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Lending companies stare at 30% jump in user acquisition costs

The cost of acquiring customers has increased significantly also due to higher borrowing costs. That has made fintech lending startups risk-averse.

Updated: May 01, 2019, 08.30 AM IST
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Fintech startups usually target consumers through online channels, by profiling search words that consumers type while looking for loans or by targeting specific audience groups.
BENGALURU: Online lending startups have seen a 20-30% jump in user acquisition costs over the last few months, multiple industry executives told ET, as both banks and fintech companies aggressively chase consumers through social media channels.

The cost of acquiring customers, or the price platforms pay to on-board consumers, has increased significantly also due to higher borrowing costs. That has made fintech lending startups risk-averse, forcing them to be selective about their customer base.

Fintech startups usually target consumers through online channels, by profiling search words that consumers type while looking for loans or by targeting specific audience groups. “When too many platforms are betting on similar ad words, then it becomes expensive to attract the right set of borrowers,” said the founder of a Bengaluru-based fintech lending platform.

After the IL&FS default case last year, companies have turned careful about borrowers, another entrepreneur said, leading to higher costs for attracting a limited set of good quality borrowers.

“In the lending business, nobody has figured out a sustainable hook, everybody is saying ‘come and take loans’ which is the easy proposition,” said one of the founders quoted above. “The tough part is, smalltenure lending platforms either need customers to keep coming back or continuously look for new ones, both of which are expensive.”

The January-March quarter tends to be heavy on spending for players in the banking, financial services and insurance space, industry experts told ET. Banks try to get last-minute customers before the financial year ends, while also hawking investment products such as tax saving instruments. “Since banks spend majorly to attract customers during this quarter, it usually tends to push up costs for terms like mutual funds, personal loans among others. That could have been one of the reasons why fintech platforms saw their cost of acquiring customers go up,” said Mihir Mehta, assistant vice president, digital planning and buying at iProspect, a digital advertising agency.

The rise in cost of customer acquisition could also be due to the fact that fintech startups were not able to expand their consumer base in a meaningful way, said another digital marketing expert. “Since fintech platforms are extensively using digital channels for marketing, they are getting consumers who have been accepted by banks and major NBFCs. This could cause them to look harder for quality borrowers, thereby increasing costs,” said Siddhartha Hedge, MD of Ethinos Digital Marketing.

Fintech lending startups have worked on thin margins to attract customers from far-off places, on hopes that growing digital would help cut cost of operations, industry experts said. “If the cost of acquiring customers does not go down, long-term viability of early-stage startups might become difficult. As of now, many are still surviving since loss rates are under control,” said one of the startup founders quoted above.

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