Young India Getting Credit Healthy and Responsible: Paisabazaar.com’s ‘Making India Credit Fit’ Report
Paisabazaar.com, India's largest digital marketplace for financial products, released a consumer insight report today on India's rising credit awareness -'Making India Credit Fit'. The report said 9.23 lakh customers have improved their credit score by 50 points or more in the last 6 months. Out of this, 4.6 lakh customers have improved their score by 100+ points in the same time period.
Paisabazaar.com has been running credit awareness initiative since January 2017, providing consumers with free credit report, with monthly updates. To strengthen this consumer education initiative, Paisabazaar.com has introduced several industry-first innovations that helps consumers check and compare their scores from multiple bureaus, conveniently track the score through WhatsApp, Amazon Alexa, Google Assistant and other platforms, get the personalized and most-suited loans and credit card offers and build their score through a specialized credit advisory service. "As a fintech, we believe we are uniquely placed to innovate to truly make a difference in the lives of our customers, through meaningful and relevant innovations. Over the last 5 years, we have seen millions of our consumers suffer due to poor credit score. Our credit awareness initiative is aimed to make India credit aware and financially healthy, through good credit behaviour," said Naveen Kukreja, CEO and Co-founder, Paisabazaar.com.
Paisabazaar.com's 'Making India Credit Fit' report shows credit awareness in India is steadily on the rise with consumers, especially the young salaried segment, from both metros and non-metros, displaying more credit awareness, taking steps to build their score and borrowing with confidence. "Indian consumers are becoming more credit-conscious than ever before. Not only are they learning about how their financial decisions can impact their credit score, but also how a high score is critical influencer in getting access to funds when they need it the most and at favourable interest rates. However, checking their score once isn't enough, and we see consumers increasingly monitoring their CIBIL scores regularly to ensure they are loan-ready to leverage lucrative offers," said Sujata Ahlawat, VP and Head, Direct-to-Consumer Interactive, TransUnion CIBIL.
"The efforts by the banks, the fintech players and the credit bureaus have helped significantly improve the awareness on the concept of credit score over the last few years. However, the drivers of credit score and the benefits one can get from a good credit score aren't yet understood - the continued efforts are required to broaden and deepen this awareness," said Parijat Garg, SVP, CRIF High Mark.
Key consumer insights from the Paisabazaar.com report
1. Emergence of Young Indian retail borrower: Traditionally, loans to in were restricted times of dire need like a financial emergency. However, with access to credit easing and aspirations rising, data suggest a shift from a 'save first' philosophy to 'consume first and pay overtime'. With over 65 per cent of India under the age of 35 and internet and smartphone boom enabling access to credit, choice and information, we see Young India getting more comfortable and confident with borrowing. The report shows that for customers who were born in 1970, the average age of the first loan taken was 38. Those born in 1985, the average age was 27. This is corroborated by millions of conversations we have had with our consumers that suggest there has been a paradigm psychological shift in consumer borrowing behaviour, resulting in a significant rise in demand for personal credit. "I took a personal of Rs. 2 lakh shortly after I started working to travel to Europe for two weeks. I paid it off over the next 3 years easily," said Navneet Singh, a Paisabazaar.com customer and a CA from Bengaluru.
Like Navneet, there is a large segment of young salaried professionals who are willing to borrow smartly to meet their personal aspirations like travelling, buying a car to life-stage goals like higher education and buying their own home.
2. Millennials emerging as credit aware and credit responsible: While there may be a popular perception that millennials are less responsible with personal finance, with the focus being on 'want' than 'need', data clearly indicates that 'Young India' is both aware and responsible when it comes to credit fitness. "Only about 43 per cent of adults have ever taken a credit product. But, we are seeing an increase in consumer lending and the millennials are more willing to take loans for their day to day needs as compared to the earlier generation," said Ashish Singhal, Managing Director, Experian.
Around 74 per cent of customers who have taken credit report from Paisabazaar.com are less than 38 years of age. 61 per cent of these young customers are also credit healthy, with a credit score of over 750, considered excellent by most institutional lenders. "I have been using my credit cards extensively for personal expenses ever since I started working 6 years ago. Sometimes, I made delayed payments or crossed my credit limit. My credit score dipped due to this. I began monitoring my credit score from last year and have controlled my card spending also. In the last few months, I have built a good score," said Nandita Bajpai, a Paisabazaar.com customer and an MNC executive from Delhi.
Another interesting data point when we look at the credit reports of millennials (born after 1981), 65 per cent of them are salaried professionals. However, when we look at the data of non-millennials (those born before 1981) there is negligible gap between salaried and non-salaried consumers - 51 per cent of the borrowers are salaried while 49 per cent are self-employed.
3. Credit Report penetration moving beyond Top 10 cities: Another clear trend that has emerged over the last 2 years is customers from outside Top 10 cities are becoming more credit aware. Paisabazaar.com, in the last two-and-a-half years has helped customers from 817 cities get their credit report from its platform. Two years ago, only 39 per cent customers who took their credit report from Paisabazaar.com came from outside the Top 10 cities (Delhi NCR, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Ahmedabad, Pune, Jaipur and Surat). Today, 54 per cent of customers come from outside the Top 10 cities, a 40 per cent increase in a year.
"Although credit score awareness has grown in India in recent years, it is still a long way to be on par with mature markets. With more Indian banks adopting risk based pricing, whereby your credit score determines the interest rate that you will pay, it will be in the best interest of Indian borrowers to not only become aware of their credit scores but also understand what factors impact their scores positively or negatively," said Manu Sehgal, Business Development Leader, Equifax.
4. Credit awareness healthy among self-employed but still behind salaried professionals: The self-employed segment in India has been long under-served by institutional lenders. Lack of awareness around their credit score has been a major hurdle. However, there has been a shift with 38 per cent of customers who have taken their credit report from Paisabazaar.com being self-employed; 78 per cent of them are MSMEs. "Each time I applied for a cash credit facility, either the application got rejected or the credit limit sanctioned was too low. It was only after fetching the free credit report from Paisabazaar that I identified the problem. The credit experts at Paisabazaar.com helped me in correcting my credit mistakes, which increased my score steadily over a period of time. Monthly credit score updates helped me rationalize my finances and plan my cash flows accordingly," said Rathan D, a Paisabazaar.com customer and a Farm/Agro product trader.
5. 'New to Credit': are getting 'Ready for Credit' Big segments, at 23 per cent, are customers who do not have credit score and are 'New to Credit'. Most of them are first time earners and professionals in their 20s who have never taken any credit product in the past. Traditionally, since these customers do not have a credit history, most banks and NBFCs are unwilling to offer them a loan.
However, this is now quickly changing with the advent of new-age products that have alternate underwriting models and banks also starting to accept these customers for small ticket size loans and credit cards. 36 per cent of Paisabazaar.com customers who were 'New to Credit' were able to get their first credit product within 12 months. "We have seen a sharp rise in demand for credit from young salaried professionals and entrepreneurs on our platform over the last 5 years. These consumers are both confident and comfortable using credit to meet their aspirational and lifestyle needs, along with their life goals. As a market leader, we are assisting young India begin their credit journey through personalized advice and products," said Radhika Binani, Chief Product Officer, Paisabazaar.com.
A large proportion of these customers have started opting for Short Term Personal Loans offered by digital lenders basis their income, employer, alternate data etc. This helps them not only meet their impending financial needs, but also begin building their credit profile. As India's largest marketplace for financial products, Paisabazaar.com has seen a big shift in consumer behaviour in the last 2-3 years. In the report, Paisabazaar.com says that today consumers are more aware about their financial health and there is a clear focus on credit fitness. However, the need to spread credit awareness still exists and banks, credit bureaus and fintechs should work towards more credit education initiatives. Over the next 5 years, this rise in credit awareness, coupled with the continuing smartphone and internet boom, would enable a significant impact on the penetration of formal credit products in India.