MoneyTap and Idea of Line of Credit

• 20 May 2019 | 3088 Views | By Mint2Save

With the rise in recent start-ups which give you instant loans based on your credit scores, eliminating the need of Banks and hassle of excessive documentation and government easing the norms making fund-raising (or whatever your need is) much easier and accessible to everyone, there is a new company which is revolutionizing this concept with the idea of giving Line of Credit to people from which they can withdraw anytime and anywhere as much as they want to! So lets deep dive more on what exactly is MoneyTap doing and what does this word Line of Credit signify.  

What is Line of Credit?

To understand how MoneyTap works, we need to understand the concept of a line of credit. A line of credit is an agreement between the borrower and lender (usually a financial institution) where they establish a maximum amount of money that the borrower can take from the lender known as the “Credit Limit”. The borrower can access these funds anytime as long as they don’t exceed the credit limit agreed upon earlier and meet the other terms and conditions.

A line of credit has built-in flexibility, which is the prime advantage for it, the borrowers can take a certain amount from it, and pay only interest on that and not the whole line of credit (financially abbreviated as LOC). This is its unique feature that isn’t offered by any other lenders. Plus, one more great advantage that it has is that the borrowers can adjust their repayment amounts as needed as per their cash flow or their budget! That is yet another alluring feature that attracts more borrowers to opt for Line of Credit.

How does this all Work?

All LOC agreements clearly specify all the terms and conditions that need to be followed, the amount of money that can be borrowed, the money that can be paid back, the amount of interest, the size of payments, etc. these are all set by the lender, which may be secured by collateral.

There are different types of Lines of Credit: 

• Personal Line of Credit – It is the most common and most prevalent in India. Personal LOCs are used for emergencies, weddings and other events, overdraft protection, travel and entertainment and to help smooth out bumps for those with irregular income. They are usually like credit cards.
• Demand Lines of Credit – They are not commonly used but they involve a clause where the lender can call the amount borrowed due at any time. That is why it is called on Demand LOC.
• Home Equity Line of Credit (HELOC) – It is commonly used in the financial world where the HELOC is secured by the market value of the home minus the amount owed. HELOCs usually come with a long-term period of 10-15 years, during which the borrower can access the funds available in the LOC.
• Securities Backed Line of Credit – As the name says itself, this LOC is backed by borrower’s securities as collateral. They are more of non-purpose loans that cannot be used for the purpose of buying securities, other than that they can be used for any purpose the lender wants the money for.
• Business Line of Credit – This LOC is given to businesses. Instead of a fixed loan, businesses with varying needs of funds due to longer credit cycles can opt for this LOC. This can give them flexible options to withdraw funds as per their requirement. The lender extends the LOC by evaluating the market share, profitability, and financials of the company.

What is MoneyTap?

MoneyTap is a Bengaluru based fintech startup co-founded by Kunal Varma, Anuj Kacker and Bala Parthasarathy, which aims to provide a line of credit to every Indian. Launched in 2016 for the public, MoneyTap is claimed to be India’s first company to provide an app-based personal credit line to customers. For this, they have launched a mobile app in partnership with RBL Bank and Aditya Birla Capital. With an interactive app available on Android as well as iOS, MoneyTap has disbursed more than 50,000 loans, with loans varying from ₹ 3000 to ₹ 1 lakh and tenure shifting from 2 months to 3 years. They have managed to keep the non-performing loans at less than 1%, which is a great achievement for any lending company. The company has already clocked an annual run rate of ₹500 crore and is targeting an annual run rate of ₹2,000 crores of loan disbursals by the middle of next year. The company is confident that it will open up business in more than 50 locations in the next half year.

How is MoneyTap using this?

MoneyTap gives every applicant a personal line of credit. This is done when the applicant downloads their “MoneyTap” App and fills in basic details Name, Age, PAN, City, Income (for KYC purposes). The system then verifies the details and schedules a KYC visit, where banking personnel comes to collect all the KYC documentation. After KYC is done, the system then sets a credit limit as per the customer’s repayment capacity (this is done by checking the customer’s credit score and income tax returns through PAN number).

Once the approval is given the credit line is ready to use by the applicant. The applicant can borrow as little as Rs.3,000 or the full amount of the limit. Within a few days, the applicant also receives a Card that will act not only as a credit card but does so much more. One can also transfer the money from MoneyTap app account to their bank account and later withdraw the funds by using their regular ATM card. Else they can even use NEFT/IMPS to transfer the money to someone depending on their needs.

Benefits of using MoneyTap

The founders of MoneyTap have aimed at the middle-income group customers making Rs. 25,000 per month or more, facing frequent cash crunch for regular needs like education, medical, birth/death, etc, which are not serviced by financial institutions today without putting up collateral such as gold as a security. The features of MoneyTap apart from borrowing as low as Rs. 3000 and no collateral include:

• Real-time limit approval: It all takes only 15 minutes to verify the customer eligibility before banks pre-approve advances up to INR 5 lakhs. If we say on an average, the customer takes 8-minutes to qualify to get the loan.
• No interest on non-borrowed amount: Interest rates are applied only on the amount you borrow and not your entire approved limit.
• Rewards on the Credit Card supplied: MoneyTap credit card brings attractive rewards on the very first swipe along with discounts on food, fuel, and entertainment
• Credit limit available for a lifetime: The credit limit is recharged as the applicant repays the borrowed amount giving them the flexibility to withdraw multiple times.

Can MoneyTap be used for Shopping and other Purposes too?

In addition to the App, MoneyTap also provides a credit card is issued to the applicant as stated earlier. This card can be used like any other credit card at any shop or e-commerce website too. This card provided by the company is inbuilt linked to the app and all the transactions that are done using it will appear on the app. At the end of the month, like any other credit card, the applicant can pay the balance at once or in part. All the shopping on the card will be interest-free until the credit card payment is due. Additionally, the applicant can also convert all applicable purchases on the card to EMIs with just a tap on the app if they are unable to repay the entire balance at the end of the month. This conversion will also save the applicant a significant amount of interest.

Security Concerns

It is an absolutely safe app. All the applicant’s sensitive information, which may be his personal, financial or details related to employment are encrypted through the Secure Socket Layer (SSL) protocol, used by leading institutions across the world and kept completely secure. Their IT systems are checked and approved by the IT and Data Security teams of their partner banks and are legally compliant with all data privacy and IT security norms in India.

As far as the bank details are concerned, MoneyTap cannot access or tamper any of the applicant’s financial details as they establish a read-only connection with the applicant’s bank and their net banking security is not breached. For added security, they also ensure that the auto-logout feature is enabled within a few seconds!

For the extremely first time in Indian history, MoneyTap is bringing access to credit with a single tap on the mobile phone. It is also introducing the concept of a credit line for consumers, in partnership with banks, which is fairly a new concept in Indian society. As India continues to be one of the fastest growing economies in the world, growing at about 7 percent and is set to become the third-largest economy in the world by 2027. Fintech will see significant growth and innovation in the next few years and demonetization along with a massive governmental push to move payments to digital will spur significant growth in multiple areas of finance and seems like it will add to MoneyTap’s growth.