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Solving For Credit | Prashanth Ranganathan @ PaySense
310 Plays2 years ago
A Stanford graduate who returned to India to solve the big credit need in the market culminated in building one of India’s leading lending platforms- that’s the story of Prashanth. Tune in to this episode to hear about how his testing period of life paid him rich lesson dividends.
Know about:-
- Building SayNow Corp, acquired by Google
- Stint at PayPal
- Bet on the jockey, not the horse
- Journey of acquisition
Recommended
Transcript
Introduction to Prashant Ranganathan
00:00:00
Speaker
Hi, I'm Prushant Ranganathan. I'm the founder and CEO of PayU Finance based out of India. And I'm really excited to be speaking to you all this morning.
Indian Entrepreneurs and Local Problem-Solving
00:00:19
Speaker
There is a long history going all the way back to Mohandas Karamjan Gandhi of Indians who are settled abroad deciding to come back to India to solve Indian problems. But each such story follows a unique path.
Prashant's Journey in Fintech
00:00:33
Speaker
And in this episode, Akshay Dutt talks to Prasanth Ranganathan about building one of India's leading lending fintech startups. Prasanth is a Stanford-educated techie who spent time in the epicenter of the startup world with some of its most important companies and people.
Starting a Fintech in India: Challenges and Learnings
00:00:49
Speaker
After a successful leadership journey at PayPal, he decided to build a fintech startup in India, which possibly became the most testing period of his life. But like all good tests, it taught him many lessons. Listen on to Prashant's fascinating story of building PaySense, which is now PayU credit. Yeah, Stanford, it's one of the first places I've ever been where if you graduated,
00:01:13
Speaker
your failure, right? The expectation of university is that you stop out or you drop out to start something before you graduate, right? That is the base expectation. It's probably the unwritten expectation, but that is the expectation.
00:01:30
Speaker
So I would see people constantly.
Influences from Stanford and Tech Figures
00:01:34
Speaker
I mean, this is the time where you would see the Google guy, Larry, and the surrogate is coming back. They were still coming back to graduate pardons and stuff like that. And it was just cool. You would see Suck come on campus and talk to us. But because at that time, these guys were not that big. This was like 2004. It was still quite... I mean, yeah, Google was quite large.
00:01:55
Speaker
still very early days compared to where they are today, right? So you can see, and that's when I also met Mark in Greece. And Mark was, of course, used to frequent campus and one of the, through a friend, I met him and he was like, hey, I'm doing like an apprenticeship program, maybe you should consider it. And I looked at that program, I was like, oh, it's kind of cool, spend time with Mark, work on some interesting stuff. And Mark very early on was like, hey, like, you don't need to go from Stanford
00:02:20
Speaker
and then go back to your corporate job, right? You don't go back and say, oh, I'm going to work on developer tools for Microsoft. He's like, enterprise is dead, work on consumer stuff, the web visit. And even back then, he was like, the web would transform into portable, you know, mobile applications. Look out for that, right? So I actually went from graduating bioinformatics to becoming an apprentice for Mark.
Career Sacrifices and Early Ventures
00:02:46
Speaker
And for me,
00:02:47
Speaker
Again, the conversation with my parents was really hard because I went from whatever, like making a few hundred thousand dollars at that time at Microsoft to making $3,000 as a stipend I would mark a month. And I had picked up a graduate degree all the way. So if you think that every time you pick up a degree, you pick up a little bit more on the comp front, I actually went massively the other way.
00:03:14
Speaker
But from an experience standpoint, I always knew that this was not the be all end all. I wasn't going to be Mark's apprentice for 40 years, right? I just knew that this would be the place I would meet the people I wanted to meet, work, pick up technology that I wanted to pick up, learn something that I want. And that's what happened in six months. I.
00:03:31
Speaker
met Nikhil Singh Hall, who was just consulting with them, helping Mark and the team. The company that I was a part of was called Ling and ING. And then I went off and started my first company with Nikhil. So with Mark, you were like an investment analyst kind of thing.
00:03:52
Speaker
Mark and this lady Gina BMP had set up a social web app type of a company. They were saying Facebook is the owner of the graph, like the social graph, and there will be companies that will build social apps.
00:04:09
Speaker
Right. And initially, their thinking was we will initially, their thinking was we will build our own social network, like bring your own social network with this platform, right. Like I would say, hey, I want to build a social calendar. Right. So today, calendar is very personal, but I would build a social calendar where I would share my calendar with Akshay and my wife and four other people and people would put stuff and play dates could be organized and whatnot. Right. That was the concept. So I was embedded in that company to build
00:04:39
Speaker
So they were building the core infrastructure and I was building the applications, the reference to showcase the power of the underlying platform, right? And that was fun because I'd never done anything in consumer. I'd never done anything with web programming. And so that was fun for me. And part of that was I also got to spend some time with Mark and just to get, just to
00:05:01
Speaker
kind of dig into his own brain and see how he thought about things and for me it was radical right like it's very different than a very structured linear way of thinking about things he would always talk about stuff that's going to happen in five years or 10 years and how to prepare for that and this the whole like escape to where that you think the fuck is going to be not not where it's at and so that was constantly reinforced that plus the fact that you don't graduate Stanford to go back to a
00:05:26
Speaker
a corporate job or you're already a failure because you graduated. I don't know, it compounded towards my first startup. So what did you start with Nikhil? Nikhil was a seasoned entrepreneur. He built a company called Casa Ancestor Pass and sold it. And again, I'm going to share this part because I think it's important for people to understand.
00:05:45
Speaker
was always very sure that he was going to start something. And it didn't matter to him what it was going to be, right? It was very vague. And they were like, hey, we're going to do something with like a telephony and it's going to be like a phone IDR race thing. The initial concept was that they would do like, like a podcast.
00:06:01
Speaker
on the phone and he was like, dude, you should come and be my product manager, like head of my product manager and be on the product team, et cetera. And in the time that my H1B got transferred from where I was onto this company because they had to get capitalized, et cetera, so they'd raise money and they were further along and my
00:06:18
Speaker
What I thought I was going to get in terms of shares and what I got ultimately were quite different. But that's besides the point, because for me, what is great at like 26 or 27 at this time was the experience that I was going to have as like a head of product for a new nascent company that had no product market fit and an empty canvas to go and play out. He was very supportive. Of course, I made a lot of mistakes along the way, but I was razor focused on helping this company get product market fit.
00:06:46
Speaker
So the company ultimately pivoted from podcasts on the phone to a group voice messaging company. And I pushed it down that path. I said, hey, Twitter is not authentic. When you get a message on Twitter from the real Donald Trump or Akon or Rihanna, how do you know it's them typing versus it's one of their publicist typing, right?
00:07:09
Speaker
that voice is very real, voice is very authentic. What if you could build a system where Chris Brown could record a message and hit broadcast, and it would go to like a million fans who would kind of dispose, who would like message or ring, and they would listen to it. They could respond. And when they responded, all that audio would go back and show up on his MySpace or wherever you want to put our way to. That's what that company became. It became like a social voice communication, group voice communication company.
00:07:36
Speaker
There was something similar in this part of the world called Bob Lee. I don't think where I don't know where it went. But ultimately, say now the company that we had formed and built got sold to Google. I didn't end up going to Google at that time. All of it's been related again for the second time. But that's where that's where that's where the company ended up. For me, I think I was like men.
00:07:56
Speaker
I saw the return on investment. They had started this three months prior. I was there every step of the way, all the way through. I drove the initial product market fit and everything else.
00:08:11
Speaker
But the return for them was much, much, much larger than what it was being. But for me, what it did is it set me on a certain path. So I was not upset that there was tens of millions of dollars
First Major Success: Selling to Google
00:08:23
Speaker
between us. For me, what it meant is now using that platform was time for me to go start again. So I actually then stepped out and I was doing some consulting, which then resulted in my second startup.
00:08:34
Speaker
So like you had enough cash from that exit to Google to like fund your next venture? Like, was it some financial enough? Yeah, yes and no. Yes, there was enough. But you know, as I was, but I was just kind of picked up a consulting gig. I didn't want to kind of just take all my money and put it into something. I picked up a consulting gig because I wanted a rolling start. I wanted to work with the company, figure out the problems that they were facing and kind of solve for them.
00:09:02
Speaker
My ambition wasn't that big at the time. I was like, okay, I could just build something for these guys and sell it back to them. Unfortunately, they didn't want mine. What was that gig? Yeah, so it was a company called Kuova and they were in the IP location space, a GeoIP location space. What I was noticing is that they were... Quick question. What is GeoIP location?
Innovations in GeoIP and Security Technologies
00:09:25
Speaker
Geo location, like what Uber uses.
00:09:29
Speaker
Exactly. So, every computer, every device has an IP address, right? Like, it's a location. It's the endpoint, right? So, what the technology we have built would help people say, given an IP address, they could say where it is, right? So, if I took your IP address right now, I should be able to say, well, you're somewhere near Tokyo, Japan.
00:09:49
Speaker
Because that IP address, that block was assigned to a carrier in Japan, and they have sub blocks, and everyone has a certain structure, and that's how it got pinpointed. And basically, there's a lot of value in that. Because if I'm in Netflix, I can say, okay, this person's going from Japan, apply Japan DRM, right? Like only allowing them to see content that's licensed for Japan.
00:10:15
Speaker
or if you're a gambling you maybe you don't want people from certain countries because they're not legally allowed to gamma, right? Or whatever. There can be various restrictions placed in terms of content, in terms of access. What I realized when I was and I was working on like how to just enhance their algorithms, technologies to make it a bit better. Again, this comes back to my
00:10:39
Speaker
Big data bioinformatics past cuz i had worked along these algorithms before and i knew how to apply it for this problem it's not biology but it's very very very large amounts of data that i could crunch and process to do something right so that's where i started using it.
00:10:56
Speaker
And while I was doing it, I would go on these sales calls with the sales guy. I was just a consultant and I would just go. And what I would hear is these companies were actually buying this raw database data from us. And then they were building all this logic on top of it.
00:11:12
Speaker
to, you know, detect where someone's coming from and apply all those rules. And so what I wanted to quickly, what I started to see you about is, hey, like, why don't I build an application with my own money, with my own time, I'll build an application which will allow the companies that you're selling to, the ability to detect if someone is coming through a proxy, right? You're not spoofing your IP address or
00:11:38
Speaker
Or let me build some technology that would give you a strong device fingerprint or in the case of mobile payments, maybe I can help you guys build something that would give you a lot of security related signals so you can process mobile payments.
00:11:58
Speaker
And she was quite supportive and I built all this. But just when I had built everything, right? I took me like eight months or something to build all this. And I had hired a couple of consultants, spent a lot of my own time, built all this. Just when I was ready, they went through an acquisition, right? And so then my work became very second order of business, right?
00:12:21
Speaker
Here I was, I had spent all this money, spent all this time building all this stuff and nothing was going to come off it. So I decided I'm just going to spin it into a company, right? So I was going to go, I was like, okay, well, I can license their data and I can take all my technology. I'll sell it, right? That was actually the second company. I was like, okay, I'm going to do it on my own because the person I built it for is in no position to buy it. And I was frankly going to sell it to them for, I think like a couple of hundred thousand dollars, if that.
00:12:49
Speaker
But what ended up happening is I ended up saying, okay, no, I'm going to build my own and started looking to raise capital. As I was looking to raise capital, I ran into the guys at PayPal. They were like, hey, we don't like all the other stuff you did, but this mobile payments stuff that you've built here is really interesting. Can you come back and tell us more? So I over like a three-day period changed the entire pitch.
00:13:09
Speaker
to make it only about mobile security, how this was the best way of detecting proxies, how this was the best way of device people printing, how this was the best way of picking up mobile fraud, built up an entire application suite, went back and pitched
Entrepreneurial Lessons and PayPal Acquisition
00:13:24
Speaker
there. And I said, hey, I'm looking to raise a couple of hundred thousand dollars. And they were like, this stuff is so cool and so important and so integral in what we do is that we don't want to fund you and have you go sell it to five other people. We want to always throw it out.
00:13:37
Speaker
And all of a sudden, the table changed. And I was like, oh, well, I'm not really selling. The same stuff I was going to sell for $300,000 a month ago, right? I'm already going to sell. I intend to build it. And so then I'm like, well, if there's one buyer for this, let me go talk to Visa. Let me go talk to Google. So I started those conversations. And again, the word went back to PayPal that, hey, this guy is looking to sell. And then they came back with an offer I just could not refuse.
00:14:03
Speaker
And it was not a $300,000 offer. It was a game changer. And all of a sudden, like a complete buyout or like investment buyout? They came back and said, hey, it's a complete buyout and you can build it here. And so then that's how I ended up at PayPal. It was complete buyouts, my first full acquisition. I owned at that point 99.8% of the company.
00:14:30
Speaker
I had not really raised any money, but you know, out of those conversations of dragging on, this is where I think my wife plays a big role. I got married and I'd already spent a lot of the say-now money and whatnot. And so we were getting married and I was like, and I remember talking to my father-in-law, he was a South Indian man, right? Who worked for Exxon Mobil all his life. He's like, what do you do? And I'm like, well, I'm an entrepreneur. And I think he sort of like said, this guy is either
00:14:55
Speaker
Are they going to make it or is it going to be a company flunky? But my daughter is inspired to marry this dude. Because for him, he didn't really understand what an entrepreneur was. Like, what is this concept of an entrepreneur? Is it another word for unemployed? And infinite tracks was for him, right? And so he, I remember asking me a lot of questions about like, I think ultimately he came back to, okay, he has an engineering degree, he went down for like, must be something going for him.
00:15:22
Speaker
I don't understand this entrepreneur a bit, but fine, we can get married. So we got married, and I remember through our meeting, getting all these checks donated, checks, like, gifts. I had to use all that money to meet payroll. Yeah, of course, WTF moment. I think I have a deal kind of in the works. It's not not sure what happened, but I need to pay these guys in the meantime.
00:15:42
Speaker
I'm going to spend this money. So she's quite happy or I think in hindsight she's just kind of happy to fund that. But yeah, and then the PayPal deal happened and then in terms of PayPal. So how long did you spend at PayPal? I was there for the requisite four years of Golden Handcuffs. So I spent two years in the Bay Area. I worked as building that product. Did you build and then did you commercialize? What role did you do? Yeah.
00:16:12
Speaker
Remember, a lot of the technology that we had built, we had built with a few consultants, right? And we didn't have anyone full-time. So, I basically took all those consultants and the technology and we sold it to PayPal, right? So, we went to PayPal and we spent the first year and a half rebuilding their entire mobile payment risk engine, right? So, we used our technology, plugged it into their core. Of course, their scale was much bigger than ours, but
00:16:39
Speaker
the Genesis, the technology was that. That's when I also started working on graph-related problems, right? So I basically said, hey, when you're setting fraud, it's less important to know everything about Akshay. It's more important to know who Akshay is connected to and what is the possibility of money transfer between Akshay and Anupan or Akshay, Sabita and whatnot, right? So I started working on these connected notes, like the world cannot be looked at discrete individuals.
00:17:09
Speaker
the world is connected. So I started working on the graph stuff then. The thesis here is that if you are doing fraud, then chances are that people in your network will also be involved. That was why you were looking at it.
00:17:21
Speaker
It's quite simple. Paypal's the business of sending and receiving money, right? Often the problem is you're sending money to someone you don't know, right? Or because you're not actually sending the money, someone else is remote operating your account, right? So someone takes over Akshay's account and sends money to Youko. And Akshay doesn't know anything about Youko or who Youko is and whatnot, right?
00:17:48
Speaker
The money moved. Now, if you really knew Akshay's network and the network's network, then you could actually detect if there is a possible chance of Akshay sending money to you. And if there was, then you would not block that transaction, right? But if there wasn't, then you shouldn't block that transaction.
00:18:04
Speaker
And the only thing is, we would look at a transaction between, say, someone in San Francisco and someone in Austin, and that looks fairly normal, fairly obvious, like within the US. But what you would actually see, and this is where my proxy piercing technology would play in, is say, well, actually, the actual machine
00:18:21
Speaker
that is accessing this computer in Austin, mimicking like it's going through Austin, is actually in Vietnam, right? And that the people connected upstream and downstream of that account of Vietnam, there have been other compromises, right? So this moral movement is in a large mesh of like a money movement that is not kosher, right?
00:18:44
Speaker
Well, when you start to zoom out, that transaction between San Francisco and Austin starts to look nuts. You can't keep zooming out. If you zoom out too far, then you have so much data and you can't process the transaction. So there's all these algorithms about like how far do you zoom out and how deep do you go and how do you do it in real time so you can actually approve the transaction. And that's all science and that's all like IP, that's all cool stuff. Again, goes back to my bioinformatics days, because bioinformatics
00:19:12
Speaker
This is how you would not be able to process all the data, but you need to process enough data to get the right level of depth and breadth to analyze your sample. So again, it's very different space, very similar thinking. So the graph and connected clustering algorithms are very similar to what I studied and practiced in my bank. Amazing how the dots connect data.
Connecting Experiences and Emerging Markets
00:19:39
Speaker
It connects backwards, right? It connects backwards. And I'll tell you more, there's not anything like being over and over again. It's kind of the pattern in my life. So in that piece of work, I actually brought down the, when I joined PayPal, I think they were running at about 6% loss rates on mobile transactions, brought it down to like 22 bits. So just by using this, without any more degradation of, you know, performance or quality, we were able to cut the losses, which was great.
00:20:07
Speaker
Then I worked on credit at PayPal. They were like, hey, you seem to be able to get shit done here really quickly. Why don't you work on, like, we want to do credit. So my boss had built a company called Build Me Later and sold it to PayPal. So I started working on the integration of Build Me Later and PayPal. It was like a BNPL product.
00:20:25
Speaker
Exactly. These guys sold it for a billion and a half in 2009. And here we are in 2022, still feeling it out. And yeah, so I worked on that and it was a great experience. Again, had nothing to do with what I thought I was going to be able to use it for. But again, four years later, it became a big deal.
00:20:46
Speaker
So when you were doing that BMPL project within PayPal, it was essentially like figuring out the credit risk underwriting part of it, like how to do that. Yeah, I think Bill Mee later had already figured out most of that stuff, but just how do you make it work inside a PayPal wallet, right? Like that was it. That was just like a glorified integration specialist.
00:21:06
Speaker
But when you're doing the integration, you also, the curious mind, you end up learning a lot about it, right? And again, I think this goes back to just a poor education system that I was a part of. Because when you have a poor education system, you end up being more curious because you have to figure it out for yourself. Like you weren't taught properly and there's like 80 degree of classroom or something. And so you just become a curious mind. And so I just became very curious. And now there were a lot of people to just learn from. No one was a teacher, but there's a lot of people to learn from.
00:21:35
Speaker
So I just got to learn all the isms of credit to them. And for me, I think I remember this quite clearly. My first week in PayPal, I had a skip level, right? Like basically my manager's manager, right? Basically sat me down and he's like, hey, okay, so two years from now, what do you see yourself doing in risk? And I was like, Gary, with all due respect, in two years from now, I actually don't see myself in risk.
00:21:59
Speaker
I see myself in product and I don't even see myself in the U.S. I see myself in Southeast Asia. I want to run an emerging market in magic, good magic, just magic and how the power of the subconscious works. Two years later, I was on an exciting assignment in product in Singapore. So I bought a PayPal. So for me, it was like, well, I wanted to, I knew I had to be there for four years at least to have my earn out. And I also wanted to just get an expat assignment under my belt. So I wanted to be a part of that experience. So yeah, that just happened.
00:22:29
Speaker
But why did you not want to stay out in the U.S.? You eventually came back to India, so why? And was your wife supportive of this? Yeah, so my wife, she was born in the U.S., she's Indian, but she was born and brought up in the U.S. Very familiar with the American way of life, very unfamiliar, other than the periodic summers that all American hazy kids come and spend in India, other than that she had no experience of India, right?
00:22:59
Speaker
I just thought in 2009-2010 that the big waves of the US had come and gone and that these waves would then come in the following two years, three years, five years in India and in other emerging markets.
00:23:19
Speaker
And that's what we're seeing now, right? To be honest, the idea is super hot and has been for the last three, four years. In some ways, kind of called it, right? And you want to, you can't jump in with the waves already rising. You want to kind of cast the wave as it's rising. So jumping in at 2015 was like the most, was precisely timed decision if you may.
00:23:40
Speaker
So as I was finishing up my four years at PayPal, that was 2015, we had two choices. One was head back to the U.S. or head for the East, if you may. We at that time were going through some personal stuff, which we were kind of like just kind of like a shock in the family, which was holding us back from like heading back to the U.S., right? We had planned for a certain outcome, it didn't work out. So then we were like, okay, fine. If that's not where we're going, then I was just talking to my wife and I said, hey, I have this opportunity
00:24:08
Speaker
We're already here. We've already experienced Asia light. So let's go Asia deep. And to be honest, the way I had sold it, and this is again, how one thinks and how one experiences life. I said, look, in PayPal, in Singapore, we're sitting on some $9 billion of profits. I don't think they're going to take it back.
00:24:31
Speaker
to the US and pay taxes and repay taxes and all this stuff. So my sense is they're going to have to spend it here in the region. And there's no good company to buy for PayPal. So why don't and they really want to enter India, they really want to make a big splash in India. So why don't we, why don't we go build something in India, a year or two later, PayPal is going to come, they're going to buy it. And as I've never said they have money.
00:24:56
Speaker
Yeah, they have the money, they have the appetite for the market. I can build something. I know all the people who I'd be dealing with on the other side could just be a quick two-year stint and then we can do whatever we want. She's like, okay, makes sense, makes sense. Let's do it. Of course, PayPal never came to India in a meaningful way.
00:25:12
Speaker
I kept getting distracted in the US and the European frontiers. Meanwhile, I kept building, we raised capital, and it became plan B, right? PayPal didn't come, but PayU was here in India. And for me, we started building a good relationship with them and brought them on the capital. But before you come to that PayU, first, I want to understand, like, when you quit PayPal, what was your thesis that this is what I'll build
Opportunities in India's Payment Systems
00:25:36
Speaker
in India?
00:25:36
Speaker
My thesis was payments in India was broken, right? Like even for a bit, 20 to be transaction, you put in your card and then you get an ODP and if you were traveling, you would never get that ODP. It was painful, painful, painful. And so I was like, well, we have to be able to decouple purchase from payment, right? And then you decouple purchase from payment, you get some magic.
00:25:57
Speaker
And what I was also seeing is that the ETail growth in India in 2014-15 was just going up, right? This is like the time of Flipkart, and Amazon was coming in, and like Atar, and this, that, everyone was like buzzing about India. And I was like, man, ETail growth is a precursor to payments growth, right? And I wanted to be part of a payments growth. I saw the ETail growth, and I was like, this is the time to get into payments.
00:26:22
Speaker
In the US, it played out very differently because the ETL guys never wanted to really do payments, right? They were willing to partner and kind of invest and whatnot. But in India, it's a stiffer because the ETL guys, whether it was a book my show or a fossils or an Amazon or a filter card, they were all like, hey, we have our own fintech team. Oh, you want to buy now pay later? They also need to buy now pay later. Oh, you want to do this? Oh, we can do this. So it was very hard because I felt like half the time I was just educating them
00:26:49
Speaker
on how to do what I want to do, right? And so it was just a bit of that trick and then balance. But the thesis was very simple. Like, e-tail is booming, payments will boom, e-payments will boom, decouple purchase from payment, because that's when you unlock massive consumer traction and a lot more cost comes into the system, but more self-doubt, consumer experience.
00:27:13
Speaker
It basically goes up a lot if they don't have to worry about putting in an OTP and all of that in the middle of... Exactly. And the more selfish thesis was PayPal will come, it's imminent, and that when they come, we get this package to sell. I was thinking...
00:27:31
Speaker
I was only thinking about being in india 2015 2016 to be completely frank like tell me about that like you from that idea how you actually got it off the ground because i mean fintech is a regulated space you didn't have much idea about how to do it in india this was a
00:27:47
Speaker
B2B business or was it B2C? You would essentially tie up in the book my show and offer it to their consumers. So there were a lot of buy-ins you had to secure to really launch this. So how did you go about doing that? Yeah, this part of the journey is a tricky one.
00:28:06
Speaker
So first of all, I initially thought I would set up in Singapore. In fact, the company is headquartered in Singapore. I was already there. I was going to set up in Singapore. The move to India was not even on the picture or not even in the situation. It was just a market to enter. And I was very clear about what I wanted to do. I wanted to build an experience where
00:28:30
Speaker
A consumer didn't have to do much, right? They were pre-approved, based on some signals, and they would just kind of flow through a transaction, and then they would come back and pay up whenever they needed to, right? That was the basic... And I built a nice little kind of clickable prototype, and I showed it around, and I talked to people in the ecosystem, and I had a fair sense of what I was getting into, but I didn't have really that much of a sense of what this was going to be about.
00:28:56
Speaker
I also knew that this was going to be a big deal. Like, if someone did it right, it was going to be a big deal. And so, first, I went and pitched to a few BCs, right? And to my say nowadays, I had met the late Mr. Narayan Gupta.
00:29:11
Speaker
who was the founder of Nexus. And his council to me was, hey look, India is a great place, phenomenal opportunities, but it requires the entrepreneur to be on the ground. You can't do this from Singapore. Why don't you go talk to my team in India?
00:29:27
Speaker
So I was like, wow, I'm going to plan a trip to India. This was in the US. I'm going to plan a trip to India. So I went to India. I met with Sequoia. I met with Matrix. I met with Nexus. And I met with a couple of other accounts. I forget the names now. And basically, again and again, I kept showing them this prototype. And I said, this is what I'm going to build. Guys, this is what's going to happen. You see this transaction. I'm going to show this how it's going to be.
00:29:45
Speaker
And they were like, look, it's really amazing what you're thinking, but it's really hard. Is this even possible? Like, are you going to be able to pull this up? And I'm like, yeah. Second time entrepreneur, I have done something like this in PayPal, but they were all like, dude, while you're brown and you're Indian, you're quite shouldn't. You're not from here.
00:30:02
Speaker
You will not be able to cut it. To be honest, that was the biggest risk. They would ask me about my wife and how she was thinking about India. I think for all of them, the biggest concern was at that time, there was this wave of high-profile folks that I moved from
00:30:26
Speaker
the U.S. to India and then fan art, right? Like they just could not hack it and they went back. And so for them, the biggest concern was, well, we can't have this happen, right? Or after we make it in person.
00:30:44
Speaker
So I got through that and Nexus was like, look, if you're willing to commit to move to India, then we can radio check. So very quickly, with just that prototype, no company formed at the state, they wouldn't try to check. So then I went back to Singapore and formed the company. Still, my thinking was I need someone who can help me operate in India. And that's where, just through social connect, I met this extremely wonderful lady called, never knew her but met her. And she'd been in the US, moved back,
00:31:12
Speaker
had started a company and not worked out and so she was in between gates that she was located. And so for me, I was like, okay, can we partner up? And the guy had very little India context, you need India context. My sense was, I would, again, build for a couple of years with her in India, and then I would go back to Singapore, and then she would keep working, right?
00:31:33
Speaker
And then I was thinking, oh, we can co-replicate this model in Vietnam and Indonesia and other modern markets. And that's what I would end. But the struggle when we got started was so real,
Pivot to Direct-to-Consumer Loans
00:31:43
Speaker
right? So we, on one end, we were building this technology in which we knew how to do. We were looking to do pilots with Book Might Show and Phasos and I think Dharma Delta and a few others, because all we wanted to do was just go buy now, pay later.
00:31:56
Speaker
I had not quite figured out the economics of how this business worked. Now that I sit in a very different credit position, the first thing I'd say is that business is unviable. There's no point in business. But at that time, I was just wanting to get the bookway show deal going. And so from June till December, all I did was try to crack bookway show.
00:32:16
Speaker
Spent all my time working with the founder, working with other people, and we just get into getting strung along. And like you were saying, B2B2C is a very, very, very painful, very, very, very risky playbook, right? There is a company called Simple. They have practice, more power to Nithya and his team, but I was not able to do it. So come to Sambala, I remember having a glass of whiskey in my hand, and Sylee, and a couple others in the room, and we were like, dudes, we have nothing to show.
00:32:42
Speaker
right? We have a pseudo partnership that's kind of working. They've given us some data. This data doesn't make any sense because it wasn't captured in the right way. And we were just like,
00:32:56
Speaker
If you like to hear stories of founders then we have tons of great stories from entrepreneurs who have built billion dollar businesses. Just search for the founder thesis podcast on any audio streaming app like Spotify, Ghana, Apple Podcasts and subscribe to the show.
00:33:16
Speaker
As if you couldn't underwrite using that data. Yeah, and the data was just like a bunch of cookies, right? It wasn't actually identifying a person. It was just identifying a cookie and then people keep blowing up cookies. And if you could come from browser one, browser two, and mobile three, I'd have three different cookies on the same person. And so it was very fragmented, very poorly collected data, so we could not make much sense. And they didn't have a concept of a user. They didn't care because for them, all they were doing is selling movie tickets.
00:33:44
Speaker
They didn't care about like a user and a profile and a wallet and all that stuff was coming. And so this was our like come to Jesus moment, right? Like, holy shit, how are we going to make it? And just in slightly more power to work suggested that we go talk to Nirmal Jain at IIFL.
00:34:02
Speaker
And IIFL wanted to do retail personal loans and wanted to do it in a digital way, but just didn't have the DNA to do it. Now for me, that's not what I wanted to do, right? But I knew that to demonstrate economics in six to nine months from where I was, I would need to make that change at that point, right? And if I even waited or daily gathered for another month,
00:34:28
Speaker
it that opportunity that window will be gone because i run wayward and then be just not with not having traction so middle of december we said we'll build an app it'll be for personal loans we'll go and we will kind of generate loans or leads for iaf right and that's how we pivot it we put it and suddenly like
00:34:48
Speaker
This is like a pure consumer business, like pure consumer, direct to consumer. And you're probably wondering how we thought we would go and acquire customers. Yes, we did a little bit of Facebook. But man, I've had a lot of students in tech parks, right? Where people come out for lunch and I was like, phone, phone, phone, phone, phone, phone, phone, phone.
00:35:15
Speaker
After telling you about my life for the last whatever hour and a half, this is the moment, the absolute pits of my life. The guy is sitting next to me with a Vodafone 4G SIM card, right? He's selling 4G SIM cards. And I'm sitting next to him trying to sell a bloody loan per phone, right? Or a phone per loan.
00:35:36
Speaker
And there's a line of people standing on Eddy's counter and nobody wants to stop. And people are in the tech park hounding people going in and out of their lunch breaks trying to get them to take a loan.
00:35:52
Speaker
And yeah, this is what falling from stars feels like, but you know, jokes apart. I did that for a week. Of course, the team did that as well with me. And we slowly got our mojo. We slowly started to figure out like, hey, what works and what doesn't work. And there is a big, big credit need in the market. It's just the right pitch or the right value prop, the right way.
00:36:15
Speaker
And we slowly got going. I remember when we celebrated doing like, I think a hundred loans in a month. Right now, I think I do like 350,000 loans a month. It's like, and a hundred, man, it was so hard, so hard to do the first hundred. We would have a little manual processes and what was coming from the app and storing in the database was off. And so I manually got edited to fix it. There was a bunch of paper processes where we had to like pair up this like, match the NACH form.
00:36:45
Speaker
We bought a paper cutter and we'd have someone sitting there cutting the paper. It was rudely manual. Fast forward three months from that moment, at least we were funded, right? I had pulled the company from the jaws of failure because 2016 was brutal in India. 2015 was awesome. 2016 was like,
00:37:06
Speaker
Show me the unit economics. Absolutely. That's when Snapdeal had all those fumbles. Snapdeal, housing.com, your tiny old, there's a whole bunch of companies that went out of business. For me, it was survival, right? And when it comes to survival, I think this is where entrepreneurs really differentiate themselves. You have to make certain calls that you would normally otherwise never make. You would say, this is important.
00:37:34
Speaker
This is critical. This is something I cannot live without. And you basically, everything is obviously important, but there are things that you cannot live without. So you just kind of focus, hyper-focus, and you basically put your ego aside, everything aside, and you just focus on survival, and then you make it through. And this is also when you go through this period where you're like, try to see, man,
00:37:54
Speaker
did I start the right company? Did I start with the right people? Does this have legs, right? And while you were having all those massive self-doubt, you're going out there and telling someone to bet on you and bet on the company and leave the numbers. And so it's definitely a really tricky, tricky time.
Securing Funding and Strategic Investments
00:38:13
Speaker
I still remember in series A, I had pitched some
00:38:19
Speaker
23, 24 investors and had been rejected by all of them because they were just like, oh, it's just not quite there. The economics is just not there. We're not feeling like this is the growth we want to see, et cetera, et cetera. And in the middle of this, I remember without taking names, my CRO at the time, my chief risk officer, someone who was on the founding team, I was basically saying, oh, I flew overnight on an area flight from Bombay
00:38:46
Speaker
to Singapore for its economy and pretty much couldn't sleep because it was a brutal jet lag flight, got to Singapore. And as I walk into the office, my CRO says, I just don't think I can continue to be at this. And I had
00:39:03
Speaker
come to Singapore to raise money, right, from one of my last-ditch-effort type of investors. And this is what I heard. I was like, holy moly, I feel like a bat to the head. It grabbed a cup of coffee, and it was a very emotional conversation. And basically, the person had just made up their mind, and it was just very disgruntled about
00:39:27
Speaker
like how we had not made enough progress, right? But for me, we had made a ton of progress. It's just the lens or the vision was very different. And we had to survive this period to get... Which is also a factor of proximity to action, no? Like you were... You had the proximity to action. Exactly. So if you sit far away, it just looks like nothing's moving. And you wonder, like, our project line is just going to get this deal signed. Right?
00:39:57
Speaker
Yeah, we could, but it just doesn't work that way. So anyway, in this person quit, and I had like 10 minutes to just catch my breath, drink my coffee, get in a cab and head to the next invest. In the cab ride, the whole time there,
00:40:14
Speaker
I was debating should I just catch a quick nap because I didn't slept all night or should I plan about how I'm gonna tell them that they should support this company that was not doing that great and had lost its chief risk officer like the single most critical role in a credit company right so I couldn't come up with anything.
00:40:33
Speaker
couldn't take a nap either, get there. And the first thing I opened with is like, hey, this is where we are, this is where we're done. By the way, lost quite senior scoffers of this morning. But don't worry, I know enough credit risk. I'll handle it until we can find the next person. And this is how I'm thinking about it. Very refreshing conversation, because I felt like if I had not been that jet-lagged, I wouldn't have been that honest, because I would have been a lot more creative. And they would have seen all the bullshit too.
00:40:56
Speaker
I was just so tired and I was so like, effet types. I just gave them the real... And he was like very appreciative. He was like, Hey, look, give us a couple of weeks. We understand it's early stage. We, we missed it when, when you were first raising your seed, but we want to get in. So we close our own.
00:41:15
Speaker
and double ventures, massive, massive testament to Amit and kind of really backing the founder, even at a time where it was like completely stressed. So I think it comes down to something very simple, right? Like, and I, and I say this in hindsight, this is not about betting the horse. This is about betting the jockey because the horse.
00:41:33
Speaker
will go through its periods of life, its success and failures and ups and downs, but the jockeys ultimately carry it. So I think there were many who did not bet the horse or bet the wrong jockey. Those are good venture capitalist friends of mine, but I still laugh in their face, right? I tell them that they bet the wrong jockey. So this business is brutal. And you started off saying, hey, it's a regulated space. It's India.
00:41:58
Speaker
that came into India, not understanding it, people. It's tough. And yeah, but I think I think some people just patting myself on the back, some people just make it through. How much did you raise that from jungle? The jungle round was a $5 million round. Okay.
00:42:13
Speaker
I wanted to understand a few questions on what you had built by the time you raced from jungle. What segment were you going after? Was it for salary folks who wanted a loan or was it for people doing business? What was the segment you were talking about?
00:42:30
Speaker
Even at that point, we were still quite guardrailed by what IFL wanted. So they were the ultimate lender. They were very clear about, hey, we want this type of profile, these type of customers, this credit score, and this is what we want to price for. So we didn't have that much control in terms of who we were lending to. It was mostly dictated by the IFL credit team.
00:42:54
Speaker
Yeah. So mostly it was Sal and Reed, a little bit of self-employed, but not a lot of business lending, right? It was very like individuals for individual purposes. It could be a wedding. It could be like, it could be something, you know, it could be health related. It could be like a home renovation. It could be like a festival and people wanting to spend on the festival. So they're just smoothing out people's cash flow.
00:43:16
Speaker
That typically was the use case. And the raise from Jungle was just about $5 million. And I think what we said is we would do most of the round and we would leave a little bit open. And the reason I wanted to leave a little bit open is because by this time, I understood that to build a credit company or a credit-based company, you needed lots of capital for a long period of time, right? You needed like
00:43:42
Speaker
deep-pocketed, deeply committed ecosystem players who could keep shoveling cash in the form of raw material to generate a massive yield on the back of it. And by this time, it was also very clear that PayPal wasn't coming.
00:43:57
Speaker
And I knew, and I think this is the difference between what other friends of mine didn't do and what I did, is I was very early gunning for a strategic and my fellow competition or my competitors were choosing the next
00:44:13
Speaker
venture capitalists. And I was like, venture capitalists eventually are not going to keep pouring more and more money because this is a pretty poor free cash flow business. It has great revenue, great margins, but very bad from free cash flow, so you need to get in bed with the strategic. And at that time, there was only one strategic. There was only PayU. And so I want to leave a million dollars open in that round with a chance that I can convert PayU. PayU initially said it was too small.
00:44:41
Speaker
too little. But once I reached from jungle, for some reason the stars aligned and they were happy to put in a million notes.
00:44:48
Speaker
Okay, amazing. So what was the revenue model at that time when Jungle invested? How were you earning? Was it like the spread? Like say IFL takes 16% and you take 8% and consumer pays 24%? Like that kind of a deal or was it a per load, like a lead generation deal? So I think I figured the exact, exact makeup.
00:45:13
Speaker
But I think it was one part for the origination and one part we earned through the loan as well. So because we were also responsible for helping them collect, they wanted us to have skin in the game in terms of making sure those loans were actually performing and that we could actually get consumers to pay back.
00:45:34
Speaker
So I think the exact nature but yeah it was like one part like a commission upfront for originating the loan and one part like through the performance of the library.
Regulatory Challenges and Technological Advancements
00:45:43
Speaker
You had to do that like what is called as a FLD, your first loss before first guarantee something like that.
00:45:51
Speaker
Yeah, so I think in the early days, it was something to that effect. It wasn't called an FLDG, but it was understood that we would protect a certain percentage of the book. The reason it wasn't an FLDG is because we were not deeply capitalized. So if you're saying, hey, whatever, patients would put up 5% of FLDG, then you can only have 20X what you're able to commit as the
00:46:20
Speaker
And that would really use the appetite for the lender to grow. So then I think this was, again, to Nirmal's benefit. He didn't want to kind of like stifle us and he wanted us to learn and grow. And so that's, I think, how it went.
00:46:39
Speaker
got it okay and this did not really need like any kind of licenses because you were not lending from your book so you didn't really need licenses yeah we were just an originator at that point and then we we passed it forward it's why i followed they were the lender
00:46:56
Speaker
They did the underground game. We were just kind of operating within their guardrails. It was then underwriting at play. So how did it evolve from that? Like once the jungle money came in, they use what William gave it. So then the next part was just, I think we had also started to figure out, okay, how to originate. We had figured out how to kind of use social plus referrals plus other channels very effectively to originate more.
00:47:24
Speaker
We had also figured out how to generate certain signals, which we could pass the lender to help them on the right vector. And by this time, our graph had also been built up. Remember the graph I was telling you about for fraud protection. We had also built out a graph where people were connected and we could see that this is where birds of a feather do flock together, right? Like a good network is actually, it's got a strong signal, positive signal, and networks with strong delinquents means there's like circles, there's like a cluster of them happening, et cetera.
00:47:51
Speaker
So we were able to pass those signals, and then we brought on a second lender. So I think we brought on Soliton as the second lender, and then we were able to... And then you're also starting to see that once a consumer borrows from us and had done all the paperwork and done all the processing...
00:48:07
Speaker
We could also serve them better by A, lowering the rates over time and B, making it more frictionless, our processes. But we didn't want to become like, I was sterile, right? Like we didn't want to be viewed as IFL's digital growth strategy. We wanted to kind of make sure that we didn't want them to feel like that we were captive to them and we didn't want to leave a perception in the market either that they were the only ones that we could serve.
00:48:33
Speaker
So we then diversified to Fullerton, opened up more geographies. At this time, we were still very Bombay and we kind of started to open up in other parts of India. And the one thing we were quite keen on is ultimately to go acquire our own NBFC or apply for our own NBFC. So we started to work around getting our own NBFC as well. And the idea was we would
00:48:56
Speaker
we would raise capital for our NVFC and then originate onto self. Because A, you get to keep better. We had a percentage of the margins. And B, also the high interest rates that we were getting charged by the NVFCs was getting passed on to customers. And I was a bit against that because that just meant that we were always seeking into the riskier segments or the segments that really were desperate.
00:49:23
Speaker
Right. So I wanted to get off of that. And the only way to get off of that was to kind of like have your own NDFC or your own capital. So I started to push in the direction. That's a long process. Eventually, I think it didn't quite fructify for various reasons we had.
00:49:38
Speaker
eyes on a certain NDFC, but the RBI was not happy with them selling. It didn't quite work out. But then we continued on the journey the same way. We basically added more lending partners in the background. We were able to negotiate better terms with those lending partners. But yeah, we just kept building this personal loan story and slowly ratcheted it up. And meanwhile, while the personal loan story was the front,
00:50:05
Speaker
The real asset that was getting billed was the graph. By the time it was 2019, we had some 650 million notes connected a few billion times and that was far more predictive and capable of discerning hood from bad.
00:50:27
Speaker
than any bureau, any alternate data, anything else. And we were able to demonstrate that we could do like a simple, like A versus B kind of champion challenger with a bureau or with anyone who claimed that they had phenomenal alternate data. And we would horse race and we would always win. And that was the reason I think we were able to kind of survive where other Linux startups didn't quite make it.
00:50:53
Speaker
Okay. How did you build the graph? I mean, how did you get that data about the relationships between customers? Because you're not like a social site, right? So how would you? So when a customer would borrow from us, one of the requisites was that they would download our patient's app. And when they would have the patient's app, one of the permissions we would ask them for is our contacts. And we would say, hey, use these contacts to kind of build a network score.
00:51:19
Speaker
And so when we didn't know much else, so if I have your contacts, I just know that these are people in your network. I wouldn't know much else. But then it just so happens that if you borrow from us, then you would tell a friend of yours and then they would borrow and they would drop their app. And then at least like five other friends of yours will come and do a check. They'll check their credit score, check their limit, check their balance.
00:51:40
Speaker
And then you would get these dense clusters. So what would initially start off with a very sparse, unfilled graph, very quickly had a fair bit of data that was contributed by the ecosystem. And therefore, clusters where there was more default would get a low credit rating and clusters where repayment history was good would get a high credit rating. And so you were able to make better credit decisions and got it. Okay.
00:52:08
Speaker
Yeah, and not as simplistic, but yeah, if you were part of a cluster where there were a lot of defaults that we've seen in the past, then you would have to really prove above the normal average Joe that you're amazing. You could still be a white swan amongst black
00:52:28
Speaker
or black square amongst white, but you would have to really differentiate yourself from the cluster. Otherwise, statistics-wise, you're going to demonstrate the same behaviors as the cluster. And by 2019, what kind of numbers were you doing like this person? We were doing close to like 110 crores, maybe 110 crores per month. So 2020 is when I guess you did acquisition, right?
00:52:56
Speaker
That's right. It was a long journey and what started off like back in June of 2019, ultimately was consummated into a transaction in whatever Jan 2020.
Acquisition by PayU and Expansion
00:53:13
Speaker
The EU had been looking at other assets as well. I mean, they did have an independence as money. They were looking at acquiring a cap float at the time. And we were in the mix, right? And I remember this clearly. And you just feel like it's like, I'm sharing this because there was all things that probably eventually that you're not expecting.
00:53:34
Speaker
So I walked into one of the very famous bankers, investment bankers in Mumbai, and they were representing a seller to pay you at the time. And I knew this, but they didn't share this, but I knew this. And then the banker said, hey, this deal is going to happen.
00:53:55
Speaker
And it's really unfortunate because you guys are going to be a, you guys are going to be collateral damage as a part of the steel because once it happens, your fatigue just bought with a very large company and you're going to be left on the sideline.
00:54:11
Speaker
And I remember that it was like, that really punched me in the gut because I was like, and I think what he said is absolutely bang on. He's like, if these guys are looking out to purchase someone else, then you as a CEO have one done a good job in explaining why you fit into their world. It's not their job to figure out who fit
00:54:31
Speaker
how you fit, it's your job as a CEO to demonstrate that you do fit and how you fit, right? And I was like, man, this is such good advice. Like I wish I had heard this like a few months earlier, and this deal was gonna happen anyway, right? This deal was like 99% from what I understand from the public press, whatever, it was gonna happen. And so all I did was I put together a simple four flights and I was on vacation,
00:54:59
Speaker
And I called up with you and I said, Hey, I want to walk you just through what we've been up to and how we fit in your world. And, and by the way, I've been into a fundraise, right? So, I mean, and because you're on my cap table and everything, the fundraise, and you have certain provisions.
00:55:16
Speaker
You're going to have to go, I did this pinch, I kind of gave them a very clear sense of like where we stood, how we add value, how we make sense, even if they, and at this time I was assuming that they were going to do that deal. So I thought that it was going to go through. And I said, even in a world where you double that deal, we still fit in your world, right? This is the
00:55:34
Speaker
Think of it as a $300,000 sale that I wanted to do with Kuova. This is what this was. And I think we still fit. We still fit in your world and you shouldn't discard us. We're a good asset for you. And fast forward for whatever reason, the other deal did not happen. But I had just raised capital from Payu. So they had just won full diligence on me. So they were... We knew everything about me, my asset, and whatever else. I had just given them this big story. So it was very top of mind for them, for the executives at Payu that
00:56:05
Speaker
Oh, this is what patience is, and this is how they fit. And so when that deal didn't happen, I think it was a very obvious second choice. And so then that's how, and then six months later, we were able to do it. Yeah. And this was like a pretty massive valuation, like $185 million valuation, right?
00:56:22
Speaker
Yes, it was a $1.85. Yeah. And that's what most of the investors exited at. I continue to stay on and kind of build. So I think I keep my stake in the entity. And that entity is worth a lot, lot, lot more. Yeah, just great. But that's also really, I owe it to the pay you guys to have that foresight to let the entrepreneur continue to build on the platform.
00:56:49
Speaker
in a meaningful way. And as far as that deal, we brought in LazyPay, the NBFC, and our pay you credit or pay sense under one umbrella called pay you credit. And then pay you already had this NBFC, LazyPay? Yes. They had one from a year prior, but I wanted all the credit assets to come under one umbrella. So that's how we... And this happened what, pre-pandemic or like once pandemic hit?
00:57:14
Speaker
No, just before. I think we closed our deal in Jan and the pandemic wasn't much. So yeah, by the skin of our teeth. So in 2019, you were doing about 110 crores of disbursement a month. You probably had a limited customer segment because
00:57:29
Speaker
You had only two lending partners. There was no lending happening through your own balance sheet. So tell me what's like a snapshot of things today, like from there, like what are the types of customers that you're lending to? What products do you offer? Is it still only personal loan? Like just help me understand the business. So today we stand at about 560 crores per month. And that includes minor pay later as well as like personal loans.
00:57:59
Speaker
But what we've also started doing is creating a platform or an API approach where we're helping other fintechs and neobanks lend to their consumers, but using our engine in the background. They don't have to build all the intelligence, the tech, the loan management software, bring the capital, they can just participate in the lending. So in some ways,
00:58:26
Speaker
There could be a thousand pay senses that we could support today through our platform, right? Again, this comes from my early Microsoft days, right? So I always think of platform first. So you start off with an application, but then eventually become a platform, you let others build on top of you. So that's what we're doing now. And I wouldn't be surprised if we're north of like 1000, 2000 crores.
00:58:46
Speaker
of lending per month in the next six months. It's just going... And from a customer segment standpoint, it's very diversified now, right? I think it's... We have customers who are well-buying a tier one CTE customer who are just looking to us as a convenient outcome because it fits more their type of borrowing, mostly in the BNPL segment.
00:59:10
Speaker
And we also have customers who are like personal loan borrowers, right? And then the good news is we've kind of systematically pushed our rates down, right? So we're down all the way down to like 13% for some segments of the customers going all the way to like 22% for the others.
00:59:27
Speaker
What are the areas that I wanted to see our NBFC push the pressure down? How many lending buttons do you have in terms of who are supplying the funds and how much comes from your own NBFC now?
00:59:43
Speaker
What does that look like? So we do about 50% on book, on our own. And we also manage our own equity with debt from a large set of banks in the background. That's one half of the book. The other half of the book is we do have, I think, like four or five NBFCs and a couple of banks that we co-lend with. So we can alternate. We might take 10% and then we might co-lend the other remaining 90% with a bank or with an NBFC.
01:00:12
Speaker
So there's a pretty wide supply side now. And depending on what type of loan, what region, what customer profile, there's a lot of intelligence in the system to just automatically channel it, whether it goes to on-book or off-book.
Optimizing Lending Strategies and Customer Experience
01:00:28
Speaker
There's a pricing engine that also knows how to optimize for the right experience and the right price for the customer. Okay.
01:00:35
Speaker
And you're still largely like a D2C player. You said that you're now looking at fintechs as a source of loan origination. So how much is your D2C player versus that low-loop fintech, other fintech partners?
01:00:50
Speaker
We're still, I think, 70, 80% DGC. The proof in tech partners is still small because we're also looking to understand, right? We don't want to expose ourselves to a risk that we may not otherwise carry on our own, but like easily help the part we risk, et cetera. So we're just being careful on how we grow that.
01:01:10
Speaker
What is the key lever for growth that you need to crack? Is it supply of money or is it building demand? Originating borrowers? Is it borrowers that you... or is it lenders? What do you need to know?
01:01:25
Speaker
It's actually neither. It's actually the match that's off, right? So today we get somewhere close to 600,000 loan applications a month, right? We do about 300 or so, 350,000, right? And a lot of that is being built. So if I just look at personal loans, in personal loans, we'll see about 3.3 lakhs. So 330,000 applications for credit. And we may actually serve maybe 50,000.
01:01:55
Speaker
The vast majority of the ones that we don't serve are not because they're not good credit or they're not servable. It's just that they just happen to be looking for a certain product construct that we will have. They might be paying for like another 20-day loan or we don't do 20-day loan.
01:02:17
Speaker
or they're going to be looking for like a bullet clone where they say, hey, six months, I won't pay you anything. And then at the end of six months, I'll pay you a big fee and I'll pay you the actual buy. We don't do that. And that's more the case for like business type of loan. So we don't do those. So we do EMIs and that doesn't fit for businesses. And the third could just be like geographies, right? So we only serve customers where we can collect. And so
01:02:43
Speaker
If you're 100% digital only, then we want to have some sense of comfort in terms of where you are. So that's the other part. So we don't serve all geographies, all corners of India. But I think the demand is there, the supply is also there. A lot of the supply goes unutilized, a lot of demand goes unserved because we're not able to match at 100%. So probably expanding the product portfolio, so to say, is what will be like a lever for growth.
01:03:12
Speaker
Product portfolio, underwriting mix, collections presence. I think there's a whole sequence of things that we need to do to just serve more. So you built your in-house collections capability. That's right. Why not just outsource it to agencies? A few different reasons. I think one is, collections is a great way to get a pulse on how to change your origination mix. And if you don't have anyone in-house driving collections, then you don't get a feedback loop.
01:03:38
Speaker
that can change your originations and your underwriting mix. That's one. The second is, collections is also, I think, is a necessary component of lending, but at the same time, it often goes wrong, right? Where customers escalate and customers say, hey, I've got abuse, or this didn't go right, or this happened, or that happened. And those are all missteps. These are not in our
01:04:04
Speaker
quote unquote, her guidelines or whatever. So if someone is 100% on agency, then you can't hold anyone accountable and you can't take action, right? So this is the reason we actually like to keep collections in-house to make stuff possible. But again, given the size of the loan book, it's not possible for us to hire
01:04:27
Speaker
thousands of people on roll. So we do a hype where we have all the collection managers on book and we spend time in agencies who ultimately are the ones who are the conduit. So any escalations can get resolved locally with the collections manager who are empowered to solve.
01:04:44
Speaker
So how do you generate 600,000 inquiries? What are your customer acquisition channels? What does the funnel look like? So a lot of it is through partners, to be honest. I think there are a lot of people in a very distributed fashion. You can call them DSAs, you can call them online aggregators. They are the primary drivers of acquisition. The second is
01:05:09
Speaker
We've also, over the last few years, built a very large buy-not-pay-later base. We have about 3 million customers who use our lazy pay buy-not-pay-later app. To be honest, we are live with Microsoft, but I think lazy pay had connected and I just acquired lazy pay. That's another way to go into that. I laugh about this just as much because what I came here to start five years ago, I ended up acquiring five years later.
01:05:38
Speaker
we ended up buying lazy pay from the EU and making it paid in credit. So they are live with like Zwiggy and Book My Show and whatever. And that business, and I know that for a fact now, that business, like what I thought back then was like unviable, is unviable by itself. But you have to combine it, combine it with the rest of what we do and then it becomes like a great way to acquire customers and then cross-sell those customers. And that is, to be honest, a very large percentage of how we source customers and do our personal work as well.
01:06:07
Speaker
The third is the pure BNPL where you pay at the end of the month, that is a loss leader, but then some of those customers, instead of paying at the end of the month, would want to pay over a three-month installment or something.
Cross-Selling and Market Evolution
01:06:21
Speaker
That's where you deal with that.
01:06:24
Speaker
that. Yeah, that's one part. And then some of those customers also will ultimately because they do this month and month out, they'll borrow some money. They'll say, hey, I have a expense. I want to buy a used vehicle or something. I want to buy borrow 60,000 rupees. They'll borrow it. They'll put that on your mind. And then now you make some money.
01:06:40
Speaker
So my last question to you, I know you must be quite tired by now. So I do interview a lot of FinTech founders, and I've spoken to three other founders so far who are all building a platform play, where they are saying that the way you can plug into, let's say Stripe or Razorpay for a payment gateway, you can plug into us for offering credit. So how do you see that space evolving? Like I spoke to the founder of You Grow, which is like a
01:07:07
Speaker
NBFC, own work listed entity. And then there are two startups, there's one company called Hyperface, there's one company called Dero. So they're all building these rails through which you can just integrate and start offering credit. So how do you see this market evolving?
01:07:24
Speaker
I think there's two ways. There are three players in credit, right? There are people who distribute credit. This is the creds of the world who basically acquire customers with brand campaigns, credit card payment, whatever. And basically what they do is they kind of cross sell them credit, right? Credit does it with that. We have seen a few others and that's how that works.
01:07:48
Speaker
That's interesting. I don't think that works in India at scale because I think you can earn two percent. Yes, it's risk-free, but the cost of acquiring that customer and the cross-selling them, it just doesn't quite work out. You have to amortize that customer or connoisseur with a different product that doesn't quite work out.
01:08:03
Speaker
The second, like you mentioned, hyper phase that we have with Mo and a few others, these are like pipes, conduits, rails, intelligence, middle layers, right? So again, middleware in India has never done well, middleware around the world has done well, middleware in India has never done well, because middleware in India just gets the price correction cost, right? No one wants to pay for stuff. Give me an example of what you mean by middleware, what would be another
01:08:29
Speaker
Middleware is basically like something which is that well outside India, but not in India, like as a concept. Yeah. Let's take Plaid, right? Like a plate, however you want to say it. They are basically a way to connect between in other markets, right? So basically, and they were not even at like whatever, four and a half billion dollars or anything apart. But they truly are like pipes between banks, right? They're middleware, right? Or like Visa Mastercard would also be like
01:08:57
Speaker
We have like a consumer facing. Yeah, exactly. Middleware is not well branded to be honest. Like, these are Mastercard are well branded. So middleware is not to be well branded. It's like PCI in India is like, that should be a middleware. So it's important, but it's not like consumers don't like identify with it. So
01:09:20
Speaker
That's a middleware software companies and they basically someone said hey I can I can do OCR scanning for you I can basically convert printed documents into digital formats and if you do that would be a middleware company and year after year when I write a check to them I'll be like hey can't you do this for a little bit cheaper can't you do this for a little bit cheaper.
01:09:39
Speaker
I will never let you build a big company on the back of my like meets on paper, right? So that's, that's simply what happens in your company. So I will always ask the volume discount or a brand discount or some discount to basically say, eventually I'm only going to pay you 300,000, but the value will be for war war work that you do, right? So that's the second. And the third is people who manufacture credit.
01:10:00
Speaker
right? Like whether that be a Bajaj credit, like any like reasonably sized bank or in VFC, there you do make money. And the reason you make money is because you also take a lot more risk, you also have a lot more capital, you have the regulation, you have, you've basically figured out so many different things that need to go in, go and see.
01:10:22
Speaker
for you to be able to manufacture a credit product for a consumer, right? And then that product can be distributed by anyone you want and you can pay them their CAC and then they can pull off and then you can monetize the customer over time. So I feel like people who are investing in deep differentiated manufactured products will survive. People who manufacture commoditized products will not survive because they'll just get like price compressed.
01:10:45
Speaker
So for us as a strategy, we always think about new to credit. We always think about thin file, not because you can price them more inelastically, but because no one else is competing for them. And that's where when we don't build all this graph technology and all this underwriting and have a copy people in data science, we basically look at the Bureau and give a person a loan, right? That's just such a huge waste. We do all this because we want to serve the people who are not on the Bureau or have a very thin trail on the Bureau.
01:11:15
Speaker
I believe that we need to continue to manufacture products that no one else can. And when we do that, that will start to work. So lending has three pieces, right? So you need to be able to acquire at scale at low cost. So that's where our BNPL, Swiggy, Bookwetchal kind of partnerships play a huge role for us.
01:11:34
Speaker
You need to be able to manufacture or underwrite customers in a differentiated way with data that's uniquely yours. That's where our graph and some of our other repayments information, or be it the other repayments information is uniquely ours.
01:11:51
Speaker
And the third is you need to have access to very low cost and very deep amounts of capital, because ultimately capital is your own hero. And that's where our process plays a huge role for us, or pay you plays a huge role. And that's what I realized like four years ago, venture capitalists will eventually not be able to win this game, right? Venture capitalists eventually
01:12:11
Speaker
I mean, today you have to have a little dry powder, so they're just throwing it around as if capital's free. But eventually, they're not going to continue to plug billions of dollars into a company as raw material. So that's, I think, how I see this kind of play out. Okay. So you, as an entity, essentially still fundraising from the EU, right? And what is the valuation you are at, if you are at Liberty to share? I'm pretty sure you said no, but no, I've been asking.
01:12:39
Speaker
Yeah, definitely no harm when asking. And yeah, definitely. It's much higher than where we started off at 185, that's for sure. If you like the Found a Thesis podcast, then do check out our other shows on subjects like marketing, technology, career advice, books, and drama. Visit the podium.in, that is, T-H-E-P-O-D-I-U-N dot I-N for a complete list of all our shows.