The stress among the non-banking finance companies (NBFCs) has spilt over to the fintech lending space, with few of the companies facing a funding crisis and others shutting shop.
One of the country’s largest fintech NBFCs, Capital Float which has been in talks to rack up funds from digital payments major PayU is learnt to be stuck in a prolonged due diligence process. The talks may result in a complete sale, two people in the know told ET adding that the company’s asset quality was under scrutiny.
“The funding process is taking time and the valuation may get renegotiated down,” said the person mentioned above. ET had reported in its February 19 edition that PayU is in talks with Capital Float to invest around $100-150 million at a valuation of $500 million. “With this, the company could now be valued at somewhere around $400 million and a full acquisition is likely,” said another person close to the developments.
Capital Float had raised massive rounds of funding from multiple investors like Amazon, SAIF Partners, Sequoia Capital and others. ET understands that they could be looking at a complete exit through this deal.
According to a note released by ICRA, its on-book portfolio stood at Rs 851.8 crore, while assets under management was at Rs 1,242.2 crore as of June 30, 2018.
“We would like to highlight that the news you have mentioned is speculative in nature and we do not comment on speculation,” said a Capital Float spokesperson.
Other small startups which have been hit in the sector include Mumbai-based digital lending marketplace Rubique. The startup is understood to have trimmed its operations drastically and reduced its staff strength to consolidate the business.
“Most of the executives in Rubique have ventured out looking for other opportunities since the company is running out of funds,” said an ex-employee who did not wish to be named. “The company has been pitching to investors but nothing has materialised yet.” The Kalaari Capital backed startup had raised around $10 million since inception.
“Since the IL&FS situation we have not received few of the payments due from our partner lenders which has hurt our cycle,” said Singh. “We have been trimming down our cost, kept on hold our expansion plans and are trying to build up businesses which can help us generate steady revenue.”
Another Goa-based startup Loan Singh which had raised funding from telecom major Airtel in 2017 is also understood to be struggling. A source within the company told ET that the startup which extended device loans for Airtel customers could not scale up since the product by itself never took off.
Bengaluru-based Loanzen which offers loans to startups in the logistics sector is also understood to have shut down. It had raised early-stage funding from Kae Capital.
Unviable biz models
Industry insiders said that many of these companies have not found a product market fit yet and the road to profitability looked doubtful. The platforms which originate loans for banks and other NBFCs have a very narrow margin for operations which makes their business unviable.
“Platforms do not get more than 3% of the loan amount as commission and out of that the offline agent takes away 2.5% or more leaving almost nothing for these players,” said one of the persons cited earlier in the report.
The stress in the NBFC space led to many of loans being rejected leading to concerns among the credit marketplaces. This led to them losing business. Simultaneously a bunch of lenders who managed to create their niche business models have shown strong growth and managed to attract investor interest as well.
ZestMoney recently closed a round of $20 million led by Quona Capital while Mumbai-based Kissht and Paysense both are understood to be in the process of raising large rounds. Qbera too is in the process of picking up $15 million in its series B round. “Going forward there is bound to be consolidation in this space, new entrants have to create innovative business models to survive and grow in this area,” said a person close to the developments.