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If there is a book that India’s fintech chiefs may have read cover to cover, that would be Nobel prize winning behavioural economist Richard Thaler’s Nudge. Thaler’s nudge theory simply states that humans do not make choices in isolation, there is always a nudge towards one choice. Therefore, businesses can influence choices by nudging customers towards a particular product.

Simply put, you and I would choose something that is most convenient for us at that time because it is made out to be so.

Take fintech lending. Fintechs have morphed into lenders wearing the cape of technology that are making it all too easy for Indians to get their hands on credit to fund wants and desires. And why not, since money is at the end of the click of a button. There is no need to trudge to the nearest bank branch and sign a mountain of papers filled by you with all your details, from your paycheck to your first pet’s name!

Who are these fintechs?

These are new-age companies such as Paytm, Krazybee, Navi Finserv, Paisabazaar, Indialends and Indifi that started off as a tech platform for finding loans to being themselves lenders by getting a licence to be non-bank finance company. Poonawala Fincorp, Bajaj Finance, and Cholamandalam Investment are NBFCs that embraced technology to become somewhat of a fintech themselves. There are also scores of other fintechs that co-lend with a bank or a non-bank through arrangements encouraged by regulation. The noble idea behind these is to take credit to the unserved and underserved cohorts under the larger financial inclusion dream. To be fair to fintechs, they have done to financial inclusion what banks could not do for decades despite regulatory push; they have made Indians with low incomes get access to precious credit. From the local mom-and-pop shop to the individual wanting to buy his first car, fintechs have made it possible for them to get money. We should not be surprised that half of consumer credit with size less than Rs 1 lakh has been disbursed by fintechs.

Here is where we flip the coin to its other side.

Lured by high growth prospects, fintechs opted to lend a little too wildly and the lack of regulation only made them go gunslinging in the credit market. The job of a lender begins once the loan is disbursed, but fintechs thought it ended there. The result was such loose lending increased delinquencies. When nudge became shove, fintech balance sheets crumbled.

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Our column on fintechs here and our Chart of the Day highlight the trouble with fintech lending and how they can regain their reliability. What fintechs have gotten wrong is the heart of Thaler’s nudge theory: humans are irrational. We borrow, save, spend, and invest based on how we feel rather than take rational decisions.

Ergo, individuals that have overstretched their repayment capacity by taking multiple loans will eventually fail to repay. This is what fintechs turned a blind eye on and this is exactly what they need to learn and fix to be profitable businesses.

While fintechs fix their preoccupation to nudge, we must realise we are irrational investors as well. What would explain the frenzy into initial public offers of shares over the past few months? Larissa Fernand gives us some pointers to avoid getting carried away in this IPO-crazed times.

Meanwhile, Thaler’s nudge theory has no better mascot than monetary policy. Central bankers pride themselves on having steered inflation into an acceptable band by influencing expectations through interest rates. When interest rates go up, they nudge us to borrow less and consume less, thereby bringing prices down. But it is no longer as simple as that, at least not in India. While a debate rages on whether the Reserve Bank of India should look through food inflation or not, the August retail inflation print at 3.65 percent is not giving much comfort. One, it is largely a statistical base, but analysts have pointed out that food inflation is cooling. Manas Chakravarty’s column on food inflation explains what to look for in the latest numbers here.

So far, the RBI has given no indication of cutting policy rates, but economists are hopeful that the central bank would consider cooling inflation and start to chop rates as early as next month.

For the US Federal Reserve, the jobs data has given clarity on how to proceed on rates. The market has already priced in a quarter basis point cut next week and the question now is how aggressive should its rate cut cycle be? Mohamed El-Erian, in his FT column which is free to read for all Moneycontrol Pro subscribers, states that the Fed is sure to cut rates next week but the path beyond that is muddled.

Does the data nudge or will it shove the Fed and the RBI towards rate cuts? That is something to watch for.

Investing insights from our research team

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What the July IIP numbers say about consumption, capex

Is the tide turning for financial services?

The stage looks set for an infotech reboot

What China’s 'New Three' policy means for India’s renewables ambitions

Mohamed El-Erian: The big question is what comes next after the Federal Reserve’s rate cut (republished from the FT)

Exploring 75 Years of Equality in India’s Constitution: A critical analysis

Growth vs Profitability: The key to startup longevity

Yen rally is a lesson in the lost art of FX intervention

How to leverage M&As to expand available capital and opportunities

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