2020 was brutal for P2P lending. Here’s how Validus recovered

Going from university classrooms to corporate boardrooms, Validus co-founder and group CEO Nikhilesh Goel has always been a highflyer. Goel’s 14 years in corporate finance and private equity also saw him lead high-value acquisitions for conglomerates like Vietnam’s Masan Group.

But ask how Validus thrived during the Covid-19 pandemic, and Goel attributes it to chance: “I think the honest answer to that is we just got plain lucky as our anchor partner-driven SME origination strategy worked extremely well during this pandemic period, both in terms of portfolio gowth and stellar quality,” he tells Tech in Asia.

(From left) Validus co-founders Vikas Nahata, Ajit Raikar, and Nikhilesh Goel / Photo credit: Validus

The company declined to reveal its revenue and EBIT (earnings before interest and taxes) figures for 2020.

Validus’ recovery in the past year was hard-fought. As it pivoted to a more partnership-based business model, it resulted in poorer earnings over the short run, which hasn’t sat well with some of its investors. The company’s winning strategy also took years to bear fruit, but the pandemic proved it was an enduring one.

In the peer-to-peer (P2P) lending marketplace, platforms connect loan-seeking SMEs to high net worth individuals and institutional investors. Validus does this via a credit-scoring algorithm powered by data that it gathers, cleans, and analyzes.

Accredited investors on its platform make loans of at least S$50,000 (US$37,800) between a month and a year depending on the type of financing required. Approved SMEs may borrow up to S$500,000 (US$378,000) on each of their loan applications at interest rates between 0.67% to 2.50% per month. In return, Validus charges a flat 20% fee on earnings received by investors on its platform.

Last year, the company became the first fintech firm in Singapore to be approved as a participating financial institution under Enterprise Singapore’s Enterprise Financing Scheme, alongside established banks like DBS Bank, OCBC Bank, and United Overseas Bank. Under the scheme, Enterprise Singapore provides up to 90% risk sharing for the financing that Validus gives out to SMEs.

Replicating Alibaba’s 3-1-0 model

Much of Validus’ expansion has occurred in the last two years. In early 2019, the company was still operating in one market. Today, it has a presence in Vietnam, Thailand, and Indonesia. The company’s headcount has also grown by 20% in the last year.

In its early days, the firm struggled to find answers to what Goel calls the “threefold problem” of SME lending: getting traditional brick-and-mortar SMEs online, figuring out how to assess these SMEs, and knowing whether the money you loaned will be returned.

In order to work around these problems, Validus needed data on SMEs, information that was difficult to obtain. For one, many financial statements issued by SMEs are unaudited, which render them “essentially useless” as measures of creditworthiness, Goel says. Then there’s the question of how to get SMEs to even share their data.

Validus co-founder and group CEO Nikhilesh Goel / Image credit: Validus

Validus found the answer in Ant Financial subsidiary MYBank. Under the platform’s 3-1-0 model, customers need only three minutes to make a loan application, one second to transfer funds, and zero manual intervention. What enabled Ant Financial to carry out such a model was its connections to the Alibaba ecosystem, and Goel was determined to develop a similar network.

Will slow and steady win the race?