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Tashwinder Singh (Niyogin) on Building India's Next Fintech Giant, Beyond UPI
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"We realized that just lending is not the answer. You need to solve a problem for the small business owner."
This quote from Tashwinder Singh encapsulates the core philosophy driving Niyogin's approach. It's not just about providing capital; it's about understanding and addressing the holistic needs of small businesses in India, moving beyond simple transactions to genuine problem-solving. This sets the stage for a discussion about a more nuanced and impactful approach to fintech.
About Tashwinder Singh: Tashwinder Singh, CEO of Niyogin, is a financial services veteran with a track record of building and scaling businesses. He spent 18 years at Citibank, culminating in leadership roles before transitioning to the world of private credit at KKR, where he managed ~$1 billion in annual disbursements in India. Now, he's leading Niyogin's ambitious journey to revolutionize lending for small businesses, growing their loan book from ₹100 crores to a targeted ₹800 crores in the near future. His experience spans corporate finance, consumer banking, and the complexities of the Indian credit market.
Key Insights from the Conversation:
👉The Power of Partnerships: Niyogin's model heavily relies on strategic partnerships with a wide range of institutions, enabling them to reach a vast network of MSMEs and leverage existing distribution channels.
👉Beyond UPI: While UPI is a success story, Niyogin recognizes its limitations in rural India and focuses on addressing the unique challenges of cash-based economies and integrating cooperative banks.
👉Technology as an Enabler: The acquisition of iServeU and its technology platform (including soundbox technology) is central to Niyogin's strategy, providing both financial inclusion solutions and SaaS revenue streams.
👉Risk Management: Niyogin's approach to partner-originated loans, including risk cover, showcases a focus on sustainable growth and minimizing NPAs.
👉The Importance of Distribution: Niyogin's direct selling agents combined with strategic partnerships with institutions, gives them a wider and deeper reach.
Chapter Headings with Timestamps
00:00:00 - Introduction: Tashwinder Singh's Journey from Citibank to Niyogin
00:03:15 - The IL&FS Crisis and its Impact on Indian Credit
00:07:40 - Joining Niyogin: Identifying the Opportunity in MSME Lending
00:12:25 - Niyogin's Business Model: Lending, Distribution, and Technology
00:18:50 - Building the Loan Book: Targets and Strategies
00:24:30 - iServeU Acquisition: The Technology Backbone
00:31:10 - The Soundbox Strategy and Bank Partnerships
00:38:00 - Addressing the Challenges of Rural India: Beyond UPI
00:44:45 - Risk Management and the Zero NPA Approach
00:51:20 - The Future of Niyogin: Monetization and Growth Plans
00:57:00 - Competition and the Evolving Landscape
01:01:05 Key Learnings and Advice for Entrepreneurs
#Fintech #India #MSME #Lending #SmallBusiness #RuralIndia #UPI #FinancialInclusion #Credit #iServeU #Niyogin #TashwinderSingh #Investment #Banking #Technology #SaaS #Soundbox #DigitalPayments #Entrepreneurship #Startup #BusinessPodcast #FinancePodcast #KKR #Citibank #LoanBook #NPA #CooperativeBanks
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Transcript
The Rise and Challenges in India's Private Credit Market
00:00:00
Speaker
What's happening is that why the private credit market is going on and the way the sequence of events in India is that till 2018, the private credit market was booming, right? And the two segments that were booming were doing real estate financing because real estate developers were willing to offer 80, 90, 20% to take money for the real estate development, right? And that was all going into the private credit space.
00:00:21
Speaker
Things like the pandemic itself created for India, right, has just given such a huge fillip to fintechs and technology that has suddenly become a lot more interesting than it was prior to the one thing which i loved in this conversation is this phrase bips bips or b-i-p-s it's basically the short form for basis points a financial services guy will look at where he can get a few more bips out of the transaction or a few more bips from a customer or provide a service and charge bips for it And these bips really add up. You might feel like 0.01% is nothing, but when you're talking of large volumes, this is where the money is to be
Insights from Tashvinder Singh on Banking and Fintech in India
00:01:05
Speaker
made.
00:01:05
Speaker
In this episode of the Founder Thesis Podcast, I'm speaking to Tashvinder Singh. He's the MD of the publicly listed FinTech, Niyogin, Tashvinder is an amazing guest. He spent two decades in the financial services industry, worked with banks, investment banks, private credit, and I got to learn so much about the Indian fintech ecosystem so from him.
00:01:24
Speaker
I'm your host, Akshay Dat, and this is
00:01:35
Speaker
So, uh, Tashwinder, welcome to the founder thesis podcast. Um, you know, you are like a ah financial services, uh, veteran, uh, you've been in this industry for donkey's years, starting with Citibank.
00:01:50
Speaker
Uh, I want to kind of, uh, understand through your Citibank stint, what are the different parts of a bank? What all parts did you work in? Just help me break down what a bank looks like.
00:02:02
Speaker
Yeah, so I think ah ah fundamentally at a very basic level, right? There are two big streams of businesses that banks run, right? And one would call it the corporate investment bank or the entity that is focusing on corporates, serving the needs of the corporates.
00:02:21
Speaker
And then there is the consumer bank, which is serving the needs of individual consumers like you and me. So at ah at a very macro level, I would say you could break a bank into these two buckets because the products set required by these two segments are very different.
00:02:33
Speaker
Right. And Citibank also thought of life exactly the same way. and There were two entities. One was the Global Corporate and Investment Bank and then there was a Global Consumer Bank. So two real business verticals going all the way to the headquarters in New York as separate verticals.
00:02:48
Speaker
That's how Citibank was structured in the old days. I used to be part of the Corporate Investment Bank. And after finishing my MBA at the Faculty of Management Studies in New Delhi, I joined Citibank through campus.
00:03:01
Speaker
through the campus recruitment process at the corporate investment bank. Now, in any institution, right, and banks are no different, there will always be functional areas, right? For example, there will be front-end sales, there will be product management, there will be operations, there will be service, right? And then there will be other support functions like finance, audit, etc.
00:03:21
Speaker
So when I joined the bank, which was in 1994, I think the bank had a very clear objective of trying to make sure that management trainees, as we were called, ah we are able to understand all aspects of banking, not just go into one department and stick with that.
00:03:36
Speaker
Spend the first four five years really moving around different parts of the bank to become truly a well-rounded banker. Because the only way you can become a well-rounded banker if you've actually seen different parts of the institution, both functionally and business-wise.
00:03:48
Speaker
and and that training is i think invaluable i still think that was potentially and possibly the best training anybody could have got in the banking industry So I so spent my initial few years in operations, right? Then I moved into service, then moved into product management, and finally into business management, running running businesses for the bank.
00:04:06
Speaker
ah Towards my, and like I said, this is all in the corporate investment bank. The consumer bank also has a similar structure where you would have operations, you would have product management, and then you have different products, whether it is, you know, credit cards or mortgages or, you know, just branch banking, for example, right?
00:04:26
Speaker
so um that that's really how banks are are fundamentally organized um and what is and what does product management do like my understanding of product management comes from you know like the tech startups where a product manager is somebody who's uh thinking in terms of what will get the user to perform a click or to buy something or, you know, so or like like optimizing that for the user. What are the product manager in a bank? So product manager again in a bank, again, let me break it up into both the buckets and tell you what product management function is on both the sides.
00:05:00
Speaker
One on the corporate investment bank is, is focusing on the various products corporates use. For example, corporates may want trade finance. they may want to issue guarantees they may want to use cash management they may require investment banking services right things like that so everything is a product someone needs to own that product someone needs to be a ceo of that product for want of a better word right product managers in my view were ceos of individual products and they looked at how do we make sure that the customers are using this product and the product is the best in class product both in terms of service delivery in terms of cost of delivery in terms of profitability that product can deliver
00:05:36
Speaker
On the consumer banking side, the same logic would apply, for example, if you look at a credit card. A credit card is a consumer product, right? Now you'll hear about lots of banks launching newer credit cards with new functionalities, with new offers that are coming on the credit cards. Could be cashback offers, could be you know hotel stays, etc.
00:05:52
Speaker
So that is a product management role, right? You are creating the project but the product, underlying product. You are responsible for making the product interesting and attractive for the consumer that you are targeting.
00:06:03
Speaker
and so So no different from what you would do in a Unilever where you are thinking about selling soap. You need to make sure the soap is priced at the right point in time. It is selling through the right distribution channels.
00:06:14
Speaker
There is enough marketing happening, enough advertising happening. You are basically the CEO of that of that product. right so So it was zero similar to that. And what are some of the products within corporate banking? like That's where you spend most of your time. so Yeah.
00:06:29
Speaker
So i used to be ah I used to be a product manager for the cash management products, right? In cash management, what used to happen is that you had, and um like I said, I was with the corporate investment bank. The corporate investment bank companies that we would provide services to were selling their goods in various parts of the country.
00:06:46
Speaker
And in the old days, when you did not have things like UPI and NEFT, et cetera, they were selling in different parts of the country and they were collecting checks in different parts of the country. Somebody had to collect all those checks and bring all the money into a centralized account.
00:06:58
Speaker
So the entire ecosystem of figuring out if you have a check in a place like Agra, how do you move that check? Because that check has to be locally cleared in Agra, right? Because because if in the old days, we didn't have payable at par. Payable at par today means that the check can be cleared anywhere. In the old days, each check was for a certain destination.
00:07:16
Speaker
It had to be cleared in the local clearing system of that network. so we had And then foreign banks only had very few branches. We did not have a branch in every state or every city, like unlike a State Bank of India. So the foreign banks would then tie up with local PSU banks to act as their correspondent banks to use clear the checks So for example, we had Cooperation Bank as one of our correspondent bank where we would submit all the checks which were picked up by our agents in Agra for our customers.
00:07:43
Speaker
We will deposit them with Cooperation Bank. Cooperation Bank would put that to clearing and then would transfer the money to us. And for providing this entire service, we could charge the customer a certain fee because we were making them funds available to them in a centralized place so they could use those funds more efficiently.
00:08:00
Speaker
And otherwise what would happen is that money would be locked in some bank account in Agra, they've got some you know deficit in Bombay or deficit in Delhi and it would create inefficiencies in the system. So the cash management proposition was created fundamentally to take advantage of the inefficiencies in the system and provide a more efficient solution for moving money around.
00:08:19
Speaker
Today, of course, the world changed because the technology has come in and has made movement of money much easier, much faster, much cheaper for companies. Right. But the other point that was linked with this is that you also needed to see that when a company is selling in, you know, 10,000 locations and they're going to get money from each of these locations, there is this huge need for MIS and reconciliation.
00:08:41
Speaker
How do you make sure which money has come from where they need to map up that money from which customer has paid us? So banks were helping with even helping companies reconcile the fund flow that was coming to them from various locations.
00:08:53
Speaker
So the cash management product proposition was creating that whole infrastructure, creating the technology to be able to make sure the money moves ah quickly into a centralized office, having all the bank agreements with the correspondent banks, getting all the MIS, creating the digital infrastructure for the MIS to be available to customers on a digital basis and then and provide solution and and then then price this entire service appropriately so it made sense for the customer.
00:09:16
Speaker
That was a product manager's role. Now different people would get involved in delivering the product. Operations team would get involved in making sure that you know the the reconciliation is done, etc. There would be front-end teams out there that would be arranging you know agents to go pick up the checks from various people and talk about cash management specifically. like So cash management was not physical cash management, it was actually check management in some sense, but the product used to be called cash management. yeah that That's just how it was. but um Fascinating. it It sounds like you were almost building a fintech.
00:09:47
Speaker
It was actually a FinTech before the FinTech and you know, banks like Citibank were at the cutting edge of technology. If you think about it, the first ATM was brought in by Citibank. Citifone banking, which was phone banking, was brought in by Citibank.
00:09:59
Speaker
So at one stage during during our time in the bank, I think the bank was at the cutting edge of tech. Even cash management, Citibank was the first bank that really took advantage of this quote unquote inefficiency in the system to try and create a more efficient method for corporates to be able to get access to their funds faster.
00:10:15
Speaker
And using technology, infrastructure, relationships with correspondent banks, et etc. You put all of it together. but It's not only technology. right It's a business you're building. Technology is enabling you to some extent.
00:10:27
Speaker
Why is Citibank not a major player in India today? Is it regulatory reasons or that the indian Indian banks were able to out-compete? yeah i think I think Citibank, of course, I've been out of the system for a long time now. but I left Citibank in 2012. So everything I give you is a little dated you know and and and more from what I hear from my colleagues. right Firstly, Citibank is quite a significant player in the corporate investment bank.
00:10:52
Speaker
space What has happened is that… and and What is the investment bank space? First, why don't you just break that down a bit. so i think let's Let's talk about corporate investment bank is basically anything and everything to do with but companies.
00:11:04
Speaker
If you're solving the needs of a company, whether it is for a company to raise capital, to take debt, or to you know help them manage their trade finance, right help them with their trade, right yeah they're selling goods overseas, you need to have a letter of credit to be issued, you need a guarantee to be issued, all of that comes under the ambit of you know corporate investment bank.
00:11:26
Speaker
Investment banking is if some of these companies want to go public, they want to raise money, ah right? They want to go acquire other companies. All that comes under the purview of investment banking specifically. But these are corporate activities. Companies do this, right? Companies buy other companies. Companies go raise private equity. Companies are going and selling goods from a trade standpoint, e etc. All of that, right? So as a banker, if you're providing services with them, you're part of the corporate investment bank, as I mentioned earlier.
00:11:49
Speaker
Citibank sold off their consumer banking business to Axis Bank. So, you know, the the point is strategically the bank decided that they wanted to exit the consumer banking business in most countries. I think today Citibank only has consumer banking business in about three or four countries, obviously in the US, London, Singapore, and and maybe one or two other hubs, maybe Hong Kong.
00:12:07
Speaker
Most of the countries, Citibank has exited the consumer banking business. Good or bad, I don't think there's any point in discussing if the decision was right or not because the decision taken is taken, it's done. I think we all need to move on from there.
00:12:18
Speaker
So in the consumer bank banking space, Citibank is not a player today. There is no Citibank business that exists in the consumer banking space because they vacated that space and that business is now run by Axis Bank.
00:12:31
Speaker
In the corporate investment bank, the bank continues to be a material player. But what happens when the corporate investment bank is any bank in India was running both the consumer and the corporate businesses because they would get a significant set of rupee deposits from the consumers. People like you and I keeping our savings with banks would lead to the deposits, rupee deposit base would get created, right?
00:12:53
Speaker
Now, when you don't have a significant rupee deposit base, then the proposition that you are selling to your customers are usually foreign currencies propositions. Citibank can help access foreign currency markets. So if you are a company that wants to raise foreign currency bond because it is cheaply available, because even on a swap basis, it makes more sense to take a dollar loan, then Citibank becomes a very good player to go with.
00:13:14
Speaker
But if you want to take a rupee loan, then you compare yourself to a Indian player. where Indian banks have significant rupee liquidity, they will be more efficient. So I think what's happening in the banking space is that there are different strengths and niche that are getting evolved and different banks are having the competency to play in those different niches, right? So anything to do with rupee and rupee financing, I think the Indian banks certainly have an edge.
00:13:38
Speaker
Anything to with foreign currency financing, you will find that the foreign banks may have an edge because their ability to access foreign currencies because of their global networks is is significantly better.
00:13:49
Speaker
Okay. Okay. Interesting. Yeah. Got
Transition from Citibank to KKR: Exploring Private Equity Growth
00:13:52
Speaker
it. Okay. So, uh, what made you want to move on? Like 2012, moved on, What caused that change and where did you go next? I had spent, you know, 18 years had spent in banking and I never worked anywhere else, right? From, from after my MBA, I joined Citibank and I had a long run of 18 years, pretty much did everything towards the end of my career with Citibank.
00:14:14
Speaker
I had already been on the management committee of Citibank India for, for many years. And I had to choose between two options in life. One option was to move overseas so and Citibank had offered me a job in Singapore in the private bank business in Singapore.
00:14:27
Speaker
And the other option was to do something which could be a little more interesting or something else in India because India continued to present this ah you know situation where the opportunity set has always been fantastic for India.
00:14:39
Speaker
right And you know every few years we used to have this big joke that every few years India's turn has come and used to miss the bus for whatever reason, political, non-political, whatever the case may be. But the potential has always been huge. And today, again, I say the same thing that there's no better place to work.
00:14:54
Speaker
You know, the the action on the ground in India is palpable. I mean, I travel around the world and I see what's happening in different parts of the world, not to put anybody down. But I think the energy and the palpability of that energy in India is unparalleled.
00:15:07
Speaker
Right. I mean, you're based in Japan right now. So, so you know, i was i was i was I was at the Singapore FinTech Festival a few weeks ago. And I think... 70% of the people presenting their propositions, they were all Indian companies.
00:15:19
Speaker
So there was a, there was, i mean, 70 is just a rounded off number. I'm not giving you an exact number, but I'm just telling you that's the feeling I got, you know walking on the stalls and everything, right? So there seems to be a lot of activity. India has become the hub for FinTech globally.
00:15:32
Speaker
I mean, the amount of FinTech startups that are coming out of India is just tremendous. We are all 1.4 billion people, right? and And there is so much to, so much of catching up to do ah for these 1.4 billion, right? Whether it is getting them into financial inclusion or what have you, right? So at that point in time, I think the focus was i did get the opportunity because one of my previous bosses had moved to a private equity fund KKR and and they were looking to beef up the team in India.
00:15:56
Speaker
And to me, that seemed like a very interesting play. It also allowed me to round up my my erstwhile experience of being in a bank too to put it a to a different use, to look at companies from a different lens because I never looked at companies from an equity standpoint.
00:16:09
Speaker
As a banker, you only look at it from a debt standpoint, right? You're providing credit to them. So it just sort of looked like the right decision at that point in time for me to sort of, you know, hone up ah my skills by working in a different aspect of looking at companies and and working with a top-notch, know, world-class organization, right? KKR, in my view, is the original entity that started private equity in the world.
00:16:33
Speaker
So to work for an institution like that was not something that you get an opportunity that you get many times. Had I moved to Singapore, i would have been with Citibank. It would have been, of course, newer market, but the institution was the same. So it was just one of those decisions I took that it it makes more sense to get a wider experience and then try and see maybe I'll catch the the growth curve of India if if we actually did catch the bus.
00:16:58
Speaker
And I think over the last 2012 onwards, I think India has caught the bus multiple times. right I think we've grown quite repeatedly, we've become relevant quite significantly in the world.
00:17:09
Speaker
ah right And I think the next five, seven years are are super critical on how our our economy develops. and And the opportunity that that you know things like the pandemic etc. created for India it has just given such a huge fillip to fintechs and technology that has suddenly become a lot more interesting than it was prior to that.
00:17:30
Speaker
And what were you doing at KKR? What was your role there? So my KKR, I was, I was, initially I was brought in primarily because my Citibank experience was working on the commercial bank and I was dealing with the mid-market companies, right?
00:17:42
Speaker
And of I think the original focus was that I could provide access to the mid-market promoters and they could do proprietary deal sourcing by going and talking to them. So that was my original focus.
00:17:55
Speaker
KKR also was thinking of going beyond private equity. KKR had already thought about creating a credit fund, they had thought of creating a real estate fund, there was a special situations fund, so KKR had become a microcosm of what KKR in New York used to be, right? New York, they had multiple strategies.
00:18:11
Speaker
In India, they started with private equity, but they wanted to expand into multiple strategies, and therefore, I was brought in, ah you know, largely looking on the credit side. um you know along with a bunch of other people. So we had a small team and and these organizations are not large organizations, right?
00:18:25
Speaker
You would have 10,000 people in a bank, in ah in a KKR you'll have 30, 40 people. So there's a lot of heavy lifting everyone has to do, irrespective of designations, et etc. So it was it was very interesting. it was you know after having It was after having sat in the ivory towers in Citibank, it was about getting your hands dirty again.
00:18:42
Speaker
and And there's a certain thrill to that, right? That you're back to you know the basics. It sort of brought a lot of energy into the whole ecosystem. So I was looking on the credit side.
00:18:53
Speaker
We were launching a local credit fund. I looked at creating the PPM for the first local credit fund that we launched. What is PPM? PPM is the product manual that is created when you launch a fund. When I go to an investor, I have to give him a PPM saying, this is what you're going to do with your money, if you give us your money. Okay.
00:19:08
Speaker
So it's basically a a document, it's a product manual that you create before you can raise capital. So it was it was interesting. I think in 2012 2016, 2017, I think we did some really good cutting edge deals.
00:19:21
Speaker
We provided financing to a lot of Indian promoters. who were mid-market promoters but who had situations that needed to be solved. right For example, someone had sold a private equity to a private equity, 51% of the company to private equity, wanted to buy it back, we would provide them some financing.
00:19:38
Speaker
Some companies were distressed but they had assets underneath the which needed time to get monetized. So we came in and turned out the entire capital structure, took out all the debt, gave them a new debt which was a longer-term tenant debt but giving them time to basically find a way to monetize whatever assets they might have in the company and therefore saving the company. So I think some the deals we did were very interesting deals. These helped companies survive, thrive.
00:20:02
Speaker
Obviously, we took our pound of flesh when we did that because because we were coming in and in some cases in distress situations, in some cases in complicated situations. All right. And and and those were good. The power of the KKR franchise then was that we could get into a conversation with the customer without necessarily thinking about what ah what product to give to the customer.
00:20:22
Speaker
The difference between if you were only a private equity fund you would be a single trick pony. You have only one answer in your bag. And therefore, you'll only give that one answer. When you have multiple answers in your bag, I can do debt, I can do equity, I can do special situations, I can provide other kinds of financing for this customer.
00:20:40
Speaker
Then what I'm doing with the customer is I'm trying to solve the problem and I'm trying to find the most optimal solution for the customer because I have multiple solutions to offer. So that was, I think, the franchise that was being built in KKR, wherein we said that we could, rather than being focused on a product, we focus on the customer and the problem of the customer and find a way to solve the problem.
00:21:00
Speaker
because we have multiple products in our in our right as against some of the other PE funds which only had an equity answer to the DITI. And sometimes equity is not the right answer because, you know, A, the company is too distressed or it would lead to significant dilution.
00:21:14
Speaker
Sometimes the right answer is non-diluted structure, right? Because the customer does have some security to offer. He could give you real estate or what have you. And you could provide that solution, right? And also why it made more sense at that point in time, because India, the banks have been super regulated by the by the by the central regulator, right, RBI.
00:21:33
Speaker
and And the banks can not do a few things. For example, the banks cannot give you loan, which is a zero coupon instrument. Right? You can't take a zero coupon. What does that mean? okay It's not a lot. What does that mean? Zero coupon? There's no interest to be paid.
00:21:46
Speaker
All interest is back ended. So I give you a loan today because your business is not throwing up any free cash. You don't have money to pay me interest. But you can pay me interest at the end of two years. So the flexibilities that you could do through a fund or through an NBFC could not be done through a bank.
00:22:02
Speaker
And that created opportunity as well for structuring of deals where you could come and look at the genuine cash flows that the company could provide and then term your structure in line with the cash flows the company was generating.
00:22:14
Speaker
As against trying to say that, no, this is the only answer I have, take it or leave it. Right? So that then required, allowed us to be a lot more thoughtful in how a deal could get structured in line with what we thought the company could deliver and then meet objectives, you know, and, and obviously charge some fee for doing all the work, right? So it was very interesting, extremely heavy on the intellect. You said mid-market.
00:22:39
Speaker
ah how do you How do you define mid-market? What turnover? So I think if you if you take out the top 500 corporates from the country, right, or you take the top 1,000 corporates, right, in Citi, our definition of mid mid-market was companies from you know anywhere between $100 million dollars of sales all the way to about $1 billion dollars of sales.
00:23:00
Speaker
So a company that has billion dollars of those sales would come under the mid-market. Anything above a billion dollars of those sales, we said, was a large corporate. Enterprise. It's a large enterprise. needs to be looked at looked at very differently.
00:23:13
Speaker
So this ah whole space of private credit has been blowing up. Like, traditionally, yeah debt meant banks and equity meant private players, like private equity, VCs, you know.
00:23:28
Speaker
which now I think more and more banks are kind of giving up that space of debt ah to private credit players. ah Why is that happening? Like why why are banks getting crowded out of this? No, no, no and no. I think that's not correct. The banks are not giving up the space of debt.
00:23:44
Speaker
What's happening is if you look at a company, right? And you look at the capital structure of the company, right? The highest risk is the equity because the equity is basically equity risk, right? it's It's basically your money which has gone in to start the company or what have you, right?
00:23:58
Speaker
And the lowest risk is bank credit because the bank is taking the security of all that is there. The bank is giving you money, which is working capital money, etc. All of those things.
00:24:09
Speaker
There is a sliver in between between equity and debt, which could either have a look like equity, but it's not completely equity, may look like debt, but it's not completely debt. That is a space where private credit is playing in.
00:24:20
Speaker
So I actually think of private credit as mezzanine solution between equity and debt. Because a private credit player will never be able to compete with a bank on financing for pure debt.
00:24:31
Speaker
Simple debt, you want to take a mortgage loan, right? Mortgage loan is available to you at 8.35, 8.5% in India. How can a private private credit player ever compete with that? Banks do get, ah you know, deposits that they're getting at 4, 5%, 6%, which is consumer deposits, people like you and I giving money.
00:24:48
Speaker
They're able to use that money and and lend it out at 8, 9, 10%. We will never be, no private credit player will ever be able to compete with the bank in that space. What's happening is that people aren't giving up spaces. People are getting slotted into where they have their strengths.
00:25:03
Speaker
Banks have their strength in what we call senior lending, which is a senior lending stack on a capital structure, which is the least risky capital stack in a structure. Why? Because they have the best security. on the on the company's performance, right?
00:25:15
Speaker
And then the equity guys have no security because equity risk is full equity risk, right? If the company you know goes under, the senior guys are the first guys that will get paid. So if you liquidate a company because the company's cash flows didn't come in and then you went through the whole you know bankruptcy proceedings, whatever is left, the first people to get paid are going to be, apart from the government and labor and all of that, those things I'm keeping out of it. i'm talking about financial creditors.
00:25:40
Speaker
The first people who get paid are going to be the banks. right Then they're going to be the mezzanine guys and then it's going to be the equity guys. So the private credit is operating in the mezzanine and by the way the return expectations also changes accordingly because risk and return have to play a game out here. right So when the senior credit in India and I'm talking about rupee loans now, rupee loans are anywhere between 9 to 11%, 9 to 12%. That is what is the senior credit category.
00:26:07
Speaker
You come to the mezzanine category is between 12 to 16, 12 to 18%. And the private equity guys are trying to solve for 20 to 25% return. So if ah that's really how the cookie crumbles, right?
00:26:18
Speaker
So there's obviously a lot of noise. The market doesn't understand this, but one should distinguish on what sliver you're playing the game in and you're not getting crowded out, right?
00:26:28
Speaker
A bank trying to go into the mezzanine space will get crowded out because the banks don't have the understanding of the mezzanine space to be able to provide credit and they don't even have the mandate in all fairness.
00:26:39
Speaker
The central bank does not want... They don't have the risk appetite. They don't have the risk appetite. They don't even... In some countries, i mean, forget India, in some countries, the central banks don't even allow them to have the mandate to do this. so So that varies. So what's happening is that why the private credit market is going up Which is I think the right question to ask that there's been a significant and the way the sequence of events in India is that till 2018, the private credit market was booming.
00:27:04
Speaker
Right.
Impact of IL&FS Crisis on Real Estate and Private Credit
00:27:05
Speaker
And the two segments that were booming were, you know, but what we were doing, for example, and what a lot of people were doing in real estate financing because real estate developers were willing to offer 80, 90, 20 percent to take money for the real estate development. Right. And that was all going into the private credit space.
00:27:20
Speaker
Construction finance in the real estate space, which means I've already got the project already approved, but I need money to construct. That would be in the banking space because that you could borrow money at 11, 12%. right So private credit had no interest in giving money at that rate. So construction finance would go into that. But if company wanted to buy land or you know you know once you get a project, it takes you about a year, year and a half to get all the approvals to start construction.
00:27:45
Speaker
How do you fund yourself for that year and a half? That is where the more expensive debt comes into play. So private credit was always playing in that space. And then 2018 is when we had the ILFS crisis. The ILFS crisis, what I think was the was the um was the GSC moment for India, right? The global financial crisis moment for India, right? There's no Lehman in India, but but that was the Lehman moment for India in some sense, right? That seized up all the banks, right? And therefore, a lot of the private credit players who were getting, you know, back leverage from banks, e etc., right? Were running it like NBFCs, you know, those people all...
00:28:20
Speaker
seized up and because companies who had, who was looking to take credit could not get incremental credit. So companies started falling and they started defaulting. When they started defaulting, what they defaulted first on was the private credit loans that they had.
00:28:33
Speaker
So private credits actually saw through a significant loss that came in, right? And that took about three, four years. And then we were immediately followed by the pandemic, right? If you think about it, 2018 was then immediately followed in 2020 by the pandemic.
00:28:46
Speaker
So that problem continued all the way to 22. 22 onwards, the private credit market has come back with a big, big, big boom in in the Indian markets. Today, if you really start talking about, you know, every large player is talking about getting back into India in the private credit space.
00:29:03
Speaker
So businesses go through cycles, right? I think we had almost a decade of extremely good run ah in the in the private credit space from 2010 to 2018, 2009 to 2018. And then 18 to 22 was complete bad run. two thousand and eighteen and then eighteen to twenty two was a complete banran because of various environmental conditions et etc our promoters defaulting because the environment didn't allow them to you know get refinancings or get monetizations done etc and then 2022 onwards we have seen this resurgence of the private credit market so these businesses move in cycles we had some event risks that came in in 2018 that hurt the private credit markets if you did not have those event risks i think those private credit markets would have continued to boom throughout that period
00:29:46
Speaker
right So the 2018 crisis followed by the pandemic was just two real big events that hit the hit the markets and ah in a very big way. I mean, obviously, we have the luxury of sitting out here and looking back at the history of it. And when you were in the thick of things, right obviously, ah things were not you know as as as good as we'd like them to be.
00:30:06
Speaker
but But they were interesting. They were good learnings. you know but What was ILNFS? Was it into private credit? like like Why did ILNFS impact the private credit market? So ILNFS had a significant borrowing from every bank in the country.
00:30:22
Speaker
ILFS had more than 1 lakh crores of borrowing, right? and And whom were they lending to? Well, they were lending to infrastructure companies. ILFS was infrastructure leasing and finance company, right? ILFS was infrastructure leasing and finance company.
00:30:34
Speaker
Yeah, they were doing all kinds of deals. They were doing mezzanine deals. They were doing senior security deals. They were doing everything. And the problem was that there there were there were questions, there were integrity issues that came up. Right. That because they were rated, they were not a government entity, but they used to get a triple A paper rating.
00:30:49
Speaker
How were they getting a triple A paper rating was questioned. Right. And they defaulted because they had taken so much of money and infrastructure companies when they started, ah you know, some interest infrastructure projects got delayed, etc.
00:31:02
Speaker
There were some delay delays that happened and there were there were defaults. Then the whole mystery unraveled because they could not get refinancing done because their ratings dropped materially. And, the you know, one fine day, basically people questioned whether, you know, there was siphoning off of money, etc. I mean, I don't want to talk about that because this was under the and the realm of, you know, the regulator and and there was, Mr. Udde Kotak was involved in trying to see how to ah solve that problem and all of that and so ilfs was managed much better than how lehman was managed in the us i must say this i think the indian regulator ah probably did a much better job in trying to figure how to solve this issue in a organized manner but the market did seize up because people lost faith in credit ratings people lost people when i say banks lost faith in credit ratings uh and uh you know banks stopped lending because they were not sure who to lend to not lend to banks started pulling back on the debt that they've given out to companies so
00:31:57
Speaker
Companies can't just pay back debt, right? Because once you're in the middle of a project, you can't just repay the loan overnight. And therefore it created what is called a credit squeeze, you know, or or or what happened with the Lehman crisis also that basically credit just disappeared from the market.
00:32:13
Speaker
so And that that creates a problem because certain companies are working with the assumption that they will keep getting some amount of credit. If the credit does not come in, then business starts stalling, business starts stalling, then they default on their next repayments and therefore it becomes a continuous cycle where you have multiple problems coming in.
00:32:31
Speaker
So banks also indirectly participate in private credit by lending to the private credit players. that's right That's right. They do. They do. so so So private credit was being run in two ways, right?
00:32:42
Speaker
One way was that private credit, you could create a private credit fund, in which case banks were not involved because you were just a fund. You were a conglomerate of private money that had been pooled together. But there were also people who had built NBFCs, non-bank finance companies.
00:32:55
Speaker
And non-bank finance companies were being back levered with bank money. right and And that money was therefore being put into, but transparently, it was not there it was not it all completely transparently done. But it was a small portion. I don't think it that was a significant portion of the bank balance sheet.
00:33:12
Speaker
right It was a small portion. So I wouldn't i won't really worry about the banks having put money in that. But I think what happens is when a big crisis, 1 lakh crore is a big amount of money as far as ILFS is concerned.
00:33:23
Speaker
Obviously everybody got concerned and the first thing when you get concerned is to say, okay, just stop what you're doing. Let's first assess. Where are we? Let's not do more. Let's just pause. right and and And that's a natural human reaction. it's not It's not unique to India or to ILFS or to Lehman or to what have you. right It was a natural reaction that you would find everywhere, which is exactly what happened with the
Resurgence of Private Credit and the Role of Fintech
00:33:44
Speaker
Lehman crisis. Also, the banks in the US also said pause.
00:33:46
Speaker
Let us assess where we are. right Don't do more right now. Let's just figure out where we are. And and in that pause, depending on how long that pause is, a lot of people would fall off the cliff.
00:33:58
Speaker
So ah this is what led you to ah kind of move out of the private credit space and get into- Yeah, so I think i think two things happened, right? I think KKR also decided they wanted to sell the private credit business and they sold it to an entity called InCred.
00:34:14
Speaker
right And so bunch of us in 2000, I left in 2019, I think KKR finally sold the business in 2020 to Incred. And I think at that point in time, I was still pretty optimistic about the private credit markets coming back because fundamentally we had seen the golden era of the private credit markets, right? From 2009, 10 to 2018, we had seen a fantastic run on the private credit markets. And then you do face headwinds once in a while but the headwinds you know come and go right if you have the ability to stand tall in those headwinds then you can continue you know doing well ah so i think the thought process i had that point in time was that uh having done having worked in the financial services for so many years 18 years with city almost seven years with kkr right that was almost 25 years of experience i had two ideas one idea was that maybe we should create another private credit fund which we should do three four of us
00:35:07
Speaker
get together and create our own private credit fund because we still felt the market was interesting and we thought that ah um distressing times create lot of opportunity.
00:35:17
Speaker
right It's just that that distressing time got immediately followed by the pandemic. So creating a fund when you were in the middle of a pandemic was out of the question. No one could come and diligence with you. No one would come talk to you.
00:35:29
Speaker
So that was the thought process. If the pandemic was not there, then maybe we would have already created a second private credit fund and we would have been in that space, right hopefully riding the wave now as the wave has come back. right But that didn't happen because we were immediately followed by the ILFS crisis with the pandemic and therefore it was impossible to do that. At that point in time, the pandemic created incremental opportunities, right? When we figured out that people were not able to access their banks, people were not able to, especially in rural India, people were not able to you know get access to very basic banking services.
00:36:01
Speaker
I looked at my erstwhile experience when I was running the commercial bank in Citi. When I used to run with small businesses, i was I was basically providing financing to businesses that could be as small as, ah you know, 2 crores, 5 crores, 10 crores, all the way up to, you know, 250 million dollar businesses. I had the mandate to look at this entire franchise.
00:36:20
Speaker
And I said, if I look at the lower end of the spectrum, there are a lot of these retail stores that are just not able to survive. Retail stores are not even open. How would these companies survive? Right. ah You could not go to a retail store for almost a six, eight, nine month period.
00:36:33
Speaker
Everything was shut in the country. Right. As you probably know ah during the pandemic. Right. But that created an opportunity for us saying that there is a need for us to get technology to solve this problem.
00:36:45
Speaker
right and And that's when Nuyogin sort of came into my purview because Nuyogin had already been set up in 2018 by two people, Amit Rajpala and Gaurav Patankar. I'd known both of them, Gaurav I'd known for more than 25 years because Gaurav used to be an ex-Citi banker.
00:37:01
Speaker
And Amit used to, Amit still is a senior partner with Marshall Ways, which is a hedge fund. And KKR owns 60%, I think approximately 60% of Marshall Ways. So there was some connect, you know, but Gaurav, Amit and I got together and their point to me was that since you are thinking of doing something new, why don't you come and run Neogin?
00:37:21
Speaker
We had raised some capital. They had raised some capital at that point in time and the strategy was just evolving. One thought process was that why don't we give credit to the small MSMEs once the pandemic is sorted because during the pandemic it was impossible to give or what else could we do and that's when I think we got down to the drawing board to think about what technology solutions could be deployed given that the the extreme lacuna in in a lot of people getting access to formal um you know financial services was became... I mean, it became so evident during the pandemic.
00:37:56
Speaker
We said there is a ways and means we have to find a way to solve the solution. So we acquired a few companies. We acquired a company based out of Bhubaneshwar. Before, like I want to a little bit more on the origin story of Niogen.
00:38:08
Speaker
ah So you decided you want to do something in
Niyogin's Strategy in Leveraging Fintech for Financial Inclusion
00:38:12
Speaker
MSME lending. yes Why did you decide to do it by acquiring an existing business? Like Niyogin already existed as a business with a long, like a two decade plus history, which you decided to use that as a vehicle. No, no, no. So Niyogin did not know that. Let me, let me correct you. Niyogin did not exist with a two decade history.
00:38:30
Speaker
There was an existing and NBFC, which was existing with a two decade history. Niyogin got formed in 2018.
00:38:38
Speaker
And Niyogin went acquired that company, which was the two decade old company. Okay. Okay. And that... newgan That was a publicly listed company. with That was a publicly listed company and that company had a non-bank finance company license.
00:38:54
Speaker
And therefore, when you want to do lending in India, right, you need to have a MBFC license, non-bank finance company license. Now have two options. One option is you go apply to RBI for a new license. Second option is you go acquire an existing license, which again gets validated and ratified by RBI. So you're not doing anything behind anyone's back, right?
00:39:10
Speaker
So yeah but as fast again applying for a new license, it was the wisdom at that point in time, it was felt that acquiring and getting RBI to bless the acquisition is a faster way to get the business off the ground.
00:39:22
Speaker
And so the acquisition was largely done to acquire the non-bank finance company license. And this was like a kind of a reverse merger where you are now a publicly listed company or you bought out the public and now it's a private limited company. No, no, no, it's not a private limited. It's a public limited company. Basically the founders were bought out. The founders of the previous company were bought out. Public was still an investor in that company and new capital was infused in that company.
00:39:46
Speaker
Right. and And therefore new shareholders came in as new capital got infused. and And that's how the company got got formed. And it was renamed as Niyogan. And it was renamed as Niyogan.
00:39:58
Speaker
M3 Global was renamed as Niyogan. And therefore, the journey for Niyogan really started in 2018, end 2017, early What was it doing when you acquired? what was it doing but when you acquired like What was the scale? so so like i I joined, i came in I really took over the reins of the company in 2020, but between 18 and 20, the company, obviously since they bought the NBFC license, started lending to the MSMEs, right?
00:40:23
Speaker
So it was only a lending shop in in the first two years of its existence. Of course, the way the lending was done was quite unique. and And I think the thought process at that point in time was that if you want to see what happens in a lending business, right? Actually, okay you have three elements.
00:40:40
Speaker
You have client origination. You You underwriting and you have collections. You need to originate the right kind of clients. You need to have the right methods to assess whether they deserve to get the money or not. And after you've given them the money, you need to make sure you collect your money back.
00:40:53
Speaker
right These are the three broad aspects the way I think about lending. I think what they did was they created a unique mechanism for acquiring customers. Because if you really go back and start analyzing all the lending institutions, you'll find that they spent a significant amount of their total cost in the whole chain on client acquisition.
00:41:11
Speaker
Because ah client has the ability to go to 10 lenders, right? Why should the client come to you? So you need to be out there telling the client why you are a better person to lend. ah to to take money from, cetera. Now different people have done either you can advertise or you can create call centers, right or you can create other methods by which customers come to you.
00:41:28
Speaker
I think Neogin's original thought process was that instead of going to the MSME directly, why don't we go to the person who is the trusted advisor of an MSME, which is typically his CPA or CA.
00:41:39
Speaker
but A chartered accountant of an MSME is the person, because here the MSME definition is a person who has a sale of maybe 10, 15, 20 lakhs to maybe a crore.
00:41:50
Speaker
So this is like a retail store, a small company, right a tier three supplier to an auto component, et cetera, those kinds of people. right They are significantly dependent on their chartered accountant because all their ah filings, you know, regulatory filings are run by the CA.
00:42:05
Speaker
When they need a little bit of loan, 5, 10, 15, 20 lakh rupee loan, they need they go to the CA and they tell them that, listen, I need the small financing because I have a urgent need, etc. So the CA is usually plugged in.
00:42:16
Speaker
So what we did first in 2018-19 is onboarded a large number of child accountants telling them that our proposition is to provide services to your customers.
00:42:27
Speaker
You have more than MSMEs you're dealing with. Each of these MSMEs have different needs. You come to us, right? and And if we are able to solve that need, if we make some money, we will share some of the economics with you as well.
00:42:39
Speaker
So we made it commercially viable for the CA to work with us. because the CA was not and we didn't go after the big CAs because the big CAs would have big armies who can do this on their own right but the smaller CAs or child accountants or CPAs right who basically could see that there is an opportunity this customer could be given a loan because he is right for the loan but the CA doesn't have the bandwidth or the ability to do this he's sitting filing his returns e etc out right we told those CAs that why don't you give those leads to us we will solve the problem we will be your back office on getting it done and if a deal gets done we will share economics of what we make with you as well.
00:43:14
Speaker
So that's how the that's how the thought process started. So what the what the view was that look at your CAC, which is your client acquisition cost. This allowed us to work with a much lower, at least two things.
00:43:25
Speaker
Number one, it converted our client acquisition cost from a fixed cost to a variable cost because we only paid when a deal got done. Right. So otherwise there was no cost to us. And the other thing was that naturally the cost was lower than what we would have had to do had we put out a sales team of a thousand people on the ground going and meeting every MSM. right So I think will it was a unique model on how we would approach the market and and and and and get that going. Right.
00:43:51
Speaker
and And that's what the company did for about two years. ah yeah The lending was done from Niyogin's books only. Lending was done purely from Niyogin books. It was purely because this was an NBFC. We were trying to beef up the nbc NBFC. NBFCs are only relevant if you have a loan book.
00:44:04
Speaker
So the lending was being primarily from the signal. That was phase one of Niyogin. Right? And I think... Underwriting was like the traditional way of underwriting. It was the traditional way of underwriting. Financial statement, GST filings, etc. That's correct. So that's what the business started.
00:44:21
Speaker
What was the loan book when you came in? I think was about 80 to 100 tours. It was not not large. But you know it was actually a little lower than that. But... When I came in 2020, we were right hitting the pandemic.
00:44:35
Speaker
And the first thing we did, like I told you, is we stopped it. Because we said that we don't know how small businesses are going to survive. It doesn't make us to start lending in this ecosystem. And the second point was that we were lending through the CAs, but the CAs weren't the best mechanism to collect.
00:44:51
Speaker
Right, because we didn't build the big collection infrastructure when we were thinking the CES will help us to collect. And therefore we stopped the process and he said, let's first get our money back. Let's make sure this money comes back before some of these businesses shut down. Because in the pandemic, a lot of small businesses actually just shut down.
00:45:06
Speaker
Right, a customer which shuts down is not going to pay you back the money and you have no security here because these are unsecured business loans. So recovery is- And there was also a moratorium you couldn't collect, right? For a couple months. there was a moratorium given by the by the regulator. We had to give the moratorium. Those were all given. in laviva We were absolutely kosher as far as the law is concerned.
00:45:23
Speaker
But it just created the moratorium did not mean that the companies survived. Because those companies that were not actually at the end of the moratorium, they were in a significantly worse off situation. Because they would spent another 8-9 months of not doing any business, right? But they would all have had some cost.
00:45:38
Speaker
but dolo bad handy log and There's got some staff, some rental that they have to pay, etc. Right? which you And the interest is also piling up. Yeah, and interest was also piling up. Just because there was a moratorium doesn't mean that the interest meter did not continue. The meter continued. It was a cash flow moratorium that we can't collect the the the money from them, right?
00:45:57
Speaker
So good or bad, you know I have my own views whether the moratorium was a good thing to do or not. But nevertheless, it was, like I said, it is what it is We can sit and debate whether it was the right thing to do or not. It doesn't matter.
00:46:10
Speaker
right Because that is just in the realm of theoretical discussions. But I think what what what what came out of that was that we went back on the drawing board in 2020 when I came in and we said we need to think through that lending can only be done if we have incremental information that allows us to be different from the rest of the market.
00:46:31
Speaker
Otherwise, you were too small in the ecosystem. right What is the point of being a 80, 100 crore NBFC? it's It's an irrelevant number. right and and And you can't keep scaling up with the risk that if your collection infrastructure is not strong, and you will get impacted materially. right So I think two things happened in 2020.
00:46:49
Speaker
debated that whether we should do the lending. We actually debated whether we should be in the lending business or not. Right. and And we said, let's pause that discussion right now. and Let's look at what are the other opportunities because the capital was still safe. Our capital was still there. The money was still available.
00:47:03
Speaker
And as we collected our money back, right, of course, there were a few losses, but we collected our money back. We were sitting on cash. right So the first thing we did was we started actively managing our treasury to make sure that we are deploying whatever money we have effectively to at least generate some income rather than just making a, you know, every return.
00:47:19
Speaker
So that's the first thing we did. We created an active treasury in 2020. And in 2020, we also acquired iCellView, which we felt was an interesting technology business, which was meeting the needs of what we thought the country would need in the future.
00:47:33
Speaker
And to me, that was, I think, one of the best decisions we took. ah while you coming in. and I think both decisions in my view turned out to be good decisions. One was to stop lending at that point in time till we figured our lending ecosystem and what is it that we need to do and to buy Iserview which was again buying a business very early in its stage of evolution.
00:47:52
Speaker
It was a small company, 20-25 crore top line, very, very young promoters, enthusiastic people, excellent guys we got on board, great talent. Right. um in In the ecosystem that we got.
00:48:05
Speaker
And both these decisions basically then charted out our path as the world came away from the pandemic by 2022. We had first figured out for the ICER view business what should be the right strategy, because when the when we acquired the company, there was a certain strategy that the founders were working with.
00:48:22
Speaker
Right. and And that strategy would have hit a roadblock. And we worked with the founders and we figured out what the new strategy of that company should be given that there was a tech development capability we had. Right. We identified the white spaces that we should be focusing our energies on, which were, you know, which are not necessarily changing the whole path of the company completely, but making some tweaks and adjustments to make sure that we have a green run in in the growth of that company, right? and and And that's turned out to be pretty good for us.
00:48:48
Speaker
And in 2022, we also figured out on the lending side, what is really the place where we can be differentiated and create an ecosystem of players that we can probably play with and use technology on both elements of our business to be differentiated.
00:49:03
Speaker
So 2022 really marked the restart of our business in some sense. Right. And and and so so people say you are a six, seven year old company and I said we are three year old company. We are not a seven, eight year old company. We are sitting, you know, from 22 is really when we restarted repivoted business.
00:49:21
Speaker
and And the benefits of that we are seeing right now in the next couple of years, you will see material benefits of those strategies playing out. Right. So ISA view is like 100 percent subsidiary.
00:49:32
Speaker
No, iServew is a 51% subsidiary. 49% is owned by the founders of iServew, which, you know, we wanted the founders to also have skin in the game. So they are fully deployed. All the founders are completely involved in the business.
00:49:46
Speaker
They are actually managing the business. I am on the board of that company. We sit on the board. ah They report into me on an operational basis. They report into me and and and we have a great working equation. So so that's that's been pretty good.
00:50:00
Speaker
And so and let's kind of like first talk more about I serve you. So what what is the like, you know, how do they make money? What is the product offering?
00:50:12
Speaker
So again, I won't take you, i won't bore you with the evolution because there has been an evolution out here. But what we do today is iCFU has become what I call API infrastructure company.
00:50:22
Speaker
And I'll tell you what that means, right? So if anyone, it's basically an infrastructure company today, which has the capability to power anyone who wants to sell financial services in their ecosystem.
00:50:36
Speaker
So take the example of you have, you are a Hindustan, you are distributor, for example, you're Unilever distributor. You're selling soap to, let's call it, you know, 100,000 retail outlets. like they're buying soap from you these are kirana stores or mom and pop grocery stores and you want to do more with those stores you need technology to do more with those stores right so if you want to start converting each of these stores into effectively a bank which means so customers should be able to walk into these stores and perform all banking transactions they could withdraw money they could deposit money they could do a funds transfer they could apply for a loan they could open a bank account
00:51:10
Speaker
That entire tech stack iServeView provides. So iServeView will provide the tech stack to the lever distributor. The distributor will then talk to these his retail stores and convert them into effectively bank outlets. We call them as banking correspondents in Indian parlance.
00:51:26
Speaker
But they are all transaction enabled banking correspondents. And they are bank agnostic. That means they are not linked to any bank. You could have an account with any bank You could have an account with Axis Bank or ICICI Bank or what have you and you could go into these retail outlets and you could do transactions, right, which, which you know, will get eventually debited from your bank. Now, all this was possible because while we why why this opportunity came up in 2014 when the government created MPCI, which is the National Payments Corporation of India, that allows for some of these things to happen. So what we are doing is we are extending the power of MPCI by providing the last mile connectivity.
00:52:04
Speaker
The last mile connectivity is what iServeView provides, right? But iServeView, again, to go back to my original philosophy of always looking at your cost of client acquisition to keep it low. If we were to go and go after every retail store, would have had to hire thousands of people on my ground.
00:52:18
Speaker
We have less than 20 salespeople. Because the way we do this is we land up working on an enterprise basis as against a direct retailer to retailer basis. So I'm happy for anyone who wants to be an aggregator of retailers and he comes to us, we are happy to give our technology to them.
00:52:32
Speaker
And the way we make money is we make money on every transaction that gets routed through us. So if you are a customer and you walk into a small Kirana store in some village in Bihar and you want to withdraw 3000 rupees from your bank account in Bombay with Access Bank in Bombay, you could walk into that Kirana store, right? You could tell him I want to withdraw money from my bank account in Access. You don't need to give him the bank account number.
00:52:54
Speaker
You need to just give him your Aadhaar number.
The Persistence of Cash and Emerging Financial Technologies in India
00:52:57
Speaker
right and your fingerprint because your other number and your fingerprint is anyway integrated with your bank account. We pick up that data in a secure manner.
00:53:05
Speaker
We provide that data in an encrypted manner to MPCI and to the bank, right, or to MPCI through a switching capability which requires authentication which is also our own switching capability. validated and and verified and and approved by MPCI.
00:53:19
Speaker
MPCI sends that transaction to the bank. The bank will validate and say, okay, yes, Akshay has 3,000 rupees in his account. And that message then we relay back to the Kirana store or the grocery store guy. The grocery store guy then takes out 3,000 rupees from his register and gives it to you.
00:53:34
Speaker
What you have done is you have taken 3000 rupees from your bank account with Axis Bank in Bombay, but the Kirana store guy has acted as an ATM for you without the need of any fancy technology of a big machine out there, like an ATM machine that we go to, which needs to be filled up with cash, right? it is ah It is a non-human interaction. Here you've converted that into a human interaction. And what have you achieved?
00:53:55
Speaker
You achieved three things. A, for Akshay, we've made it easy for him to access his bank account from a remote location. without having to authenticate him 20,000 times.
00:54:06
Speaker
but His fingerprint, which is unique to him, and his Aadhaar card, which is also unique to him, is the only way the authentication happens, right? Number one. Number two, what we've done is we have provided a solution to the Kirana store or the grocery store by telling him that you can actually make the money that you collect every day selling, you know, Aata Dal Chawal, whatever you're selling.
00:54:25
Speaker
What do you do with that money? That money, you have to go deposit in a bank. It's a dead asset. We have suddenly made it productive. By giving you the 3000 rupees, he's able to get rid of that cash and we pay him for doing that transaction.
00:54:37
Speaker
So he gets paid, let's call it 10 rupees for doing that transaction, right? Suddenly out of nowhere for him, it's become an income augmentation idea. because he's now making money, right?
00:54:48
Speaker
And where do I get paid? What have I done? I have enabled a customer of Axis Bank getting served because you are a customer of Axis Bank. I have served you on behalf of Axis Bank.
00:55:01
Speaker
Axis Bank pays me, let's call it 15 rupees for doing that transaction. So I'm getting paid 15 rupees. I'm giving part of that money to the Kirana store guy. He's happy. You as a customer are happy because you've not paid me a penny for your 3000 rupee withdrawal.
00:55:15
Speaker
You've not paid the bank. The bank anyway is making money off you because your deposits are with the bank. So the bank and the bank is happy because I've told the bank, you don't need to create a banking infrastructure in a small village in Bihar because you know what? All your customers I'll make sure will get served through the local Kirana stores in that place.
00:55:31
Speaker
So you've solved multiple problems that way. You've solved the bank's problem of not having fixed cost expense. You've converted their fixed cost expense into a variable expense. You've solved the Kirana store's problem. He's sitting on cash. He doesn't know what to do with the cash, right? And and therefore, you were telling him to dole out and make that cash productive.
00:55:48
Speaker
You've solved Akshay's problem who needs access to a bank and there may or may not be an ATM in the location where he's based for him to go and take out money. So you are solving multiple problems using technology right and it is net value productive proposition because everyone in the chain that is providing services is getting paid.
00:56:08
Speaker
I want to ask a couple of questions here on this. ah So the identity verification is fingerprint. So all these shopkeepers are issued some sort of a fingerprint device. yeah So the shopkeepers, that's so now I think the question to ask is, what is the investment required by a shopkeeper to be in this business?
00:56:25
Speaker
Right. A fingerprint verification device costs 800 rupees. Okay. Right. That's it. They need to spend that 800 rupees to buy that device. We provide that device. I don't give it free of cost. but Because we think that people want to be in this business, they need to have some interest, but it's not a big deal. right And if the Kirana store guy, shopkeeper is getting paid 10 rupees per transaction, right you're talking about 80 transactions for him to break even. and And the fingerprint device has a three to five year life.
00:56:55
Speaker
So you're talking about break even the first month itself. This needs to have a same minute also too. it I mean, it needs to be internet enabled. Yeah, it needs to, it doesn't need internet enabled. I think it just requires basic phone connectivity.
00:57:09
Speaker
Okay. It requires phone connectivity. It doesn't need to have broadband or any of that. It needs to have, but India may, you know, thanks to Jio and some the other players, there's no issue with the internet connectivity. value Right, right, right. So everyone has a cell phone. There's more than 500 billion cell phones, 500 but for five hundred million cell phones in the country.
00:57:27
Speaker
So you everyone has a cell phone. The cell phone can be used to enable this transaction as well. Okay. Okay. And the, uh, fingerprint that it is comparing against is when you have enrolled for Aadhaar at that time, you give your fingerprint. So that's what, that's right. Okay. okay good Okay. That's okay. Got it. Got This, uh, this kind of an ATM, this Aadhaar based ATM is in itself an industry, right? I've interviewed a spice money yeah founder previously. And I think they, they have a, like a significant presence in this yes kind of, uh,
00:58:00
Speaker
So the difference between us and Spice Money, just to since you brought up, is that Spice Money is the person who will deal with the retailer. I would be providing the technology to a Spice Money.
00:58:12
Speaker
Right, so our reason I explained the process to you is because you need to understand how it impacts the individual consumer's life. But I am not dealing with the Kirana store guy. I am not dealing with the retailer directly.
00:58:23
Speaker
Spice Money, PayNearby, these are companies that are dealing with the retailers. I am at the backend providing the full infrastructure for them to be able to use this so they can focus on building. Now they've also got some products. So Spice Money is not my client. So, in you know, full disclosure, they're not my customer today.
00:58:39
Speaker
But people who are competitors to Spice Money are customers of mine today. Okay. Got it. Got it. Got it. And I've previously interviewed the Eco founder also on this podcast. so Eco is also a technology provider or they are also in the retailer space? So Eco was a technology provider, right? And Eco Eco was was also trying to get into this space by extending the APIs of the banks, etc.
00:59:07
Speaker
I think Eco is somehow I don't see them in the market anymore right now. So I don't know what's going on with that company. we don't We don't hear about them too much right now. But yes, they were in the same space. They were also a technology provider. They were similar to us, right?
00:59:21
Speaker
But we don't we don't hear of them as much in the market. So I don't want to, you know, give you something which is incorrect. I'm not plugged into something. I don't want talk it. We looked at ECO as a potential acquisition almost four years ago.
00:59:35
Speaker
Right. And then we decided that we can build all of this ourselves. And between the build versus buy, we took the build decision. No, but you bought ISERVU, right? In a way. Yeah. When I mean ISERVU. I took the took the decision.
00:59:49
Speaker
ISERVU took the decision. ISERVU took the decision. The build versus buy, right? because and And now what has happened, so so that was phase one of ISERVU. right Today, what we did after that is we were the this is actually the lowest end of the food chain in in the financial services space. but One last question, sorry, before we move on to phase two.
01:00:09
Speaker
How is the money getting split? Because now there are multiple players here. The bank will pay something. ah like say 10 rupees hypothetically for this transaction something goes to the retailer something goes to iserview something goes to let's say a pay nearby who is your immediate client yeah yeah how is that moneydding so yeah so the way it works is that if suppose now pay nearby is not my customer but just as an example if you look at pay nearby as a as an entity who we have provided the technology to pay nearby will eventually pay the retailer it's between pay nearby and the retailer what do they have to fix
01:00:42
Speaker
deal with the equation right what i'll end up doing is i'll end up giving between 90 to 95 percent of the economics to pay nearby so the bank will pay you bank is paying i will pay me the bank will pay me the bank will pay i serve you i said bank will pay my bank actually banks only pay other the banks right banks will because i have my my switch with mpci has been sponsored by another bank That bank will get the money from the bank through which the transaction was done.
01:01:08
Speaker
My bank will pay me. I will then, depending on who I'm working with, between 90 to 95%, I would end up giving the economics to them. So because the person who needs to get paid the most is the person who's closest to the customer.
01:01:20
Speaker
In the food chain, we are the furthest away from the customer, right? But we are also a technology service provider, which means for me, scale matters because every incremental transaction has no incremental cost to me.
01:01:32
Speaker
right So as I move last year, for example, just to give you an idea in 2024, we would have done almost 45,000 crores of this throughput through our pipes. Wow. Right. So it's not small. It's a pretty significant number.
01:01:46
Speaker
Now we'll end up making four five bips in the overall ecosystem, which is fine. But when there's 45,000 crores can become, you know, 450,000 crores, the economics start becoming so much more. So our motivation is to create the pipes, right? And then sit in an ivory tower and keep clipping away because every transaction that moves in, I have no incremental cost. I can make money.
01:02:06
Speaker
Though, there is an I'm just thinking as an outsider, like eventually everybody will start using UPI and these services of withdrawing cash ah will become irrelevant because even in a tier three, why do you need cash if through your phone you can scan and pay?
01:02:23
Speaker
Yeah, I think that is so cheap. so Totally, totally. And I think that's a question that every investor asks me when we go and meet our investors. And I think the answer to that is actually broken up into three or four points.
01:02:34
Speaker
Firstly, I think you should understand the cash in the Indian economy, right? Because theoretically, what you're saying is absolutely right. But in reality, post demonetization, in demonetization, the cash in the Indian economy had come down to about 7% of the GDP.
01:02:48
Speaker
Today, the cash in the Indian economy is 14% of the GDP. And the GDP has tripled from from what it was then. right So the actual physical cash in circulation has gone up through the roof quite materially.
01:03:00
Speaker
Number two, UPI, while everyone thinks UPI is free, UPI is not free. right For a consumer, you and I, UPI is free. But for you to do UPI, you need to get a UPI handle.
01:03:11
Speaker
For a UPI handle to be given to you, a bank has to give you a UPI handle. The bank has a cost of the UPI handle. Right. Number one. Number two, UPI has its own set of challenges in terms of reconsideration. This is currently being borne by, a let's say Google pays bearing the cost of the UPI handle today. because Exactly. Google pays closest to the consumer. So they will bear the cost because they will eventually like sell a credit card or a loan or something. They'll sell something else. They'll sell cross sales because UPI itself, Google pick can't make money on that. It's a cost better.
01:03:41
Speaker
right But they have to do a cross sell to be able to make money on that. right And the consumer is having a free ride. right You and I are not paying for the UPI product because the government's made sure that the consumer, which is also one of the reasons why UPI has gone through the roof.
01:03:52
Speaker
The problem is that if you want cash, UPI doesn't solve your cash problem. UPI solves your funds transfer problem. I need to pay Akshay, I can pay through this.
01:04:03
Speaker
But what if Akshay wants physical cash? Because when you are and and thatson that's why this opportunity or this whole thing was originally thought through from a rural India standpoint.
01:04:16
Speaker
Right. And in rural India, a lot of transactions are physically done in cash. There is a person's personal comfort of having cash in hand. Right. Some individual behaviors are not going to change overnight.
01:04:30
Speaker
Because if UPI has changed the way things are working, why is there more cash in the economy compared to what it was during the demonetization?
01:04:40
Speaker
Excuse me. So that's number one. Number two, I do want to tell you other thing which you need to take into account is that in rural India, a lot of people, these accounts are loss making account for banks.
01:04:54
Speaker
People don't give too many balances and all of that, right? So the banks really don't make any money. and And therefore they are not dying to go and give a UPI handle to each of these people. Right. and and And therefore that's the other reason why you've not seen UPI. In fact, MPCI launched UPI Lite or UPI 2.0, which was largely for it to be, it's it's not work. It's not been successful at all.
01:05:18
Speaker
So UPI has been a super success in urban centers. You know, I'm going down to have a cup of tea. I can pay for the cup of tea, 20 rupees. I can pay through UPI. Right. That's perfect. Right. I don't need to carry any cash in my wallet because we are sitting in the urban centers.
01:05:31
Speaker
I think rural India is a completely different kettle of fish. One needs to break up India between India and Bharat. Right. I mean, it's a, it's a term that's been much maligned, but, but Bharat operates very differently from India.
01:05:44
Speaker
and and And somehow, unfortunately, all the intelligentsia is sitting in India and therefore, you know, all the theoretical models show that there should be no cash in the economy. But reality on the ground, because I travel into these small cities, right? I travel, I meet customers in these small cities.
01:06:00
Speaker
We understand the behavior of these customers, right? Plus what happens is that moment, one of the big, I must give you this example, right? Because India has elections all the time. And in in in the elections, Maharashtra elections, for example, we just concluded, one of the biggest, biggest ah reasons why the current government won is because the government had a scheme called Latki Bhen.
01:06:21
Speaker
They were giving a certain amount of money to every woman on the street as a sustenance allowance, right? And that became a huge success. BJP also did that in Madhya Pradesh and it was a huge success there as well, right? But what do these women do when you transfer the money in the account? Firstly, I think what technology has done, the technology has taken the middleman out of the equation.
01:06:38
Speaker
So if the government is sending money into my maid's account, that money actually genuinely gets into my maid's account. What does my maid do with that money? The leakage has gone out. The leakage has gone out.
01:06:49
Speaker
But what does my maid do with that money? The moment the credit comes in, she goes and takes out that money into cash. The next day, she does not leave the money in the bank even for a single day. Right? Because her belief is that, no, I need the money.
01:07:00
Speaker
Right? Because it's only 1500 rupees or 1000 rupees, whatever the number is. I don't know the exact number per month. They go and take out that money. Now, the moment they take out that money, then it becomes a cash economy. Then she's going to spend the money.
01:07:11
Speaker
Right? And therefore, the cash economy is not going away. It is it is getting muted. which is one of the reasons why we also thought through and and now coming to the phase two, we figured out that this is not the only mainstay. This is also the, like I explained to you, the lowest rung of but revenue generators or profitability generators for financial services, right? It looks sexy because it is solving a real problem and it has solved a real problem.
01:07:37
Speaker
And companies like Spice Money, Payneer, all of these have been contributors to solving this problem. So, right, no one is taking credit away from anyone. They've all collectively, India is such a large country, right? All these businesses can coexist and thrive because the market space is so big.
01:07:52
Speaker
But what we did as a strategy is we figured out that if we need to be the true API infrastructure company, then we need to go beyond these products and create the ecosystem of the financial services that need to be done. right So what we did after that 2022, Neogin invested another into um You know, in in march in in March of 23, sorry, not in FI 23, we invested. And the idea with that money was that we need to now build the next wave of product capabilities, which go beyond these and and start looking at those products where there is a significantly higher revenue or profit generation capability for us.
01:08:31
Speaker
So we landed up, what did we do? We landed up building three or four things. We landed up building the entire card infrastructure. So if anyone wants to issue prepaid cards, credit cards, et etc., we are able to provide them a plug-and-play approach today.
01:08:44
Speaker
which has got nothing to do with financial inclusion, by the way, which is a complete financial services place where, because one of the things we also felt was that, you know, you have maybe 100 million people um in the country that can potentially be given credit cards, right?
01:09:00
Speaker
But you have 900 million people that have been given ah debit cards. We felt that prepaid card could be a significant opportunity. Loyalty cards, prepaid cards could be a significant opportunity. And someone had to make sure that there is an engine that can manage this entire ecosystem, right, of of managing the cards, et etc. So we created that as our next product.
01:09:19
Speaker
Similar to that, we created the credit card engine because we said that this needs to be done. Also MPCI in the meantime launched Rupay as a network to compete with Master and Visa. And by the way if you go back into the global environment, you'll find every country is trying to launch their own network.
01:09:33
Speaker
Middle East has launched another network, which they want to compete with Master Visa. So we were fully integrated with Rupay as an institution and we can issue cards on Rupay and also Master and Visa now, whether it's a prepaid card or credit card.
01:09:45
Speaker
We can't issue because we are a tech company, right? but because and And we don't have licenses to issue cards. You work with a bank. But a small finance bank wants to suddenly get into the cards business. We could power them up in the plug and play approach.
01:09:58
Speaker
We just did a small deal with a football company, with with a football club, the Odessa Football Club, where they wanted to start issuing prepaid cards to their family fan following.
01:10:09
Speaker
So they have a fan following and we gave them prepaid cards, which had you know photographs of their main stars, etc. Preloaded cards where they could preload the card and then use that for buying merchandise. right And for every time the transaction happens, there is an MDR that gets computed and we get a share of the MDR. So the economics of that transaction are significantly better than the four five BIPs you'll end up making as your net revenue in a financial inclusion transaction. The BIPs here, and let me just clarify BIPs for our listeners. So BIPs is basis points, which is like...
01:10:39
Speaker
yeah 0.01% is one BIP basically. basic That's right. That's right. Yeah. Okay. So, so the BIPs here are better? BIPs here are much better. In this? Yeah. So for example, if you make four, five BIPs in the financial inclusion transaction, here you could make anywhere between 18 to 20 BIPs.
01:10:55
Speaker
you're talking about four, five times the revenue, right? That you could make potentially as your net revenue, which you want to keep,
Comprehensive Financial Solutions: Competing in the Fintech Space
01:11:01
Speaker
right? So the revenue is only BIPs or also per card issued? Is there some fees? Of course there is per card issued as well. There'll be a per card issued. You'll charge a small fee for all of that.
01:11:09
Speaker
but Right? So, but so I'm just computing everything, ah putting all of it together. 18, 20 BIPs is what we wouldn't end up making. And you provide the bank partners here, like to that Orisa club? Yes, we provide everything.
01:11:21
Speaker
It's a full stack. One of the big things that I learned in my business is that you cannot go to a customer unless you have a full solution. You cannot go and tell the customer that, listen, yes, I know you need this, but I will only solve this one problem for you.
01:11:34
Speaker
Balance, you please stitch all the other pieces together. Now, I don't need to solve every problem. I need to stitch it together. I need to make sure that he can get activated on day one. So if it requires me to have a switch which is authorized with MPCI, it requires a bank to sponsor the switch, it requires someone to be able to do the reconciliation, requires somebody to be able to do, whether I do it myself or not is not relevant.
01:11:56
Speaker
I will provide the full solution to the customer. So when i go market in the when I go market, some pieces I'm handling, some pieces I've arranged. And which bank do you work with? Is it one bank or like many banks? No, we have more than 15 banks we are working with, right? So there are more than 15 banks you're working with. Of course, some of the larger banks we work with, we work with Quotas, we work with NSDL Payments Bank, we work with India Post Payments Bank, right? We are doing a big project with Camera Bank and some of the other banks are there. So we're now, we've not, and that's all come through as part of our phase two, phase three of our line of business that I will explain to you shortly, right?
01:12:34
Speaker
so So, we moved up the chain, right? what so One or two more questions I have here. So, in this business, you are competing with, like, say, an M2P.
01:12:45
Speaker
Yes, M2P is our biggest competitor in this business. That's right. Okay. And what about this company called Hyperface? They they are also in the same space? Yes, they are also a competitor. Yes, they are also. Okay, got it.
01:12:56
Speaker
the The difference is that we don't compete with them in the financial inclusion space. We have entered their domain. If you really go back into origination, all these businesses came up, M2P started with the cards business, right? That was their core reason. Same was Hyfer Face, right?
01:13:12
Speaker
We started with financial inclusion. We are now entering their domain just like they can potentially enter our domain, except that they've taken a different path. M2P has acquired more than six companies over the last four, five years.
01:13:23
Speaker
And M2P has gone into things like core banking solution for banks, <unk> etc. right Whereas are not. What I hear is for Unity Bank, they are providing the core banking solution. In which case they are competing with an Infosys because Infosys has Finical, e etc., up which is the core banking solution. We are not doing that. We are not getting into that big...
01:13:40
Speaker
We still think that being a microservice provider is the way to go for us rather than becoming the full stack solution provider for but a bank saying that we'll also do your core banking. They acquired a company that had the core banking solution, right?
01:13:52
Speaker
So it's not something that they've built from scratch. It's an acquisition that they do. Zeta zita also started with this card issuance, right? like Zeta is very interesting.
01:14:02
Speaker
Zeta basically started with a prepaid card issuance, which was a Sodexo solution. right So Dexo was Zeta's proposition. right And Zeta has game um zita has a strategic tie-up with HDFC Bank.
01:14:17
Speaker
They provide the services to HDFC Bank, but what I understand is that part of that contract was that they would not work with any other bank in India. So they are not working with any other bank in India, but they work with HDFC and I think HDFC works with them. So there is some kind of a, and HDFC a big bank as as as you can appreciate, right? Right, right, right.
01:14:35
Speaker
But Zeta therefore is now going overseas. They're talking to international players, et etc. And they're trying to see how they can scale that business globally, right? But they started with a prepaid card stack, which is a Sodexo card, which is now called Pluxy.
01:14:47
Speaker
That brand has been renamed to Pluxy. Okay, okay. Plexi is owned by Zeta. I did not know that. Okay. okay So, that's... so so that's that's ah
01:15:01
Speaker
So you're talking of the diversification. You're moving up the value chain. So cards is the second thing, right? Cards was the first thing we got into bill payments, right? We got into BBPS, which is again an MPCI product, right? What is that? Just build payments powering powering people for bill payments, right? See, the point is when you want to be a super app, you need to have the ability to provide all kinds of solutions to customers, right? And bill payments is a big, big opportunity in India because everything is getting, all bills are now getting digitally generated, right? Whether it's a phone bill, an X-Ready bill,
01:15:30
Speaker
you know, your stamp duty bill, whatever the case may be, are all. So bill payment is is a big option. We are also in. And what has NPCI done here? Like NPCI is connecting the bill issuers.
01:15:41
Speaker
Yeah, NPCI is connecting the bill issuers with the, so NPCI is connecting bill issuers. so you can get bills coming coming to you on your computer through your bank account, right? What we are doing is we are creating the infrastructure for enabling people who want to have bill issuers or to pay bills to be able to provide the capability. So if you have a bunch of retailers and you want, so take the example of the Hindustan Leva distributor.
01:16:06
Speaker
If you want to pay your electricity bill with cash, right? I want to pay 300 rupees electricity bill in a small village. I could walk into a Kirana store and pay the 300 rupees and the bill payment could be done there.
01:16:16
Speaker
I don't need to go to an MTNL or to a BSES location to collect the bill. 10,000 retail stores are suddenly become enabled to become bill collection centers. Right. Now, if I want to do a digital payment, I don't need to go anywhere. I can do it on my computer.
01:16:31
Speaker
But if I have physical cash and I want to make the bill payment, I need to go somewhere. Someone needs to take the money from me. And this would be linked with your phone number, like you give your phone number and he will tell you what all bills are.
01:16:42
Speaker
Yeah, there are multiple ways of doing it. It's this other hard card, there's phone number, e etc. So there are multiple ways in which that can be, you know, raised, etc. So, yeah so i mean, that's that that was built in and then there's a card issue. Then what we got in was the the the current line of business we've got in is um On the card side we spoke about issuance, right? Because issuance of cards that we were doing, we also got into the acquiring side of the cards.
01:17:11
Speaker
Acquiring side basically means that you provide the devices that will be used to verify the cards, right? The POS machine devices. So we said we can also be on the acquiring side. On the acquiring side, we figured out that for UPI transactions, one of the innovations that came in, which I think I would probably credit Paytm to come up with the innovation, right? And then Pine Labs followed suit was to create what are called sound boxes.
01:17:32
Speaker
So when you walk into a small Kirana store, you swipe, you pay through UPI or 200 rupee bill, there's a voice that says 200 rupees received. So the Kirana store guy does not need to validate or take a photograph of your screen to see the money has been received. He's actually got a message which says and and it just creates efficiency in the system. right That sound box, while the hardware is a very small piece of equipment, it's a simple speaker.
01:17:56
Speaker
right The technology is quite complex because what happens is that the information, the UPI so transaction has to go to the switch has to get validated that the transaction is completed, then it has to come back to that same Kirana store and then the voiceover can work that this money is received.
01:18:10
Speaker
And all of this has to happen in split seconds. So we created that technology as well. and and And we are now able to provide sound boxes with that loaded technology on the acquiring side to banks.
01:18:23
Speaker
So one of the large PSU banks has given us an order of say 500,000 sound boxes to be delivered over the next two years. and and And that suddenly has become a huge, huge business for us. Because that business has created what I call a SaaS revenue. So at some level, if I break the business again on ISR view, I now look at it vertically on two aspects. I vertically look at banking as a service and I look software as a service.
01:18:46
Speaker
So there's a vast revenue and there's a SaaS revenue. All that I do on the financial inclusion side, wherever I'm converting a Kirana store into an effective bank, that is banking as a service. I am providing banking as a service to the end customer.
01:18:58
Speaker
If I'm providing sound box or some technology to a bank, right, where the bank is using that technology, I call that software as a service. Right. So we have both of these streams in the banking as a service. I have people I need to feed.
01:19:10
Speaker
I need to make sure the Kirana sortai gets paid some money, the pay nearby equivalent gets paid some money, etc. In SaaS, all the revenue comes to me. I don't need to share it with anyone. Right. so So those two streams of income have become relevant for us.
01:19:22
Speaker
How are you monetizing this sound box? Is it a one-time sale, that 500,000 sound boxes? No, no no it's not it's a one-time sale, of course. Now, there are two models that work out there.
01:19:33
Speaker
There could be a model and the 500,000 deal is ah is ah is a straightforward deal where we are giving the devices, we are making a spread on those devices. Right? So, you know, make whatever amount of money you can make per device. But more importantly, you have a software cost, which is a a cost that is paid on a per month per device basis to us.
01:19:54
Speaker
So on a per month per device basis, we are getting paid. That is what our core value is, right? That's what we should be getting paid for. They could have bought the devices. Double digit or triple digit? That per device per month? In rupees, it's double digits.
01:20:07
Speaker
Double digit, okay. Double digit rupees. Like teens or something like that? Well, it's more than that. It's more than that. Okay. Okay. And and it's it's more than that. ah So, obviously, I don't want to get into the actual numbers, but but the interesting part is that that is just annuity revenue. I have no cost.
01:20:24
Speaker
Yeah, because the software is already built. it' just loading the software on that device. The device is deployed life of the device is three to four years. Right. And I've already got the device paid for. Right. Because on day one, I bought the device for call it X, X plus 5% or 10%. I've sold the device. So I've got paid that money. i have no cost of the
Innovations in Tech: From Sound Boxes to AI Tools
01:20:41
Speaker
device.
01:20:41
Speaker
I'm not keeping it on my balance sheet. Right. And, and I just clip away my, call it 18, 20, 30, 40 rupees, whatever that number is, right? I'm clipping away month on month on month basis, right?
01:20:52
Speaker
And at the end of three years, four years, when the device needs to be replaced, I'll give a new device and then i will keep clipping away that software fees and there will be, and there is some escalation on the software fees as well. right as as for the The bank would also similarly charge the retailer like monthly fee plus a monthly cost something like that. And what we've done, so our model is slightly different than the Paytm and the Pine Labs out here because Paytm and Pine Lab were basically selling to the retailer directly.
01:21:20
Speaker
which means they have to then collect from the retailer directly, right? Which is not your DNA. yard by idea You my DNA, right? Correct. No, no. In this case, we are dealing directly with the bank.
01:21:30
Speaker
The bank is my partner. The bank wants to give that device to the retailer. That's between the bank and the retailer. I don't care. The bank buys from me. He gets a fully software loaded device. right which he can deploy and the device connects directly onto the main system and is ready to go on day one itself. right The integrations are all done. All those devices are integrated on the bank's system. Now here the bank could use its own UPI switch for doing those transactions.
01:21:54
Speaker
But for the smaller banks, we are also offering the UPI switch. So what I'm telling the smaller banks, like a bigger bank will say, listen, I'm already doing UPI transactions. I don't need your switch. Just give me your soundbox solution.
01:22:06
Speaker
Whereas a small bank will say that, listen, I want to offer the full solution to the Kirana store. So please give me the UPI switch as well. So we are now enabled. So again, going back to the DNA, my DNA is always be ready with the full solution, but offer it as a microservice, which means a customer can pick and choose that I only want part A, B and C of your solution. I don't want part A to Z.
01:22:27
Speaker
Right. But A to Z is also available, obviously at a different cost. Right. The price is different if you want to use A to Z. All of my solutions you want to use for that solutions, we can use that. So I think the point i'm making is that we provide the whole stack, but provided not forcing the customer to buy everything from us, telling that everything is available a microservice. You pick and choose, we'll give you only what you need.
01:22:46
Speaker
i And I'll tell you, customers love that. My own experience dealing with customers, they love the fact that we are flexible in in in giving them exactly what they need because they think that they're paying only for what they need, which is what they what it is.
01:23:02
Speaker
I think a good way to look at it is that A Paytm is like an Amazon and you are like the Shopify. like Like you are enabling others to do like fintech, whereas Paytm is directly doing fintech.
01:23:20
Speaker
Yeah, I don't want to comment on your analogy, but yeah, I think you're not you're not far from the way I've positioned it to you right now. But yeah, that's all it is. So the difference is that I'm not dealing with the retailer.
01:23:31
Speaker
I'm dealing with the bank, right? a Shopify is still dealing with the retailer in that sense. there's ah There's a slight distinction there, right? thank and and And the beauty out here is that I don't then get into any receivable issues, etc. Because I'm dealing with a large institution who's buying from me, they pay me, life is good.
01:23:46
Speaker
The other model that operates in this market is... is where the bank says that, listen, I don't want to give you the money pay for the devices. What you do is you load up into a rental model for me and you take rental over the next three years.
01:23:58
Speaker
Then I have to keep the device on my balance sheet. Now what is happening is that we are getting into a few contracts with a few banks where the banks are asking us for that, especially when the cost of device is large. See, if the device cost is about, well, 1300 rupees, the banks don't mind paying for it.
01:24:12
Speaker
But if the device cost, and there are different technologies and different capabilities of different devices, one of the devices we work with is 8000 rupee device. so lot What is different in that? like but i think i think That's like the touchscreen card device, is it? It's got touchscreen, it's got multiple capabilities. It can do biometric as well as card reader.
01:24:31
Speaker
device so it's an all-in-one device right which we have also designed along with uh with one of our partners in fact uh when we were in uh singapore fintech festival about a month ago we actually signed an agreement with with one of the larger device companies in the country called pax px uh devices and there we are now working with them to develop what we think would be the new age devices required for the country and so so uh There, the larger cost devices, which are 7,000, 8,000 rupees devices, the banks come and tell us, said listen give us a rental model, we don't want to pay you so much of capex right now because we'll also collect, because for them to eventually, they need to collect the money from the retailer, right? If the retailer is saying, it bo I'm not going to give you 8,000 rupees in one shot, but I'm happy to give you a rental over the next three years, so give me a rental model. so
01:25:19
Speaker
So that's something which we are debating right now because the opportunity set is there for everything, right? have to pick and choose what battles we want to fight. and And if the economics makes sense and the rental yields are are okay, then we could potentially do some of that.
01:25:31
Speaker
and By the way, Pine Labs and PTM used to do a lot of that. Right. Might not have would like directly go to the retailer and give them the device. They would go to the retailer but they would not sell the device to the retailer, they would do a rental with the retailer. Rental. Right, right, right. In this space, you are competing with an EasyTap, I guess. EasyTap also works with banks.
01:25:51
Speaker
EasyTap also works with banks but I think there are other players who are focused on the... So I think you need to draw the distinction between the POS device and the POS Soundbox device. Pine Labs was largely in the POS device category, which is a point of sale device.
01:26:04
Speaker
What we're doing is an add-on to the POS. The Soundbox is an incremental microservice that you're attaching to a POS device. or to it just get so This 8,000 rupee device must be a POS device.
01:26:16
Speaker
It's a POS with integrated Soundbox. Right, right, right. Yeah. So so it's it's one of those ones, right? So I think what I mean is that that's the next line of business that we've done. So you want this bass, you want the SAS, right? And each of these businesses are growing in their own right.
01:26:33
Speaker
Now we're what the the interesting thing that's going to get added to the ecosystem is that suddenly the international market is opening up. We are now participating in the international markets. We've participated in the, obviously the global fintech festival in India. We've participate participated in the Singapore fintech festival.
01:26:46
Speaker
We've got in-bounds from the Middle East. Right now, suddenly when you start becoming relevant, right, in the market, when you're dealing with 14, 15 banks in India, you're providing technology to these banks. You build credibility in the market.
01:26:58
Speaker
Suddenly the international players want to understand, okay, is there a way you can provide some solution to them? right which could be more efficient from a cost standpoint from their standpoint but they will not deal with you till you had a certain scale to speak of right uh in your own home country today we have that scale in the home country i told you about the financial inclusion 45 000 of transactions run last year right we're talking about large number of soundbock devices being deployed by us this year um right and and and uh also having the card stack you know getting the first few customers using the cards
01:27:30
Speaker
infrastructure So suddenly all of that starts creating credibility in the international markets as well. And today we've got inbounds from banks ah in, you know, from as far as Japan to, and I was telling you about Japan, right?
01:27:41
Speaker
I know you're based there. So ah from ah from an institution in Japan to institutions in the Middle East to institutions and in Southeast Asia. wanting to come and do some POCs with us, proof of concepts with us. They want us to see, they want to see if the tech works and and we are obviously happy to engage with them. So I don't know how that will finally play out. Difficult for me to say because we are still at the proof of concept stage with a bunch of these institutions, but very, very interesting conversations.
01:28:04
Speaker
Right. And how much revenue will ISERVU do this year? So ISERVU will probably do a gross revenue of about 200 or 220 crores. Okay. Right? in In that ballpark, right? So that's what I said we will end up doing.
01:28:17
Speaker
I think- And when you put in that additional 50 crores, did you increase your stake beyond 51%? No. So we put it like a pref like ah like a redeemable pref share.
01:28:28
Speaker
So we didn't increase our stake because ah the point is our stake is 51.49. It's a sensitive matter because 51.49, you know, the the founders there have 49. I mean, eventually- you know, the stake will come to us, right? Eventually we will put everything together because when you are a 51% owner and you're a strategic owner, it becomes difficult for somebody else to come and buy that stake. I think right now we like the structure the way it is and we don't like it also for reasons.
01:28:54
Speaker
But why we like it is because it has tied us together and the hip, right? We are involved in the growth of this company together. It makes sense for both the founders and for us to, for this company to keep growing.
01:29:05
Speaker
right I don't like it because I'm not able to aggregate the entire value of iserview into my listed company. I can only aggregate 51% of that value into my listed company. right and And if this business continues to grow and if the international business becomes real and we become a global global company, then the value of that business could become quite significant. right So at some point in time, we'll have to take that decision on what to do with the 49% because sometimes if the business runs away, then it runs away. right We also need to have the ability to buy the 49%, which we could do through a share swap and and so on and so forth.
01:29:36
Speaker
but But as iCellView grows, the value of iCellView anyway reflects in the value of our stock. right So I think the next two years... I guess the goal would be to do similar to what Tanish did with the Carrot Lane. They eventually bought out the founder after. yes yeah yeah So I think those are those are negotiations, right? Those are negotiations. but But you're absolutely right. I think there are multiple options available on the table and I don't want to bore you with that. you'll You'll probably hear about some of it in the course of the next six, eight months.
01:30:04
Speaker
Because this is a situation that needs to be in some ways... unravelled, right? But the beauty is that the value still agrees, will keep accruing to Niyogin.
01:30:16
Speaker
And what we've done is in the last two years, we have put our heads down and we've built a lot of stuff. right And I think apparently we've tried to monetize some of it, but the real monetization is going to start from from this year onwards. From 26, 27 will be the two years, FI26 and FI27 is when the real monetization of the ISLV business will start showing up.
01:30:37
Speaker
And that is where the real game starts becoming interesting. right no one I mean, the the build is interesting, but the point is the build doesn't translate into numbers as much as we'd like it to do. right Once the build is done and and like I told you, I don't like to give half-baked solutions to my customers. right I don't want to go to them and tell them, okay, I built piece why don't you use piece A and pay me for piece A. right If their requirement is piece A, B, C, D, E, I need all that to be done before I can go and market that to a customer.
01:31:04
Speaker
So so so we we took that call. And I have now more than 300 engineers in Iserview based in Bhubaneshwar. It's a pretty large team we've created, right? And our product development capability is par excellence.
01:31:18
Speaker
We have some extremely high quality talent that we've been able to acquire, ah right? And what we also did in Neogin, now going back to the mothership, right? We also acquired a small ai AI company, right? It's called, we call it Neogin AI, where we bought a toolkit from...
01:31:36
Speaker
an AI based machine learning toolkit that we we we bought from a local player in India, the company called Orbo that had built a toolkit, which is what I think one of the best OCR technologies I've seen compared to all the other available in the country. And we bought that because we were thinking of using it for our processes.
01:31:52
Speaker
And we figured that if this toolkit is so good, why don't we buy it and productize it? Why don't we use that as el a product proposition, which we can add to the, you know, our repertoire of all the products that we have.
01:32:04
Speaker
So these these small tweaks we will keep doing in our business model to try and see what is good. Have you started selling that OCR tool? Yes, we've already started selling. We've already got customers. We've got large customers. What is the use case?
01:32:17
Speaker
The case is very simple, right? No, so the use case right now, the use case being used is actually quite simple. The first use case is that RBI came back saying that banks should not be storing the other number of a customer when they're doing KYC.
01:32:30
Speaker
Because Aadhaar number, like I said, Aadhaar number can become a financial transaction number. right You could withdraw money from a bank account if you know your Aadhaar number and with the biometric data. right ah So but when you do ah when you do a simple KYC and a customer starts giving you a copy of the Aadhaar card, what you store in your account has to be a masked Aadhaar card, which means the number has to be masked. they Now what banks were doing in the old days was they were physically taking a printout, crashing out the and putting it out.
01:32:57
Speaker
billions And there are billions of documents where the banks are still sitting on the Aadhaar card. All of that has to be recut. RBI keeps coming up with newer deadlines by when that needs to be done. So this is a one simple tool that this one simple utility that this thing does is it scans, identifies where all the Aadhaar number is and is able to mask it completely and store it automatically.
01:33:16
Speaker
So what was the manual process, right, is now into microseconds you are able to complete that process. I'm just giving one use case. There are a few use cases we have because the the other use case that we are building right now is, or it's already built actually, we've only got a customer on that, is The moment you are able to capture data right and that data can be put into a legible format, then you can play around with the data and you can do analysis on the data.
01:33:43
Speaker
right So what capabilities do you have? What is your capability of reading that data? And what are the various kinds of factors are taking to read that data properly is what differentiates between one OCR technology and the other.
01:33:56
Speaker
right And when we do we looked at our OCR technology and we looked at other players like Scienzy etc. that are also having their own OCR technologies and we used things like smudged Aadhaar cards and other documentation, we found that our reading success rate was significantly higher.
01:34:13
Speaker
Which is the reason why some of the large insurance companies, like I can't give you names because i don't have authority from the customers to give names, but some of the large insurance companies are actually using our tech today. So it's just... For KYC. Yeah. four Well, they're using it for KYC. They're using it for Enash. Leading the clearance.
01:34:29
Speaker
For NASH, right? For example, when you do a payment claim, right, there's physical NASHs that are given where a customer just signs up all of that, right? You need to scan the NASH and then convert that into an authenticable document that will eventually fly into a NASH credit or or a debit that needs to be done.
01:34:46
Speaker
We've provided the entire automation of that whole process as well. So using OCR as your basic tech, right, what can you do with that data that is being captured is is the way we think about life. Okay.
01:34:57
Speaker
And that's a 100% subsidiary or it's a part of... That's a 100% subsidiary. That's a 100% subsidiary. Okay. Of Neogin. Of Neogin. Right. Yeah. and That would be early days, right? In terms of revenue. Yeah. It's been just less than six months. yeah It's been, but you know, less than six months. a no forga i know the bibikail again we will do I think in the next three years, you will see significant jump in that. And the beauty is why I bought that toolkit, quite honestly, was because I also got nine really smart engineers along with that business.
01:35:26
Speaker
And these are all AI trained machine learning. So one could think it's an accurate hire, right? But then we need to do something with those engineers, right? Which is why now we've created, we've got a roadmap of creating multiple. I'll give you another example of product we are creating, right? Today, the market is dominated. The the the bank account analyzer market is dominated by Perfios.
01:35:43
Speaker
Perfios is a company in India that basically created this platform where when you want to do the analysis of a bank, want to give a loan to a customer. ah Okay. to To give a loan, you have to read the bank statement.
01:35:54
Speaker
how much money comes in yeah How much money, how many credits have come, how many debits have come, what are the outlier debits, outlier
Overcoming Integration Challenges in Fintech Partnerships
01:36:01
Speaker
credits and all of that. So Perfios has that system. We use it in Neogin, we use Perfios.
01:36:05
Speaker
right But once I have this high quality OCR capability, I can just build my own Perfios solution. like but this is a I mean, it's a dying market right with the account aggregators.
01:36:18
Speaker
Yeah, I think it's not a dying market. It's a market that will reformat itself because the account aggregators will need to have the, the firstly, you will give permission to the entity, to the entity the account aggregator to share your financials with the lender.
01:36:36
Speaker
But the account aggregator will again give an account statement to you.
01:36:40
Speaker
Right? You're giving the authority to the account aggregator. But that will be like, you don't need OCR for that account statement, right? No, you don't because it is a digital account statement, right? So you can easily pull out data and all of that, right? Then it's more of like doing analytics on it and coming up with a... Yeah, you can do that. But I think my view is that... But globally, this would still have a use case, right? Because... 100%, 100%. See, the beauty about tech solutions is that why are you limiting yourself to India?
01:37:09
Speaker
and you could You could do, you know, of course, globally, you need to be worried about vernacular. You need to make sure that language, suppose your Chinese language for us to be able to understand may be tough, but English is still a language in most countries that we want to operate in, right? You go to the Middle East, you'll still have English account statements and all coming in right? So I think our view is that when the tech stack,
01:37:27
Speaker
sort I would understand this account aggregator framework a bit better. I first heard about it like more than two years back with a, I was interviewing the founder of a TSP, which was building in this space.
01:37:39
Speaker
Is it mainstream yet? Or is it still like, it's coming, it's coming. with I've been hearing it's coming for the last two years that It's still coming. Account aggregator is coming. ah so It's still coming. The idea, I think the problem is fantastic. What reason i think i The idea is fantastic. right so so See, the idea is fantastic.
01:38:01
Speaker
The the the a customer consent is very important in an account aggregator solution. right And in the account aggregator, the account aggregator has to be integrated with all the banks.
01:38:13
Speaker
Because I may have an account statement with different banks. I think the big, big problem with the account aggregator is that the cooperative banks are not integrated. There are 800 cooperative banks, right? So the mainstream banks, which are 40 banks, easy to integrate with them, right?
01:38:27
Speaker
But when you start talking about rural India, you start talking about, you know, the tier two, tier three, tier four cities, the cooperative banks do play a material role. Right. And the the that part integration has I mean, think about it.
01:38:41
Speaker
The cooperative banks are not even integrated with MPCI today. So until those integrations start getting done, right, unless an RBI and MPCI had announced that they're going to get 800 cooperative banks integrated. This was like a year and half ago.
01:38:53
Speaker
one I have not seen that happen. right So I think some of those challenges have to be sorted before this becomes a ubiquitous product. So when I say it's coming, it's not that it's operational today.
01:39:05
Speaker
It's operational up to a certain point. But the point when I'm looking at a customer, right if I'm going to give a loan to a customer A, which is a corporate customer, he has five accounts statements ah five accounts that he works with. right Three of them are material SBI, B.O.B. Canera or SBI, B.O.B. access and then two are cooperative accounts.
01:39:23
Speaker
If the account aggregator just gives me data for three, it's not good enough. I have to still go back to the other two. have to go back to the customer again. have to collect the data again from the customer. So then it defeats the full purpose, right? I'm not getting the full experience of this.
01:39:36
Speaker
So like I said, it's coming. It will happen. This is one. I'm just giving you one data point. um And who is building the pipes? Who is connecting these? Who's taking the effort of putting these small cooperative banks onto account aggregation? I think this is again a MPCI type project, which has been done through a centralized entity because no individual PSP can do this.
01:39:58
Speaker
yeah right So it has to be a centralized infrastructure that needs to be created. So that's why I said it will happen. right There are so many other infrastructure projects. There's ONDC that is there. There's Okun which is there. There are so many other things that are there. But the problem with all of them is that we have one huge successful proposition which is UPI.
01:40:16
Speaker
And then everyone else pales in comparison when you start looking at the success of UPI. The problem is everyone's expectation is that each of these should be as successful as UPI. So I think there is little bit of expectation mismatch in life.
01:40:30
Speaker
right and And all of them are working. See, it's not that all these projects are in some sense going to go live. They are going to make life simple. They will at least address some parts of the problem if they don't address the entire problem.
01:40:43
Speaker
But India is such a complex market, right? Even UPI, like I told you, right? UPI has oodles of transactions that we do. We can talk about the large number of transactions we do. But if we talk about rural India, you'll find that the number of transactions are not that significant.
Optimizing Loan Distribution with Digital Platforms
01:40:56
Speaker
Right? So it's, again, UPI is a solved part of the problem. It's not solved the entire problem. Right, right, right, Okay. So, uh, coming back to Diogen, uh, we left a story at, uh, you joined during yeah the COVID period.
01:41:14
Speaker
First we shut down lending, right? yeah Then we did two things. We said, listen, we have the CA network. Right. And the CA network is still throwing up transactions because that network is now connected with us.
01:41:26
Speaker
All of that. ah ah We can't not look at those transactions. If we are not doing those transactions, let's create a distribution business. So we then converted the entire CA network into a distribution business. You went and tied up with more than 15, 20 other institutions like your Bajaj Capital, led Finance, Poonawalla Finance, Give or Take, Mahindra Finance.
01:41:46
Speaker
IDFC first bank, whatever, 15, 20, almost 27 institutions. And we then started channeling those transactions to each of those institutions. Initially manually, today we've got a digital solution we've created called NeoBlue, where a CA can get onto that platform and through that platform he gets to figure out whether this loan will pass mustered or not.
01:42:07
Speaker
He just puts in basic data and we tell him there and then that this loan will be done or not. And as a second part of the engine, what we've done now is we have input the credit policies of all our partner institutions.
01:42:18
Speaker
We are also able to tell the CA this loan will get done and the highest probability of this loan getting done is with Bajaj or with EnnioGin or with L&D, right? So it's a rule engine which we have based using the AI tech team that we acquired.
01:42:31
Speaker
We have created that rule engine basis there and that rule engine is a machine learning engine, which means as we do more and more transactions, it will be able to guesstimate more accurately which is the right institution that can get this transaction done.
01:42:43
Speaker
Giving a higher success rate to the CA for that institution to be done. So we created that part as a distribution business. Nyogen balance sheet is also one entity which could be fed through that institution if the Nyogen is the right institution to be able to do that law.
01:42:59
Speaker
right And then what that engine also does is also optimizes for commission, which means different institutions have different commission arrangements with us. It optimizes if more than three institutions are saying that they can do this loan because we think they will do the loan, then it will optimize and say, where is it that you can maximum commission?
01:43:14
Speaker
Because we should give the loan to that into institution, right? and And therefore, so that engagement with the CA as a distribution angle became pretty good. Then became yeah yeah said okay we Your commission in that is what ah percentage of the loan amount? three percent three three and a half percent 3%, 3, 3.5%.
01:43:31
Speaker
Okay. And there is no risk that you're taking that. The moment the loan is disbursed, you get the commission. That's it. We get the commission. And if the loan defaults, it's the lender's problem. It's not because we are not appraising the risk.
01:43:42
Speaker
Right, right, right. right You're just a marketplace. We're just a marketplace. We're creating the space for you. We're giving you access. So I'm solving your origination problem. Remember I told you in the beginning, one of the big problems was that people spend lots of money on origination, right?
01:43:57
Speaker
I'm giving you the origination capability, right? I'm getting that done for you. You're getting those loans and you're getting those loans in a pretty big form because for me to decide where this loan will get better done, I've already pulled out the Sibyl score. I've already done the bank account analysis.
01:44:10
Speaker
I've done everything. So I'm giving you a fully baked file. I'm not giving you just a name that, okay, there's Akshay who's sitting in this corner. Please go give him a loan to him. Then you have to go pick up all the information. I'm giving you all data. I'm giving you Akshay's account statement. I'm giving you his KYC. I'm giving you his civil score.
01:44:24
Speaker
I'm giving you extra information, his balance sheet if that's required, his P&L. Everything is being put in in a way saying why you should do the loan because one, two, three, it all stacks up. right so decision making sorry no no please complete yeah so that was on the distribution side and then we said what is the revenue of that sorry before you move on i think see this business again is an evolving business do in the ballpark of about uh anywhere between 50 to 70 lakhs a month of revenue right on this business but yeah
01:44:57
Speaker
right It can actually get to that level because our new blue solution is only about a couple of months old. right some um Like I told you, you have to think of us as a three-year-old company. Don't think of us as a 10-year-old or seven-year-old company. So lot of these propositions are first conceptualized, then we test them out, then we build the product. And now these or and all the products I've told you are live products.
01:45:16
Speaker
These are live running as we speak. right And they will all potentially scale up. then we Then on the lending side, we figured out that how do we build the business because if we keep going around trying to identify customers by ourselves, it will take a lot of effort, time and cost.
01:45:33
Speaker
And we may still not be the best at it because we may not get the best customers. So we said, let's create a partnership model where we will work with other people that have created ecosystems. right So take the example of an entity like Khatabook, which is one of our big partners. right Khatabook is...
01:45:47
Speaker
has more than 10 million retail outlets that is using their software for their accounting services. So we tied up with Ghatabook saying you've got 10 million retailers, these people need money, right? Why don't we create a joint lending program where we will lend to them.
01:46:02
Speaker
You give us the data that you collect. We can use that data to better underwrite. You become the originating entity. right We will lend to them, we you decide what price the loan should be given at, we need a hurdle rate, call it 1980, 1920%, that is what we want to make, anything above that you can keep and you also partake in the risk with us.
01:46:20
Speaker
Because Arby allows you to partake in 5% risk with us, so you take 5% risk, I take 95% risk but I do underwriting, I don't give the underwriting to you, you help me with the origination, you help me with the collections. because the customer is closest to you because you are anyway giving your software to him. You have access to the customer, you have engagement with the customer.
01:46:37
Speaker
and And so we said, let's create the partnership model where we are able to originate sensibly. I have effectively zero cost of origination out here. right Because Khatabook is putting their people to originate the loan and so on and so forth.
01:46:49
Speaker
I do the underwriting, so I have some cost on the underwriting. On the collection side, the regular collection again happens automatically through a QR code solution that has been implemented in Khatabook's platform. Now that QR code has been given to them through Pinelapse, we could have also given the QR code. but Notwithstanding, right? There is a solution where usually the payments come to us and the product is like an EDI product. It's a daily installment product.
01:47:12
Speaker
If I have 10,000 loans with Khadabook, I get 10,000 payments every day. All 10,000 payments are being applied to the loan every day. That is just one product for one customer, right?
01:47:23
Speaker
Now, if you are not tech-enabled company, you can't do this. How will you manage 10,000 payments coming every day? Who's going to pass those entries? You'll have an army of 10,000 people to do that. My operations team is four people.
01:47:34
Speaker
right My technology team is 20 people. My ah sales team is three people. right And we are doing this line of business. And this is just one example of one customer. Why? Because technology enables us to be able to do that.
01:47:48
Speaker
So in the Khatabook ecosystem, it's a state-through processing system. We have kept the the underwriting is all... ah engine based right and and there is no exception allowed if it if the transaction fits in the rule book it gets done if it doesn't fit in it doesn't get done because for a 1 lakh rupee loan we can't be sitting and doing exceptions right I mean that's just not my my DNA and so they are originating they put it on the system it flows into our system if everything works well a loan document gets triggered to the customer customer digitally signs that and the loan is dispersed automatically zero manual intervention
01:48:22
Speaker
Zero minor red domain. That sounds like a really sweet deal for you. yeah No, it's a sweet deal for both of us, right? It's a sweet deal for both of us. The 19% hurdle rate is pretty sweet, right? like yeah Yeah, I'm just giving you an example of, andm I'm not saying that's the number with them, but I'm saying that's the number that I would solve for, right? What is it?
01:48:43
Speaker
you know between 70 to 20 percent is what i would solve for depending on the partner right and and uh we try and solve for that number because we think for the unsecured business loan and and don't forget i also have a five percent risk cover out here yeah so beyond that for the first five percent risk cover we'll go to the partner after that my loss will be high right and and yes our losses frankly we've been doing this for more than a year and three months now losses are zero Wow.
01:49:09
Speaker
Losses are zero, right? And and and and so it's it's worked out quite well for us. Your MBA business is zero. Wow. Yeah. That's amazing. I'm just talking about the Khatabu proposition. The losses would be about 1, 1.5%, but that 1, 1.5% will go to them first, right? Because 5% risk cover. Yeah, yeah, yeah.
01:49:24
Speaker
right I'm not saying that portfolio is zero. Got it, understood. And so similarly with them, we've tied up with more than 10 such partnerships, right? Khatabog was one example. There are 10 other partnerships. There is ah another NVFC called Capital Trust. There is an entity called Minja Card. an entity called Karma Life.
01:49:41
Speaker
There's an entity called Fatah Pay. We've just tied up with other institutions that have created networks, right? And have some engagement with the client. I'm not tying up with institutions that are basically loan originators.
01:49:54
Speaker
Akshay could create a small company tomorrow, put 20 people in a call center and they would just make phone calls and start originating loan. I have no interest in working with you. The DSA model basically. Yeah, that would be a DSA model. I'm not working on it. That I would still take from you, but I will take that for distribution.
01:50:11
Speaker
So if you are a DSA, you could work with me and I could give your loan which you give to me. i could give it in the market and I could get it done. There also DSAs actually work with us primarily because if I aggregate DSAs, I get better economics on the final end.
01:50:24
Speaker
So if I work with one. So DSAs use that, the blue, you use the name, I forget, blue something. Neo blue. Neo blue. Neo blue. Neo blue. So DSAs use that product. That's right. That's our platform is DSA. That's again, or proprietary platform that we've created, right? So again, what I want to leave you with, Akshay, is that in every part of our ecosystem, we think technology first, right? And and with every part, whether it is distribution, whether it is the NBFC, where one would very easily think old school lending, loan application, 10 people are sitting out there, somebody will appraise it, tappala then it'll go to the operations team, they will look at documentation and finally, it how do you think tech?
01:51:03
Speaker
to try and get this done. right I think we have thought of tech everywhere. ICFU anyway is a deep tech company, so their technology is the way of life in any case. right But even in our in the Niyogan main ship, we have tried to use this and now what we're doing is the AI company we acquired, all the KYC, etc. that we're doing are all using our own AI tech to be able to find a more efficient way and to have less rejects.
01:51:27
Speaker
on on people putting up a pan card, you know, you waste time, yeah it rejects, then the system throws it up, you goes back go back to the first line, right? So you have to look at system efficiency also. Do it right the first time, right? These are all, you know, big terms people use, but philosophically, that's exactly what we believe in.
01:51:44
Speaker
And therefore, we are building each of these pieces slowly and steadily. Right. So how much is your loan book through these partners? This is the loan book. kind Loan book will be about 250 crores today. Right. It's not a very large loan book because the first one hundred crore loan book will be brought down to zero completely. Right. It's a new book that we built over the last two and a half years.
01:52:01
Speaker
And average tenure? This is like short term loan, long term? No, no, no. So see average tenure of this loan book will be about nine months. Okay. Right. Because some of the loans, some of the partners that we're working with, we actually end up giving three year loans.
01:52:15
Speaker
Okay. right With Khatabok, I think the door to door tenor is, I think, 11 months. So average is about six months. With Khatabok specifically, it's six months. What do you mean door to door tenor? What that? Door to door means from the time I give you the loan to the time the loan gets fully paid.
01:52:30
Speaker
Okay. I'll give you 10 rupees. You're paying me some back every day, but door to door means from, ah from on first day when the loan is full to the loan going to zero, right? It's, it's nine months, today but I'm getting paid every day, right? somem Some, some EMI I'm getting paid every So average tenor is defined as what is the average period that loan was outstanding on my books.
01:52:49
Speaker
So I think we're using different terms, but I'm just trying tell you how the market uses. parling so okay we're not doing We're not doing extremely short term. I'm not doing a treadmill business where i'm every month I'm redoing all my entire loan book.
01:53:00
Speaker
Every month the loan book gets paid and I'm recreating the loan book. I think that's too much of a treadmill for us. and know i na ina um on at dna a y i'mkaneka We want to work, but we want to make sure that not everyone is on a treadmill.
01:53:12
Speaker
But we also don't want to be at the far end of the spectrum because these are unsecured loans at the end of the day. right Customers positions change, right? They have some loss in business. They run away. They disappear. They shut their shops and all of that. So you don't want to also be in it for for a really long term.
01:53:27
Speaker
So we found this right mix. And and average ticket size is also in a Khatha book construct. The average ticket size could be about a lakh. But overall, if I look at my full portfolio, average ticket size is about two, two and a half lakh rupees.
01:53:39
Speaker
but so What is your ambition in terms of the loan book size you want to hit? See, I think we should we should be hitting next year. We've raised some equity. So in February, they're going to get another 60 crores of equity.
01:53:50
Speaker
right So that will come in and today in the lending business we have close to about, we will have about, let's call it 200 crores of equity dedicated to the lending business. right um I think taking three times leverage should not be difficult on that space. right So 800 crores, 200 plus 600 crores.
01:54:07
Speaker
I think next year we should solve for about 800 crore number is what I think. and At 1000 crores I will feel comfortable at that point in time I will start thinking what do I do with the loan book in the sense that don't forget each loan that I'm doing is actually a priority sector loan.
01:54:22
Speaker
Because I'm giving money to an MSME, this is all counted as priority sector. Now there are banks that are struggling to get priority sector assets and they need to meet priority sector requirements as per regulation every quarter end.
01:54:33
Speaker
So once we've created an ecosystem of about 1000 crores book, we could either start We could potentially start selling it to people who need this, make some money on that, but keep building the book also. Keep doing the loans. right but yeah so i think Right now the thought process is let's just get to a thousand crores. Then we'll talk about what is the best way from thousand to we go to five thousand crores. Is that the way to think about it? That is how traditional NBFC would look at life.
01:54:59
Speaker
right Is that going to be our DNA that will require us to raise more capital, take more leverage, so on and so forth? Or do we get to a stage where we get to a right size of say, let's 1,000 crores and then we see how best to monetize this book,
Strategic Focus on Sustainable Growth and Valuation Goals
01:55:13
Speaker
right? Keep churning, keep selling down, keep creating new loans, right? Because we also get some fees when we do these loans. Keep the fees in your pocket.
01:55:20
Speaker
Then you sell down, you make some more fees. Keep increasing your ah revenue, right, that way and ah build a book. So, yeah, you so I don't want to give you an answer, which is because I have not thought through it.
01:55:31
Speaker
Because the problem is that if you think too much in the future, we lose sight of what is to be done today. So right now, the team is all singularly focused on getting to a thousand pro book size. Then we'll talk about what else we do next.
01:55:43
Speaker
yeah I love how how much you think like ah like an investment banker with everything. you know I mean, like looking at BIPs and everything and you know looking at, okay, we have a loan book, but the goal is not loan book for the sake of loan book. But how do we monetize the loan book?
01:56:01
Speaker
so i We have to be different. nos Reality is that firstly, our business is a business of pennies. That's why the BIPs are important. Moment new sight of that, right? Every penny matters. and And that is exactly how we look at our expense base. We look at our revenue base, right? ah It's important for people to have. And all of these, I genuinely believe that culture always starts from the top, right? Unless I speak the BIPS language, why would anyone else speak the BIPS language, right? So unless I care about every penny in the system, why would people care about the kenny penny in the system, right?
01:56:31
Speaker
So that is important. and And the strategic element, not everyone needs to know Because some strategic elements are slightly long term, like for example, the book thing, right? What do we do with the loan book? I think we'll worry about it when we get to that stage. Right now, we have to... The way I think about life is that businesses always need to have a one year, three year and a five year strategy.
01:56:49
Speaker
and And sometimes the one year strategy and the five year strategy may not even be in sync because your thought process is that right now the one year strategy is that keep building the loan book. The five year strategy would be that not to build the loan book anymore, but to start turning the loan book. And one may turn back and say, but these are not you know comparable strategies.
01:57:06
Speaker
These are reverse strategies. But at that stage, what scale we are in, we'll take a call at that point in time. So some of these things are things in i in my head which I haven't really put on a piece of paper. But as I see, you know, and the and the market is an evolving space, right? The one thing we learned in my experience is that the market is never wrong.
01:57:23
Speaker
If the market is doing something, right, we need to be respectful and then try and see. don Don't brush it aside saying that I know better than the market and therefore we should do it, right? I'll give an example right now, right? Today, oh unsecured business loans are going through a certain slowdown in the market.
01:57:40
Speaker
Because there are entities that have taken some losses. The Indian economy is at tats slowing down, right? As we speak. um and And some of the smaller businesses are struggling, right? It is silly of us to keep thinking that there is a 30,000 crore market so we can keep growing the book without realizing what is the reality on the ground, right? So keeping your feet on the ground and the year on the ground is super critical in this business.
01:58:02
Speaker
and And especially for us, because think about right? In the lending business, we are a digital company. We don't have branches. If I had branches in, you know, I'm i'm originating a loan from 30 locations. I don't have branches in those 30 locations.
01:58:14
Speaker
How do I get to know what's going on in those markets? I have salespeople that are floating around meeting customers and CEOs and all of that, right? But if we don't keep our feet on the ground and if we don't keep our year on the ground, right, we can completely get taken for a ride. Right?
01:58:31
Speaker
So mean all these are very basic principles of life, right? Which have been learned with, with, with, I think some costs that might have been paid as we learned some of these lessons in life. Right.
01:58:42
Speaker
But, but if you don't learn from those lessons and you'll repeat the same mistakes again. What was the private credit book at KKR? So private credit book, I think the way we would think about private credit in KKR was we would think at the amount of volume of businesses that we would do. We would do almost a billion dollars every year.
01:59:01
Speaker
A billion dollars in India we were doing every year. Wow. Okay. Right. Which is not small, which is, which is quite, quite huge. Right. And, and it was, some of it would come back because if your theory is right, a customer would not keep such expensive debt on your books.
01:59:16
Speaker
Right. A customer would, I'll give you an example, right? Metropolis, when Metropolis was a private company, we financed their, they had an investment from Vobopinkas.
01:59:27
Speaker
And the founders wanted to buy back Vobopinkas, we financed them with the money to buy back Vobopinkas. And that loan was a long-term loan, right? But in six months, they did a second equity deal where they sold the stake to Carlisle and then they paid us back.
01:59:40
Speaker
right So the transaction got done, which was a large transaction, but it lasted only six months, unfortunately. But it was the right thing to do because you know why would the cu why would the founders of that company want to keep expensive debt on their books?
01:59:53
Speaker
So at you having seen that kind of scale where you were managing a billion-dollar book to now you're talking of a thousand-cror book in a couple of years, like does it...
02:00:06
Speaker
Does it seem like you're, that you need to like chase till like that billion dollar book kind of a number or, you know, but what is the lending side? See, I need to, we need to chase.
02:00:17
Speaker
I think the way life has changed is the book is irrelevant. We have to chase valuation. We have to create a business that gets valued at a billion dollars. right That is more relevant to us. then to just how will you How will you reach that number? Billion dollar valuation?
02:00:30
Speaker
Yeah, I think ah which is the reason why i am not a believer of one trick ponies. I don't like businesses that only operate on single thing. now People will disagree with me on this because someone will say that when you have a one trick pony, you're like Arjun in the Mahabharata where you're focused on one goal and you will keep doing that cut, cut, cut, right?
02:00:47
Speaker
I think Indian market is, is and and our regulator has also come with so many changes in the regulation as far as technology companies, fintech companies are concerned, right? I think we are better de-risked when we have multiple sort of horses running in the race, right? So, lending is one horse in the race.
02:01:04
Speaker
Iserview is the second horse in the race, right? And Iserview itself has created multiple horses in the lane because it's got multiple product capabilities. So, the way I think about life is we have multiple horses in the lane, right? Not every horse needs to finish the finishing line.
02:01:18
Speaker
right But a few horses certainly do need to finish the finishing line and and that is where as as we build each of these businesses, we also will get more clear on where we need to spend more of our time, where we are seeing better traction from customers, right where we are seeing better traction because of our positioning is is unique.
02:01:36
Speaker
Which is why if you look at both on the lending side and on ICERview, there has been significant new product development that we've been doing. You could argue that we are doing experiments. Every time a new product gets developed, that's an experiment we are doing.
02:01:47
Speaker
We've also killed products because we thought that these products we may have built, but take quick find the there's no point wasting time running after this product. Right? We actually built, I must tell you this, we actually built an alternative to Shopify.
02:01:59
Speaker
Because we were dealing with so many MSMEs, we created something called a business builder, which is basically getting a small business online. like like the And then we figured that no one pays for this.
02:02:10
Speaker
right And there is no way for us to monetize this. And it's just too much of a hard burn for us. And we don't want to spend time doing this. And so we killed product. right And we figured out that there were too many other people who were doing this, who bigger, better than us.
02:02:22
Speaker
And we were a distant, not even third, distant, 10th or 12th or 14th. It didn't make sense. right We built it. We tried it. We gave it to some customers because when you have an in-house engineering team, you can do whatever building that you want to do. right i have i have a very the The beauty of working in FinTechs is I'll tell you being at the wrong I'm the person that spoils the average age of all.
02:02:44
Speaker
But the problem is these young guys keep coming up with so many ideas. Everyone comes back and they'll sit in the office and they'll talk about, listen, why don't we do this? And then I'm the last guy that puts people down. I tell them, let's try and do something.
02:02:56
Speaker
Let's try and do something new. Let's figure out if this this thing will work. right So it also sparks a culture of innovation. it sparks a culture. People feel that the organization supports new idea generation.
02:03:08
Speaker
not Not every new idea will find see the light of day, right which which is how it's going to be. right But I think people have to feel empowered to come and speak up. and to tell that, okay, this is what I think we should build, this or we should change the product, right? um The rule engine we have created for NeoBlue, which actually has all the 27 partners there, a ah platform actually came from one of one of our team members. He says, why would we not build something like this?
02:03:37
Speaker
And he was part of our AI team. He says, it can just make the whole process so much more efficient than us sitting and doing it manually. And I said, yeah, sounds fantastic. How soon can we do it? And we went live in less than a month.
02:03:48
Speaker
on that on that proposition. So I think the idea is that create the culture and and don't think about book size. Book size is irrelevant yeah in my mind. Will lending and ISERVU get you to a billion dollar valuation?
02:04:01
Speaker
I think the question, right answer question should be when will lending and I said, you get you to a billion dollar value. when ven with what a for okay thank ah So I think the, I think the valuation is a function of how successfully we can grow these businesses.
02:04:18
Speaker
Right. And, and three years ago, fintechs were being valued at some ridiculous valuation. right You look at M2P today, M2P is valued at $900 million dollars at last valuation. i'll give you I'll give you some numbers which will give you some color. right M2P financials, you can pull them out from MCA website.
02:04:39
Speaker
We are probably an nicer view, we are probably one year behind. m2p in terms of numbers right now product capabilities are different valuations will be different right we don't get any of that valuation because we are in the public domain we are a listed company as against being an unlisted company i think our valuation would have been very different if we were in an unlisted doesn't matter true we'll still fight the battle in the listed space because listing also has significant positives for me for my employees when i get stock options they're able to monetize some of that which a lot of the other unlisted companies, you know you just keep employees, they're sitting there for 7, 8, 10 years without seeing any liquidity.
02:05:15
Speaker
What's your market cap right now? We're about 700, 700, 800 crore market cap here. And how's the share price moved over the last three years? So share price has gone to as low as 30 rupees to as high as 110 rupees. Today it is in the ballpark of 70, 75 rupees.
02:05:31
Speaker
Okay. Right? In that ballpark, right? and Why did the 110 come down to 70? I mean, you are arguably in a better position today, right? that yeah Or was it just market sentiment that drove it to 110? Yeah. Market sentiment, have we've also had some, when we do experiments, right? It's not that every experiment is successful. Sometimes you do end up ah hitting some pitfalls, right? We had a small receivable problem in ICERview last year, year before last, right? And then we had to clear it out. So we took a little bit of a, you know, we said, let's just clear out or these you know old receivables because but like I explained to you, we moved the ICERview strategy from a retail focused entity to an enterprise focused entity.
02:06:07
Speaker
So some of our retail receivables, it would have remained pending. Those who can't be collected because of various reasons, right? And therefore, we just wrote off some of that stuff, right? So you'll have to keep doing a cleanup, but we've also invested equity. Like I told you, we put in the RPS of 50 crores into that company.
02:06:22
Speaker
but to be I'm i talking about a few crores there and there. I'm not talking about large write-offs, right? So I think some of some of it the market doesn't like. Market expects that growth should keep coming continuously. Then we also got hit by, ICERV is not necessarily a regulated entity.
02:06:35
Speaker
right it's it's not It doesn't have a PPI license or a PAPG license. right and And we were becoming quite big in the UPI space where we were powering customers to accept UPI as a payment.
02:06:46
Speaker
I could give you, if you had an online portal, like what Razorpay does. Razorpay enables you to accept UPI. We have the same capability. But that capability, which was becoming a good product suddenly got hit because RBI came with a circular saying that only people who have a PAPG license should be doing this capability.
02:07:01
Speaker
They didn't say that directly, but the banks interpreted it to say that you need to have a PAPG for us to do the settlement for you on the UPI side. So we saw a little bit of a road. So it's happened on some of these things, but nothing has materially changed the path that we have taken. right These are tweaks that will come in.
02:07:20
Speaker
right right So i think I think the fact that the business still stormed ahead, continued to grow. We acquired the company as a 20-25 crore company. today the In three years, four years, in 2020, we acquired the company. In four years, that company will become a 200 crore company plus company.
02:07:35
Speaker
I think that company very easily can go to crores in the next few years. and and And the point is, it doesn't matter, the top line is an irrelevant number to me. What will happen is that the EBITDA generation of that business from FI26 onwards will be material.
02:07:49
Speaker
And that I think will put the game in an interesting way. If you also overlay the fact that if our technology starts getting accepted at a global level, not only at an India level, that puts a different perspective on how that company needs to get value.
02:08:03
Speaker
In the meantime, the lending business, if it can grow to become a thousand crore book, which I think there's no reason why we should not. And if we have got the right ecosystem of of operating leverage. So here's my take, right? my My big statement that I make to my employees and to our investors is that we need to be in the business of operating leverage.
02:08:21
Speaker
when you What does that mean? Operating leverage basically means that my revenues can scale at a significantly higher pace than my expense. and All the expense I need to do is already factored in.
02:08:32
Speaker
I don't need to increase my talent pool or number of people. It's a different matter. If I open up a new market, I open Dubai, I need to set up an office there that will have separate expense. So keep that aside. But for my core business, all I need- Every additional dollar of revenue should not cost you more basically. Yeah.
02:08:49
Speaker
Basically additional dollar of revenue should flow straight into my bottom line. Right. Okay. Right. That is operating leverage and fintechs. You should be investing in fintechs when you see operating leverage coming in.
02:09:00
Speaker
If a business does not have operating leverage, if I need to, and and there are some fintechs, I don't want to get into names. You will, you will hear about fintechs for every $1 of revenue. They have $1.2 of expense. Now that's a disastrous model for me because you can keep scaling up. So you will go from a hundred crores to 500 crores, but if my expense is going to grow from 120 crores to 600 crores, it's a meaningless business.
02:09:23
Speaker
right when When does a business's operating leverage come into play is material. For Niyogin, the operating leverage is here and now.
02:09:34
Speaker
That's the bottom line, right? So, FI26, we will have this conversation again, Akshay. I hope you keep tracking us. In FI26, when we have a conversation again, I would be able to i should be able to demonstrate operating leverage to you.
02:09:46
Speaker
If I have not, then we have failed we've got delayed. I wouldn't say we have failed. i would say we've got delayed. i actually genuinely am super convinced about the success opportunity that we have in front of us.
02:10:00
Speaker
It's a question of how long will it take for us to get there? Will we get there in a year or two years? I don't know. But the point is that if the operating leverage starts getting demonstrated, automatically the market will take notice. Automatically the valuations will change. Automatically people will start valuing us very differently.
02:10:15
Speaker
And you're already EBITDA positive. And both in this value was differently till we show the operating leverage. Yeah, that's true. Fair point. You're already EBITDA positive? We are EBITDA breakeven this.
02:10:26
Speaker
ah Last quarter, we were EBITDA breakeven. Okay. Okay. Okay. Amazing. Amazing. Thank you so much, Tashwinder. This was a fascinating chat. And I ah truly appreciate how deeply you went into everything I was curious to learn about.
02:10:42
Speaker
Thank you, Akshay. This has been good. I think also I'm glad we've almost kept to our time of two hours, which was good. but But I would urge you to keep a track of us and and then we should probably circle back in about a year, um you know, on how things have played out.
02:10:59
Speaker
Thank you so much for your time.