Microloans Fuel India's Festive Season Shopping Boom, Especially Among Young Shoppers

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AuthorWhalesbook News Team|Published at:
Microloans Fuel India's Festive Season Shopping Boom, Especially Among Young Shoppers
Overview

India's festive season shopping is booming, driven by microloans and interest-free EMIs for purchases ranging from luxury items to everyday goods like protein powders. Fintech firms like Snapmint and Kiwi are seeing a surge, particularly from young shoppers aged 20-30, as 'Credit on UPI' becomes a popular payment method. This trend is spreading beyond major cities to tier-2 and tier-3 regions, though concerns about potential overspending and delayed repayments are rising.

This festive season in India, spending is significantly boosted by the availability of microloans and interest-free equated monthly installments (EMIs). These loans are funding purchases across a wide spectrum, from high-end products like smartwatches and jewellery to more everyday items such as protein powders and hair dryers.

Fintech startups, including Mumbai-based Snapmint and Kiwi, are experiencing a substantial increase in young shoppers utilizing low-interest consumer loans. Snapmint reported a surge in interest-free EMI transactions, growing from around 350,000 in September last year to over 1 million this year. Abhineet Sawa, co-founder of Snapmint, noted that the 20-30 age group constitutes most of their customers, with no-cost EMIs being a preferred finance option, now ranking third behind UPI and cash-on-delivery.

Kiwi has introduced an 'interest-back EMI on UPI' feature, allowing consumers to divide larger payments and even earn back interest. Anup Agarwal, co-founder of Kiwi, stated that shoppers are spending over 50% more on e-commerce purchases using 'Credit on UPI' compared to last year. This service, facilitated by the Reserve Bank of India, enables users to access pre-approved credit lines via UPI. Transaction volumes for 'Credit on UPI' have seen sharp growth in both spending per user and average purchase value, with significant adoption in tier-2 and tier-3 cities.

Other companies like Fibe and PayU’s LazyPay, along with e-commerce giants Amazon India and Flipkart, are also actively offering low-cost consumer loans. Amazon India reported that one in every six purchases during its recent Great Indian Festival sale involved a loan, with 80% of these being interest-free.

Despite the growth, there are concerns about potential overspending due to easy access to credit and minimal scrutiny. Experts predict a possible uptick in delayed repayments and defaults after the festive season concludes, as observed by debt collection platforms like Credgenics and DPDZero. Data from credit bureaus like CRIF High Mark indicates a rise in overdue credit card payments.

Young borrowers, particularly those born after 1995, represent a growing segment of new credit users, indicating a shift from traditional saving-oriented mindsets to readily accessible credit.

Impact:
This trend significantly impacts the Indian economy by boosting consumer spending, driving growth for fintech and e-commerce sectors, and influencing the credit market. It also poses risks of increased consumer debt.
Impact Rating: 8/10

Difficult Terms:

  • Fintech: Financial Technology; companies that use technology to provide financial services.
  • Microloans: Small loans, typically for personal use or small businesses, often with simpler repayment terms.
  • EMI (Equated Monthly Installment): A fixed amount paid by a borrower to a lender at a specified time each month.
  • UPI (Unified Payments Interface): An instant payment system developed by the National Payments Corporation of India for mobile devices.
  • Credit on UPI: A feature allowing users to use pre-approved credit lines from banks directly through the UPI interface for payments.
  • NBFC (Non-Banking Financial Company): A financial institution that provides banking-like services but does not hold a banking license.
  • GST (Goods and Services Tax): A consumption tax imposed on the supply of goods and services in India.
  • Tier-2 and Tier-3 cities: Cities in India ranked based on population and economic activity, with Tier-1 being the largest metropolitan areas.
  • Credit Bureau: Companies that collect and aggregate financial information on individuals and businesses to provide credit reports and scores.
  • Delinquency Stages: Phases of loan repayment where a borrower falls behind schedule.
  • Average Days Past Due (DPD): The average number of days a loan payment is overdue beyond its due date.
  • Unsecured Lending: Loans given without any collateral or security.
  • New-to-credit customers: Individuals who are obtaining credit for the first time.
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