Why 60% of lending partnerships fail: Lessons in making scalable credit successful

Amongst the noise of leaders in the banking and FinTech space, there’s one message that’s echoing louder than all –– that tomorrow’s lending giants won’t be building branches, they will be building partnerships.

From Super Apps to B2B marketplace, traditional lenders have learned that they need to be where consumers already are. Racing to forge alliances that promises faster scaling and deeper market penetration.??

But here’s the uncomfortable truth, more than 60% of bank partnerships fail within their first two years. ?

The potential and promise of partnership lending sounds compelling. Tapping into vast merchant networks, having access to a digital infrastructure, and scaling lending operation without having to build and operate expensive physical branches, who wouldn’t like that???

The transition of moving from traditional lending to digital isn’t as simple as it may seem. It challenges institutions at every single stage. The setup phase, the banks struggle with partnership discoveries and building the perfect infrastructure that suits them. During the growth phase, banks must manage complexities that come along multiple simultaneous integration while meeting diverse partner needs for UX, data points, and policies.?

While some banks do manage to handle the setup and the growth phase, it is scaling where things often fall apart. Lending institutions have a high susceptibility to fraud and risk, added with the challenge of meeting partner expectations across operations and commercials.??

The challenges aren't insurmountable, but they require a systematic approach. One traditional NBFC with FinBox got it right: they went from zero to ?250 crore in monthly disbursements in just 180 days. And their approach? They primarily focused on three critical elements, tailoring a quasi-secured credit product, tapping into a network of 100 million merchants, and committing to a 100% digital transformation.?

That’s where products built with deep industry understanding become critical. At the recent Bharat FinTech Summit, FinBox team held numerous masterclasses explaining how lenders can navigate past this industry-wide bottleneck. ?

It's a better time than ever to share our on-ground learning of our interaction with seasoned industry professionals. One such masterclass addressed how Partnership-based Lending Suite by FinBox solves bottlenecks at each phase of the partnership lifecycle.??

During setup, having access to a diverse LSP (Lending Service Provider) network and a sandbox environment (DRE - Digital Risk Engine) allows lenders to experiment and validate partnerships before full-scale deployment. This is crucial because partner discovery isn't just about finding companies with large user bases – it's about finding partners whose user segments, transaction patterns, and risk profiles align with your lending strategy.?

The growth phase demands sophisticated infrastructure. Pre-built workflows for different types of LSPs (from super apps to accounting platforms) and resource optimization for integration and journey support can cut down time-to-market from months to weeks. One often-overlooked aspect is the need for quick configurability across partners – because what works for a B2B marketplace may not work for a payment aggregator.?

But here's where it gets interesting: on a scale, the game changes entirely. The traditional approach of applying uniform risk parameters across channels doesn't work in partnership lending. Each channel – whether it's a PA/PG aggregator like Google Pay and PhonePe, or B2B marketplaces like Udaan and IndiaMART – requires its own risk calibration.?

What we also identified are some emerging trends that are going to shape the partnership-driven lending space. With the rise of embedded finance, lending products must be tailors not just to end-users, but also for partner's ecosystem. MCA (Merchant Cash Advance) products on payment platforms and B2B BNPL on wholesale marketplaces are just the beginning.?

Another trend is leveraging enriching partner data. Partners bring rich transaction data, but the key is in converting this data into meaningful and actionable credit insights. Deep analytics and automated anti-fraud workflows become crucial as you scale across multiple channels.??

Lastly, control architecture! Fine partner-level controls aren't just about risk management – they're about building sustainable unit economics. Each partnership needs its own playbook for acquisition costs, risk thresholds, and operational parameters.?

We're moving from a world of standardized products and uniform distribution to one of embedded, contextual finance. For traditional lenders, the message is clear: the future belongs to those who can build and sustain robust digital partnerships. But more importantly, it belongs to those who can turn these partnerships into scalable, profitable lending programs while maintaining control over credit quality and customer experience.?

PS: We’ve written an in-depth industry report on partnership lending. Make sure to get an exclusive copy today by clicking here. ?