step up their efforts to ensure that they meet the required compliance standards.