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Personal Loans At Scale | Ashish Goyal @ EarlySalary
346 Plays3 years ago
The availability of formal short-term credit boosts financial well-being by helping people make ends meet when facing a temporary financial crisis. Ashish is an investment banker and CA by profession. His decade-long extensive experience in Portfolio Management combined with a deep understanding of growth and strategy led him to build one of India’s leading consumer lending fintechs. EarlySalary is unique among its peers as it has its own in-house NBFC. Find out more about he scaled EarlySalary!
Know about:-
- Identifying the product
- Tracking customer retention
- Fundraising journey
- Customised underwriting
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Transcript
Introduction to the Podcast Hosts
00:00:00
Speaker
Hi, hi everyone. This is Ashish Koyan, co-founder of ALDI salary. Hi, I'm Akshay. Hi, this is Aurob. And you are listening to the founder thesis podcast. We meet some of the most celebrated charter founders in the country. And
Inspiration Behind Early Salary
00:00:24
Speaker
we want to learn how to build a unicorn.
00:00:31
Speaker
Picture this, it's nearly the end of the month and you are out of cash. I am sure many of us have faced this type of situation sometime in the past. Ashish Goyal saw first hand how his younger colleagues would be seeking short term loans towards the end of the month and saw this opportunity to build a solution for this problem.
00:00:51
Speaker
This was
Founding Early Salary and Strategic Differentiation
00:00:52
Speaker
the trigger that made him quit his well-paying job as the Chief Investment Officer at Bajaj Alliance in order to start Early Salary, a consumer lending fintech. Early Salary is unique amongst its peers as it has its own in-house NBFC which gives it the opportunity to be more profitable while also forcing them to be better at risk assessment. Here's Ashish telling Akshay Dutt about the journey of building one of India's leading consumer lending fintechs.
00:01:20
Speaker
In 2015,
Vision for Digital Financial Services in India
00:01:22
Speaker
I started visualizing saying that, what next? What should I do more? And that's where I started drifting towards starting something on my own. So me and my partner both were dabbling about the ideas and we came across an idea saying that, how can we really provide money to a large set of Indians who may not have access to the money today through a very highly digital and technological way? And that's where the early scenery came into picture.
00:01:49
Speaker
Tell me first, how did you meet your co-founder? Were you together
Co-founders' Journey and Alignment
00:01:52
Speaker
at Bajaj's?
00:01:53
Speaker
So we were together at Bajaj. We joined almost together the firm. So I joined in 2002, early 2002, and he might have joined in late 2002. So we know each other for almost 20 years now. And he was there for eight years. I was on the market investment side. He was on the marketing side. And then he moved and moved to a few more careers outside Bajaj. And we were in Dutch in 2015. He came back and we really liked the idea together and said that he lets do this piece.
00:02:20
Speaker
But this has nothing much to do with what you've done so far. How did that idea come? It's like such a completely different direction to go in. Probably a more natural progression might have been to do either in short tech startup or something on wealth and investment technology. Those might have been more obvious ideas. So what made you think of this idea? How did you lock into it?
00:02:45
Speaker
So to
Why FinTech? Ashish's Strategic Choice
00:02:46
Speaker
be honest, I agree with you. Only a couple of days back, I was checking up that if somebody would ask me today, if I would have not started early setting in 2015, and I would have had the idea of 2020, maybe I would have done a short tack. I think many times there are two, three factors. One is internal and one is external.
00:03:03
Speaker
So external factors were aligned for a FinTech. Insure tech was still in a very nascent stage at that point in time. The industry was maturing. The second point was that I always learned money in my past. Of course, at that point in time, I was learning to corporate. So I had an understanding of how do you really manage this? How do you really look at portfolios?
00:03:21
Speaker
But the third and most critical piece that I and my co-founder were always aware that if you really manage things well, the entrepreneurship is more about ensuring that how do you really put your resources together? How do you really think of the customer and think of a product?
00:03:38
Speaker
Then think of a technological prowess or think of an understanding. Don't get me wrong, these are very critical, but you can always find those talent. Me and
Identifying Market Needs and Product Fit
00:03:50
Speaker
my co-founder both are not tech persons. We come from a hardcore marketing and the investment field, but we chose to build an investment company. For us, the larger point was how to build technologies than how to really build the risk management or the business of a consumer tech.
00:04:07
Speaker
And there is another thing that if you work hard, the luck also plays with you. So we got the right set of talent at the right moment. We went, took out, of course we worked, we put extra efforts to see that how do you really make it happen. But did you have some global inspiration for this idea? So essentially you wanted to do consumer learning.
00:04:27
Speaker
Right? And in consumer lending, there are many ways to do it. You could have done like what MoneyTap also started similar timeline. They have like a line of credit, kind of a consumer lending product that could be one option or like PaySense also started at about that same time, which got acquired by PayYou credit. And they also were doing consumer lending.
00:04:49
Speaker
So Lai Lai, what made you choose this early salary product? Tell me about finding the product, the journey of identifying product. Okay. So two things. One is interesting story, which Akshay, my co-founder had. The second is after that story, the amount of work which I did.
00:05:05
Speaker
Okay. So Akshay totally saw that many of his young colleagues were coming running out of money at the month end and they were always looking for a friend. And we always did it. Even I, in my life, most of the time I was a lender, not the borrower, but I always did that piece also.
00:05:22
Speaker
So that clicked us saying that yes, today's consumption economy, today's the aspiration of the young people needs a product which are shorter, which are transparent, which are easy to use. Then comes the question, is it how do you really think that what is the right set of products? Is there a market out there or not? And there I think my learnings of investment played a role.
00:05:43
Speaker
I went and looked at many products, looked at many companies who would lend money to the personal segment and that time Bajaj Finance was in its full glory, even today it is in full glory. And there was enough information available for us to really put a plan together that what are the products which are there in the market. Just to take an example, we went and met a couple of bankers and we said that, look, I want to give 10,000 rupees to a 20,000 rupees earning person. What do you think? He said, we'll never do it.
00:06:12
Speaker
because it doesn't fit into our scheme of things, but it's a large market. Then I asked him, will you give a credit card to him? He said that's also, at least in 2015, the answer was that very few customers would be eligible for that. So that was a clear-cut market fit saying that there is a need of a product.
00:06:30
Speaker
Okay.
Avoiding Payday Loan Models: A Fair Approach
00:06:31
Speaker
There were international examples at that point in time and which helped us in really putting our thoughts together as a, as a 10 years of running investment and seeing the Bajaj like a payday loan companies, essentially those were the, so the.
00:06:45
Speaker
While payday loan companies give short-term loans, but we always were very clear in our mind that we will never create a payday kind of a concept which is in the US, where you charge 300-400% interest rates for a 15-day home. So in the US or even in India for many companies, if you take a $100 loan, you might end up paying $10 for 15 days.
00:07:07
Speaker
and which in turns means 300-400%. We said that we really want to create a large business. So that payday loan in the US is getting to subprime customers. Subprime. So we don't cater to subprimes. We cater to the aspirational class. Let me put it that. One can always say that 20,000 rupees earning customer is a subprime. In my mind, subprime is somebody who doesn't have income. Subprime is somebody who is already defaulted. The person who is starting his career is not a subprime.
00:07:36
Speaker
No, I also I might have started my career with 20,000 rupees only, right? So there is a large market segment which is underserved. And coming from my learnings of investments, I always knew that many times people categorize that they segment the categories and then they say that we want to play in this or we don't want to play in this. But there are always opportunities in those segments which are very large. Like today just to see
00:08:02
Speaker
There is almost 50-color household who earns from Rs.15,000 to Rs.50,000. So it's a large segment which you can go and service. And digital is the only way where you can provide them services because nobody wants to come to the branch. Nobody wants to have a cold calling. Everybody today accelerating towards that, I will interact with you, but it's my
00:08:26
Speaker
terms, not at the company's term, right? So those were the key things what really let us choose, right? And that was the key pieces which led me and Akshay to take this jump and say that let's build early salary. And that's when
Building Early Salary: Initial Funding and Team Formation
00:08:39
Speaker
the name also internally came. When the first time the name came early salary, it sounds so attuned to what we want to do, that just take your own salary early. We are not giving you a loan, just take your own salary early.
00:08:52
Speaker
So tell me about that zero to one. So you both quit your jobs and you had maybe some savings in the bank and you had an idea that you want to do a consumer lending startup. So how did you proceed from here? In our case, it was a little different. So we had an idea, I think it was somewhere in May, June of 2015.
00:09:11
Speaker
We penciled it. We actually took a help of two of the coders and really built the first just a skeleton of the mobile application. How does it look like? Where I see it today, I feel that how far we came from there. Then we started reaching out to few investors because one thing we realized that this business cannot be built on savings. See, you can always build a business, say the consumer facing businesses on savings, but when money itself is a raw material, you cannot build that business on savings.
00:09:39
Speaker
you will need access to the pool of capital. And that's where we went ahead and raised about close to $1.2 million at that point in time before even quitting our jobs. And the day we signed the term sheet, we went ahead and quit our jobs because that was a key ingredient. If we don't have money, we can't do it. Of course, we worked very hard to ensure at some point in time you could have quit the job and to raise money. But I think the stars were aligned to get us the money. Then October 2015, we set up a lease salary. Who were the investors for that $1.5 million?
00:10:09
Speaker
So there is a Grawal family based out of Jaipur, who also in their businesses has Transport Corporation of India, Ghati, Boruka Industries, Payments Businesses, and they invested the seed. And then of course, there was a moment of truth that now you got raised money and you need to start it.
00:10:25
Speaker
And I still remember the first few days we actually worked from a two-bedroom apartment. In the U.S., what it calls is starting from the garage. And so we were five of us, me, Akshay, and two techies who we met before starting early Saturday and we took both of them.
00:10:41
Speaker
Today, both of them are still with us after six years also. That also is there with us. That's where the journey started. Slowly, we moved into an office where we were 15, 20 of us. Tell me about that initial launch. What did you do? You built an app and you listed it on Play Store. Then what next? How did you get customers? How did you get the supply of funds to lend? Yeah.
00:11:07
Speaker
So let me take a step back here. So when we started and there was a learning which I had looking at businesses very closely, over a period of time, I developed a keen sense of understanding that these are the underlying principles which makes business succeed. Of course, those principles change at the scale of the company.
00:11:27
Speaker
Okay. So the first thing which I learned was that when you're starting a new business, while product is very critical, while you need to have a very clear concept, but two things you need to be really very sure. One is that you need to ensure that you are solving a consumer pinpoint. And second, once you figured out that what is a consumer pinpoint you are solving, you need to
00:11:47
Speaker
Get up and run. The philosophy at the company should be that I need to have a date on which I will launch my product. I need to have a date on which the Play Store listing will happen and a simple concept that we need to get up and run if two features are less, but we need to start because on that day, that was the priority. You could always spend years to build a product, but at some point in time, you need to go and do the market testing because that's where you get the real feedback.
00:12:17
Speaker
So essentially, done is better than perfect. Yes, done is better than perfect. Of course, at that point in time, but today, your head down has gone a little bit. The perfection is also critical because now you are surveying hundreds, thousands of customers, right? And for which any change can impact their experience and their expectation of the experience.
00:12:37
Speaker
Yeah, now the stakes of a mistake are much higher. So you can't afford to... Yeah, stakes of the mistake. And I think when you start, most of the times you get early adopters. So I still remember one of my customers called us. He said that, look, there is a bug in your app. And you need to go into these tables to correct it.
00:12:56
Speaker
But those were the early adapters, right? And then we launched it on 23rd of February. Incidentally, we just completed six years of our app launch last week, or this week rather. So launching an app is not the same as launching a business. How did you actually get customers? How did you take the demand? And second is supply. Both those things, how did you figure those out? So supply-wise, of course, we raised our money. So we had the money with us to give long-term.
00:13:25
Speaker
I said, you were lending from your own balance sheet. Yes, we were lending. So, we were not platform in the initial phase because we realized that you are unnecessary, wasting time to build one more integration with a bank or a NVFC. When you are in the market to do a proof of concept, it is much better if you reduce number of players. So, we just kept a focus on consumers saying that everybody else is out.
00:13:48
Speaker
Let's just focus on consumer and see that how can we really lend money to that consumer. Of course, the day when we launched, we waited for a day to see if any customer comes in. So the first February of 2016, we had four customers getting, taking the money from us in eight days. Okay. So it took us four. But how did they discover?
00:14:11
Speaker
So we started, so when you start a company, the best way to reach out and start saying that I've arrived is through a Facebook, Google marketing. You start bidding for the world. You start saying that if you're looking for a shorter money come and at that point in time, there are very few players out there, right? So you are also in a way of building a marketplace. You are also building a market in yourself. Like you said, if you look at MoneyTap, PaySense or any other names, they all, we all started within six months of each year.
00:14:41
Speaker
I'm pretty sure you must have spoken to a few of them, but all of us is fascinating to both. It started in 2014, if I'm right, or in 2015, I came to know when I was having my first conversation with a banker and said, do you know these guys? I said, I've never heard of them.
00:14:58
Speaker
So all of us started at the same time because that was also the point. I think your earlier question that why not Insure Tech? So today Insure Tech is in much there and there are many companies who are looking at Insure Tech. At that point in time FinTech Lending was the piece and that's where all 10-15 of us came to start this business. So maybe hundreds of us came to start but today 5-7 of us has seen and showcased some scale into it.
00:15:24
Speaker
So, like you started doing Google Facebook ads to drive download. What was the customer's journey like someone would download the app? So, of course, those were also the learnings. We started with asking the customer to upload a selfie, upload a live image of the adhar and pen card number. Of course, at that point in time, the eKYC was in place because the Supreme Court judgment of eKYC came afterwards.
00:15:52
Speaker
So that provided us a respect to say that if the customer's EKYC is in place, you can go ahead and give the money to them. And of course, in some cases, we also learn iterated. In few cases, we have sent people also to their homes to get the signatures to pick up those documents, which after in today's world, we have discontinued.
00:16:10
Speaker
But that was also done. The first app was asking questions. It was a different journey. We might ask everything together. Today we understand the customer behavior much better today than what we thought five years or six years back. And like many of the steps which we had that point in time, we dropped over a period of time saying that this step just doesn't make any sense. And how do you really keep on reducing the customer frictions that we put it that way. So that was in early 2016 when we launched the
00:16:38
Speaker
Of course, it was also the era of proof of concept. We were proving to the world, to ourselves, to the employees, to the investors, to the consumer that there is a way you can borrow by just downloading a mobile app. No one before us has done that piece.
00:16:53
Speaker
How did you do the risk underwriting? So like someone downloaded an app and then they would upload or they would take selfies and share whatever adhar and pan and whatever documents you needed. What was your KYC process like? Like your risk management process? What was that like?
00:17:10
Speaker
So when you started the business, I was very clear in my mind that if you really want to build a large business, because our business was a business of giving 10,000 bucks for one month, two months, three months kind of a fees. And if I put a lot of manual processes, I will not able to really scale it up or the operating cost would be very large. So at the day one,
00:17:31
Speaker
We decided that we really need to build our analytical capabilities to the next level. We need to really bring the best in class analytical ability. When we started, of course, we went for the experts. Let's say we went to a couple of credit bureaus and asked their help to see if they can build a scorecard for us.
00:17:50
Speaker
But we really did not see much results coming out of those scorecards and we really did not find those scorecards really any code. And of course, because nobody has ever led to this set of customers in this kind of a product environment. So then as the customers came in, so in the initial phase, you can say that.
00:18:05
Speaker
There was some kind of manual work, some kind of a few rules has been built at the top to say that, how can you really decision few of the customers in a faster way? But when you did this, people have a bureau score, like a credit bureau score, because few of them do have a credit bureau score. See, in India, credit bureau score can be generated very easily if you just go and take a consumer finance loan, or if you just have a gold loan, or one of the credit lines which you had, or education loan in many of the cases.
00:18:35
Speaker
and which can generate your credit score. But having said that, we then started figuring out that, how do you really underwrite the customers? And that's where we had a couple of people, credit people coming in from Pune-based NBFCs or the other financial institutions who can really work with us.
00:18:53
Speaker
Was a Bureau score mandatory for you to lend or were you lending even when they didn't have? So then how did you underwrite when they didn't have a Bureau score? In initial phases, I think there are only two ways you can lend to a customer who don't have a consumer Bureau score.
00:19:09
Speaker
The first bank statement, I'll give you a bank statement or a salary statement and I'll lend to you. Or the second piece is that we make an intelligent judgment saying that somebody has an Apple phone. So let me just lend to him or somebody is saying that I work with Infosys.
00:19:26
Speaker
led to them to see that how it will happen. So there were a few high-level rules which were there, or we asked for a bank statement. So alternate data was something which was a promise at that point in time. Even today, we see and we harness a lot of them. Like every one of us has believed that the alternate data will be holy grail or will create a lot of insights on the consumer behavior. And that's when we structurally started putting it together.
00:19:51
Speaker
How would you verify that he's actually an Infosys employee? See, one is, of course, the bank statement. At that point in time, there was... Okay, bank statement will show the person who's crediting. Right. Got it. Who is crediting the money. So that will come. And second, I think that traditional banking...
00:20:12
Speaker
But if you are working with early salary, even if early salary is paying you more than them, you might not get the credit card because there are class thinking in that piece, right? But I always believe that you need to underwrite the person. Anybody can go through ups and downs.
00:20:27
Speaker
But if you underwrite the customer right on the right principles, the chance of you getting wrong is very low. And that is what the biggest strength which early salary is built over a few of them. Like today, if you see the one factor where we stand apart from the consumer from our competition is the ability to escape, as well as the risk management, which we have built over a few of them.
00:20:49
Speaker
So, of course, as we evolved or as we started understanding our customers, next year, then in 2017, we went there and launched another product where we started saying that if the customer is with us for some time, we will give more money to that customer if we like that customer and as well as we'll give him for a longer tenure of the funds.
00:21:09
Speaker
Because it is very critical. How long? So three months, six months, 12 months. Let's say action came to us, took the money, my systems. And by the time the algorithms started evolving, it took us six to nine months of small business to start building our algorithms.
00:21:24
Speaker
Then the algorithm started shouting, saying that you need to give more money to these customers if you want to retain them, etc. We started offering larger tenor of money. Instead of giving 10,000 rupees for a month, we started giving 30,000 rupees for three months.
00:21:41
Speaker
50,000, 70,000 rupees for a 12 month. So those are still the evolution which has started happening. We started reaching out to the larger set of customers. So first year was all from your own books or like when did you get the NVFC partner? So yeah, first year it was
00:21:57
Speaker
almost from our own book. And we got our first partner and we started then we started of course, talking to our NVFC partners, both for our own lending to us as well as for our partnership businesses. I think somewhere in 2017 start, we got our first NVFC partners about a year from our business. Yeah. Okay.
00:22:15
Speaker
Okay. And this was like co-lending or lending to you and then you lend for them. So both, both. So both started happening. One is platform businesses as well as the lending to my own NBFC. You had your, you had to start as an NBFC. Did you have to?
00:22:32
Speaker
don't need to start as an NVFC, but we chose to start as an NVFC. I think among all the players at that point in time, I think we might be the only one who thought that NVFC is a critical piece of the equation you need to have in your ecosystem. And that's where we started.
00:22:48
Speaker
Doesn't that take time to get an NVFC license and all that? Yes, it does take time. So we had a partner who had an NVFC, so we worked with that partner for some time before acquiring that NVFC and having been there. Okay, you acquired? We acquired the NVFC. And what was your earning like? You told me you charge like a fixed rupee value per day, but what did you earn from funds? What was the
00:23:13
Speaker
Average interest income. What was the cost of funds to you? Tell me about the economics of that. It's like complex. It can get into quite complex, the economics part, because not everyone end up paying back to you. So there are a few customers. Okay, defaults. There are defaults. There are customers routinely. There are interest rates which get charged. You also run promo ports.
00:23:37
Speaker
Penalties are there. You pay interest on some part. You use your FPT for some part. So economics in the initial phases were quite complex and it may not be right for to explain. But what kind of default rate were you seeing earlier? So the initial phase sealed.
00:23:53
Speaker
I always believe that if you land right, you can collect your money back. So why you need to have a very strong collection of processes, but one should not build a business on the back of thinking that I will be able to collect, right? The business has to be built with the right handwriting and the risk management. And that's where we spend a lot of time. And like I said, among all the players, we are the one who has really built this business right, for a customer perspective also, as well as for our own stakeholders perspective. The default rates were reasonable.
00:24:23
Speaker
They were generating a positive margin for us, even at that point in time, even today. Like under 5% default rate. Yeah, under 5% default rates. Again, the default rates are many ways to look at it. People can claim saying that their default rates are less than 1.5% purely because they are looking at a different metric. But what is the biggest learning during that process? Look, the customer has more needs. One and the basic need is that he needs an instrument
00:24:50
Speaker
to do his daily and the monthly needs, like I want to go to team art to buy, do shopping, or I want to go to pay my utility bills, pay overpills or pay my grossing, et cetera, et cetera, and for which people use credit card. How do I really provide a form factor in the end of my consumer so that he can use it? And that's where we launched a card program where each of our customers today gets a card.
00:25:16
Speaker
So what I have done with that card, that now he can utilize me everywhere, wherever he wants, because it's a Visa and Rupe card, which means that he can use it anywhere, as well as that card allows him almost credit card kind of a benefit, 45 days of interest rates, if he pays me on time, I will not charge him, or it can convert automatically into EMIs. Then we came back and said that, what else we can do for the consumer?
00:25:45
Speaker
So, the other thing came saying that there are infrequent purchases. Let's say Akshay is looking for a 12-month insurance policy. Okay. Now, as per law, he has to pay the entire 30 to 50,000 rupees today. But the benefit will come over next 12 months. Most of the people may find it very tough to send out 50,000 rupees in one shot. How do you really create a program where
00:26:09
Speaker
He can convert that into an EMI. Can you work with the insurance companies? Can you work with the partners to say that how can it be converted to EMI? Similarly, if you are looking for a whited junior course for your kid or are looking for a course for yourself with upgrade or if you are looking for a health treatment, let's say a young generation person wants to align his teeth, today it costs anywhere between 50 to 60,000 rupees.
00:26:35
Speaker
How can I need those in sequence? Like cosmetic surgery and cosmetic surgeries, IVF treatment, weight loss treatment, the diabetic reversals, elective surgeries. So then these are all the infrequent needs. I want a mobile phone, something where every three to six months I need to spend 50,000 rupees and the benefit will accrue over a period of time.
00:27:05
Speaker
either through skill upgradation or the consumption. This is the more traditional EMI product, right? This is what Bajaj is also. So Bajaj does it in offline space. We chose to do it in online space to start with. While checkout finance is not in a new thing. But what we said that this is one more need which my customer has. How do I really need this need? So the point here is that how do you really keep your customer in between and keep looking at it and get what more you can do. So today we offer him a checkout finance.
00:27:35
Speaker
We offer him a card program. We offer him cash, no questions asked. Everything happens through automation, extremely high amount of digitization. The customers get zap decisions like he will get decisions within seconds instead of waiting for the hours of the days. And like today we run very large operations.
00:27:55
Speaker
with a very small team of let's say six underwriters with a 20-member analytical team who is doing and automating things which can generate huge operating efficiencies at a scale.
00:28:11
Speaker
What you want to do is be an all-in-one source of finance for a certain segment. And that certain segment for you is people who are between 15,000 to 50,000 monthly salary. For that segment,
00:28:27
Speaker
you want to be able to offer them everything that they need under one rule. Absolutely. So, you actually summarized it right. I'll just add couple of more things. While doing so, if somebody who doesn't fall into this core segment, I should have product to service him. Let's say Akshay earns 2 lakh rupees and he's looking for 5 lakh rupees, which I cannot service today. Can I have partnership to survey?
00:28:49
Speaker
So I will service everyone who is there in my ecosystem, but with a core focus to serve this mid-income segment because in my mind, India is going through a transformational phase of where aspirations are going up. I said, if you wanted a shoe or a sport shoe or a watch, it was tough to get it. Today, the way the globalization, the way the things are connected, the way the Indian enterprise itself has come, the aspiration has gone.
00:29:16
Speaker
a multi notch up and they are going up every day. Like today, Amazon Flipkart services are available in my town for 10,000 girls. So which means that anything which is getting sold on Amazon can be accessed by a small town without 10,000 population town also. So we believe that
00:29:36
Speaker
The next 10-20 years, India will go through a huge transformation, especially in tier 2, tier 3 and tier 1 cities. Metros it is already happening, but other cities will see a huge transformation.
00:29:51
Speaker
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00:30:11
Speaker
So I have questions on four different areas. I just made a list of my questions. So I want to ask questions about the product features, some of which you have mentioned. I want to do a little more detailing there. I want to ask questions about the numbers around the business. I want to ask questions around the roadmap and I want to ask questions around how you would compare with competition products. So let me start with products, product features, questions which I have around that.
00:30:39
Speaker
So the card product which you launched where you issue a card which is either Visa or RUPE or does it have both? So we started with RUPE. We are also launching with Visa now. So each card will be with only one. So till now we are with RUPE but we are in a negative conversation too.
00:30:57
Speaker
start results. But it doesn't matter. See, at the end of the day, from a customer's side, it doesn't matter because both of them swipe on the same terminal. Equal availability within India. Equal availability in India. And at the end of the day, from a customer's side, it doesn't matter whether it is Ruby or Master. Of course, there are offers which at a network level they have. Some might have offered with Xamato, some might have offered with Swiggy, but they keep changing. So to us, there is not a critical business decision, let me put it that.
00:31:26
Speaker
And this, you would need a bank with you to issue the card, right? Like only a bank can issue a card if I'm not mistaken. No, so that has changed. So that has changed about, I think, two, three years back when RBI allowed interoperability of cards or interoperability of PPI licenses. So today, anybody who has a prepaid instrument license, so like PTMs,
00:31:52
Speaker
or there is a company called Transcorp based out of Jaipur who are the PBI license holder, they can also issue a card and we are currently using them as our card broker. Of course, the money moves through the banks but we do not have a sponsored bank and we don't need a sponsored bank.
00:32:09
Speaker
We are also hearing RBI is going to allow NBFCs with few conditions to launch their own credit cards and that would be a very interesting development and a step in the right direction. Okay, so this is essentially a prepaid card which you are giving to people. It has a balance in it.
00:32:24
Speaker
Yeah, it has a credit line card. Mostly, there is no balances in the card. But as soon as you swipe, in a real-time basis, we approve the balances and then transfer it. See, from again, I'm coming back to the customer's side. While on the back, there is a lot of technicalities and there is a lot of complexities which we've built. But the wave ear position of our card is very simple. You need to think it that every transaction is an EMI. But if you decide to pay me back,
00:32:52
Speaker
Before the first amount is due, you will not be charged anything. So it is like a credit card convenience. Few of the credit card features are there. But of course, it's not a credit card in a true sense. But from a customer perspective, it gives him a comfort. If I pay within 40 days, 45 days, I don't need to pay anything else. And that is the biggest factor. And second is that if you decide to pay through EMIs, you don't need to do anything.
00:33:18
Speaker
See, most of the times, let's say, take a credit card example. If you decide that you will pay only one EMI, the charges are very high, right? Almost the lender cost could be anywhere between 48 to 54% kind of a rate, okay?
00:33:35
Speaker
or if you want to convert it to EMI, then you need to go through the process, call them and get it converted exception. Whereas in my case, I give you an automatic conversion. So automatically, if you decide not to pay phone to avoid the interest benefit, you will get my options automatically. So even a 500P transaction can be converted to 12 EMI's.
00:34:00
Speaker
So that all comes at a customer level. And they would be like a mobile app which would show him real time that this is the balance available on your card and this is the interest payment and all of that. So my mobile app is a hygiene and when I look at our mobile, the kind of features which we have added into our mobile app, it is very comprehensive.
00:34:22
Speaker
If my customer thinks that he needs a particular thing, the chances are that everything is available on the mobile phone. For us, the mobile is the primary source of communication with the customer. I don't want to call a call center. I don't want anybody to call me. I want everything on my mobile phone. And we think that we have built a very significant amount of content, significant amount of information for the customer to see on the mobile phone, and we continue to add a lot out there.
00:34:52
Speaker
So mobile is our primary source of property. We started as a mobile company. We are today also the mobile first company, while we have built a very strong technological stake, both at APIs as well as website also. But the mobile remains our key way of communicating with the customer.
00:35:11
Speaker
Can you share some number, what is the number of downloads or monthly active users of the app? So we just rose 10 million people downloading our app and 10 million people who has
00:35:23
Speaker
than a mobile verification. Not the download standards could be very high, but we have in our system 10 million people with mobile number verified. Verified users. Yeah, verified users in us. MEU DAU doesn't make a large difference for a financial services purely because if I reject it, if the customer realizes that he doesn't need my services, he will delete me. If I have defaulted and I have
00:35:49
Speaker
decided to reject it, they wouldn't have reduced it. So those are not the right metrics for us because why we need to create engagement, but we want to create engagement within the people who remain with us as an approved customer. We need to bring the customer back, but MIUs are not the right.
00:36:05
Speaker
Okay. Okay. Okay. And for your BNPL product, so you have like tie-ups with say Amazon and all of these e-commerce sites. So how does that work? The online BNPL product? So we call it checkout the traditional way, the BNPL. We started this about 18 months back during the code.
00:36:23
Speaker
And the core purpose of starting this was two folds. One is how do we really reach out to larger set of customers? The second is that how do we really enable our own customers to shop at the many places? So to shop at many places, we of course give a card also, but this also enables them to do a large purchase. Let's say if you want to buy a 50,000 rupee thing, maybe you don't want to use it.
00:36:46
Speaker
Purely from a perspective that it can block the short term limits, right? You want to take a 6 to 12 month loads. So when we started, we said that there are three segments which we want to focus on as a first thing where we think these are the emerging segments. The first is at-tech, the second is insurance and the third is health. So and with a clear focus, let's say a skill-upgradation, you want to take a course from upgrade, we are there.
00:37:12
Speaker
You want to take a course for your son at Whited Junior, we are there. You want to buy an insurance policy, we are there. You want to take any healthcare treatment, we are there. But healthcare treatment through online, like what kind of healthcare treatments are online? No, so two things. One is that the delivery of this mechanism may be offline. Okay. So let's take an example of Tutsi, which provides you a tit liner. So to align your Tutsi, you know.
00:37:38
Speaker
So now the delivery might happen in assisted format. When I say online, what I mean is that something where the business sales is not selling on a brick and mortar, let's say an optonic shop. We are saying that something where most of the education is online. At least the delivery and the selling happen online. They don't have offices across board. Like today, wages do not have offices. They have a call center, but they don't have offices.
00:38:03
Speaker
So the point is that where there is no brick and mortar services or large ecosystem for you to go, you are talking directly to the merchant who is talking directly to the consumer. And that is where our focus was. Okay. Okay. So basically like D2C brands is where you focus on. And these three segments, insurance, health and education.
00:38:22
Speaker
So, I will say a part of it is D2C, but normally D2C is seen as a cosmetics, essentially let me say B2C. B2C is better term, but there is B2B2C like insurance is typically a B2B2C, it's an agent driven model.
00:38:42
Speaker
So you just need to assist the insurance company on their agent portal. So they might not need our assistance. They will be able to sell on their own. But it is not happening in the branches. It is not happening at the shop store. It is happening where the customer is entering the data owner. Or let me put it a little bit more differently. We focused on services.
00:39:04
Speaker
more than the products. So education and insurance is a services program. These are not services. Product is a roadmap. So again, the idea is that, but product is a very crowded category. There are so many other BNPL players in products.
00:39:19
Speaker
So in my mind, if any field you enter, you will always find a crowd there because India is a country where there is an opportunity, there is a crowd, there is a competition. So I don't fear the competition, but our aim is that in next 12 to 18 months time, I want to ensure that I deliver a promise which I made to my existing customers. If you think of any product,
00:39:42
Speaker
There will be an opportunity for you to use early surgery at those locations. So like we tied up with Razorpay to allow our customers to use us at their payment gateway networks.
00:39:54
Speaker
So the idea is that everything which is there, so anybody using Razorpay payment gateway network will be able to offer BNPL through early salary to people doing checkout. Absolutely. So the idea is that you reach out to a new set of customers, but also you reach out to the customers to ensure that existing customers are also
00:40:16
Speaker
aware that they can use us. And the salary advance product through the employer tie-up, like that is only with quests right now? So that is picking up. We have quite a few tie-ups out there, but the quest is the largest and there is a decent amount of team which is building this product and reaching out to the larger set of employees. And what is the cost to the borrower there?
00:40:41
Speaker
Typically, these are the products which are very flat, say 5000 rupees for 49 rupees, 99 for 10,000 rupees kind of thing. So it is very clear to them saying that I need to pay 49 rupees to access this money. And many times the employer is also willing to pay that cost and say that let me make it an employee benefit. And in this case, the borrower will pay you after he gets salary or the salary gets credited partly to your own account. How does that work? Yeah, salary gets partly credited to us.
00:41:10
Speaker
Okay, which makes it pretty convenient. Some of the things on the roadmap which you said like investment, insurance, this is like wealth management essentially that you want to start offering on the app like people can put in there like buy mutual funds or buy insurance through early salary up that's the plan that like this audience your existing audience just expanding the services available to them.
00:41:38
Speaker
So yes, because if you look at it, most of the times that people come to borrow from us, they also do investments. They also buy insurance policy. But I found that the awareness levels are still very low. So like today, I think only in a single digit percentages, we have a customer.
00:41:55
Speaker
who has an insurance policy. While of course most of my customers may have a group medical policy from their employee, employer, but that may not be enough. And take my own example, up to a year back I did not buy an additional policy and I was happy that my insurance policy provided by my employer is enough. But as the cost is going up, I am realizing that it may not be sufficient and there could be a large shock which can come.
00:42:22
Speaker
And we think that will be a product which we would like to offer to our customers. Similarly, providing them an opportunity to do SIPs. Providing them an opportunity to make their credit card bill payments or their utility bill payments. So that if they are doing any transaction, why can't they do on our platform? But we are not getting into payments business. We don't want to build a reserve pay or anything like that. We are saying that how do we really over a period of time build a solution?
00:42:52
Speaker
If you see, we are really here to build a digital bank. We are already here to build a lending. We understand lending. We understand how to keep customers. We understand their needs. We are now going to build products where the customer can start thinking that, apart from lending, I can also use them for products which need some kind of assistance, insurance, investments. So those are the parts to really build both sides of the businesses for the customers.
00:43:18
Speaker
You would use a third party provider to make these available. You build them from scratch. In the initial phase, we will use partners to build it because I think there is no point reinventing the wheel and there are enough partners available.
00:43:35
Speaker
Or maybe we'll go and acquire somebody in this space to have a management bandwidth to build it out. See, the one thing which I always believe that it is not about you can't build it, it is about how much management bandwidth.
00:43:49
Speaker
you want to invest into the process. And you run collections in-house? How do these collections happen? So we do collections in-house also, as well as outsourced. So just to take an example, first 30 days we will do in-house collection. And we will outsource it to the agencies and there is a well-defined process and the machinery which manages these entire operations.
00:44:11
Speaker
When you outsource collections, do you sell that loan out or you pay them a fee for collecting it? They are more of a fee for collecting the money back. But again, while connection is an important part of the business, in my mind, it should be seen as a function which will assist to ensure that the company runs, but it cannot be the core point to give out the money.
00:44:34
Speaker
You need to build your risk management framework to ensure that you can give money to the right set of customers. And whoever doesn't pay, you have the ability to connect from there. But you cannot say that you cannot connect to the right set of customers. That will be the wrong to understand and build the business. Yeah, management should go on risk, like risk assessment at the time of lending instead of collecting after lending. Please. Once the money is gone, then the risk management is in customers and not in your head.
00:45:03
Speaker
So I want to talk some numbers and understand what the growth has been. So tell me like first year, what kind of notebook did you have? How did that increase? What is your notebook today? You know, just some idea of the growth path. Looking at the past five, six years, when I see, I sometimes wonder how far we came and there was a nice line I read on a day-to-day basis, nothing changed.
00:45:27
Speaker
But when I look back, everything is changed. I still remember in the first 12 months, the highest number of customers we serviced was 500. In a month, we serviced 500 because we reached 500 numbers and then funding was taking a little time.
00:45:44
Speaker
What are the numbers you track just by understanding? What numbers matter to you? So see, while of course, if there are many numbers which matter to me, but the key number is always how much customer you are servicing. Basically number of loans sanctioned, that would be the same, right? Like number of customers, number of loan is the same thing. Number of customers. Yeah, number of customers you are acquiring, new customers you are acquiring in a month. And more than that, what is critical is that, how many of your existing customers
00:46:11
Speaker
continue to remain existing with you. Let's say two years down the line, are 70% of those customers still with you or not? Because more the customer with you, more you make money on it. If after two years also the customer is coming and taking money from us, it is a great sign that we have built a right product.
00:46:31
Speaker
Second, customer trust us. And the third is that there are huge operating margins which are getting built on it. Because you have much better risk management. I mean, you know that you will get the money back. So these are like a returning customer is a low risk customer, basically. Absolutely. Why is returning customers a low risk customer?
00:46:48
Speaker
Second, the cost of acquiring the retaining customer is virtually zero. So that's how much time we use Uber and every second time it's free for Uber, right? So that's where the entire platform and the network effects get put in. So the very critical for me to track retention metrics is how much the customers are retaining with us.
00:47:09
Speaker
how we are, what kind of products we are selling it to them. Then, of course, what kind of credit first the portfolio has at the product level, how much money we are making, whether we are a Euroeconomics positive, whether we are profitable. Like today, we are profitable for almost last six quarters and profitable at a pet level. And we expect that to continue now, we should remain profitable as we keep on refilling the business to the next level.
00:47:32
Speaker
What is the way you calculate revenue, the interest that is your revenue? Interest fees, late fees are all the revenue. What has that growth been like? How much do you think this year's revenue will be? The growth has been phenomenal, especially post-COVID. We started accelerating post-COVID, of course, keeping the risk under control. In the last 18 months, post-pandemic,
00:47:57
Speaker
We saw excellent growth. Our sales has gone up almost six times. We today acquire all-time new customers every month. Our amounts dispersed order with customers is at all-time high. We are profitable making money and green water. We just opened another two offices in the same building to accommodate social distancing as well as being a larger influx of a larger set of employees and the talent working in various departments. Got it.
00:48:25
Speaker
So you told me you were doing 500 customers was the highest you did in a month in that first year. What do you do now? How many customers a month are you? We today do almost close to 100x of that. So around 30 to 50,000 customers we are doing a month.
00:48:41
Speaker
Okay. Amazing. And what is, do you look at a loan book? Like traditional NBFCs would have a loan book and all of that. Is that a number you track? Like what is your loan book size? I will track everything. That is not a relevant metric for you. No, that is relevant purely from a perspective that at the end of the day, that is the money which is outstanding. That is the money which needs to compare.
00:49:06
Speaker
That is the money you need from either your equity or you need that money from your lenders. So it is very critical to track how much is the outstanding money. And second, that's how much interest you will earn and that's the way it will work. But it is not the same as like for a traditional NBFC, the loan book is indicative of how much business they are doing.
00:49:30
Speaker
But in your case, because the loans themselves are like, you know, 15 day, 30 day, 60 day loans.
00:49:38
Speaker
It doesn't really indicate how much business you are doing to that level, which it will do for a traditional NVFC. That is true. Loan book is critical, but you rightly said that. What are the metrics apart from that which are critical? So today, first of all, we don't do 15 days, 30 days low. Our minimum ticket size or the tenor size is three months. For us, what is more critical is that how much is the total disbursement we are doing in a month?
00:50:06
Speaker
And out of which, how much is a returning customer? It's a very critical metric. See, more you engage with the customer over a period of time, more that customer will come and buy something else. So what is the percentage of your monthly dispersal and second is percentage within that which is returning? What is your monthly dispersal? So since inception, we have dispersed more than 5,500 crores till now.
00:50:36
Speaker
Our correct aim is that we would like to disperse a similar amount in the current year. Our internal aim is to do a 5000 crore dispersal from January to December of this year and that is what we are targeting.
00:50:52
Speaker
So which means 4, 500 crore per month is your target. Target is about to hit 400, 450 crores, kind of a number by the during this period. I think which is very comfortable. Rather we think we will over exceed that number. Our current thinking is that we are doing somewhere close to 300 crores a month kind of numbers. Got it. Okay. And what percentage of this is returning customer?
00:51:16
Speaker
So, of course, it is a different way to look at it. Little complex, I'll not go into the details. See, if you acquire more customers, your returning customers in that month will be lower. If I don't acquire new customers, my returning customers will be higher. So, that may not be the right way to look at it. The best way to look at it is that if I acquired, let's say, 30,000 customers in a month, after
00:51:42
Speaker
a 12-month or a 24-month window, how many of those customers are returning at that point in time?
00:51:49
Speaker
are still active in the system or has continued to maintain relationship with me. So what is your retention rate? Like a 12 month retention rate or a 24 month retention rate? So it is very simple. Most of our customers we retain, almost 85% plus customers remain with us. And what is the, how much of your dispersal is through equity? How much is through debt? What is the split? So any financial services business says
00:52:14
Speaker
need to be built with a large financial leverage, more you can deliver more money. So today, our core, while we will continue to go and raise more equity also, but our core focus always remain that how do you really leverage your partnerships and leverage your lending confidence to ensure that you can make a larger business out of your equity money which you are putting in.
00:52:40
Speaker
Okay. But is it like 90% debt, 10% equity? What is that split like? Not that much because that is too much of a debt. I think somewhere around five times is a good debt. So you would have 70, 80% is an equity and 82% is in debt and 18, 19% is equity.
00:52:59
Speaker
Okay. And what is the cost of debt and how much do you earn on that? What is the spread that you make on it? If on an average, say you earn 20% and debt costs you 14%, then 6% minus default. What does that economics work out to? So those economics are again very product specific and consumer specific, but at a very high level, we make interest margin of close to 13, 14% after paying for debt, as well as paying for the credit cost, which is the NPS.
00:53:27
Speaker
What is credit cost? NBS. After paying for rent. Okay. That's amazing. That's extremely profitable. Yeah. The business is profitable last 16 months, the pet positive. So did you raise more funds after that initial 1.5 million? We have raised subsequent rounds. Till now we have raised close to 34 million in total. And most of that money is with us. We have not burned too much money in building this business.
00:53:54
Speaker
quite efficiently. As we speak, we will also continue to raise more equity. Okay. Okay. Because you want to keep that one is to five ratio. So the more equity you have, then the more your book can grow because then you can like for every one rupee of equity you raise, you can raise five rupees of debt. So that's like a growth clue. Absolutely. So we are talking to equity investors to raise that equity now.
00:54:17
Speaker
What was your biggest round till date? So we raised 16 million in one round. Then we raised the following round of 11 million. And that money was sufficient till date. See, the equity funding is why it gives you headlines. But at the end of the day, you need to ensure that you deliver growth and returns back to the investors. That is very critical. See, they are the biggest believer in the story. So you need to ensure that you raise money to build scale. You raise money to give comfort to the lenders.
00:54:46
Speaker
But at the end of the day, if you are sufficiently capitalized, then there is no need to raise the money. So till the time you have growth levers, you should use it. And that's what we do.
00:54:56
Speaker
And how much are you looking to raise now in your next round? So we are in the markets and talking to raise anywhere between 50 to 75 million of equity. And this is primarily an India focused play only or are you also looking to go outside India? So there's a question which many times I was asked and I always found it means it's like crystal gauging. As of today, we do not think that there is a large opportunity in India.
00:55:19
Speaker
We think that Indian market itself is large. Everybody's coming to India to invest and we have an opportunity here to build a very world-class business.
00:55:28
Speaker
Having said that, there are markets where there can be opportunities. So there could be Southeast markets, there could be Middle Eastern markets where you can move and build similar businesses because the challenges are... This could be like I was chatting with a friend who has Deeper Connect in Bangladesh and he was telling me and pushing me saying that you should start Bangladesh.
00:55:51
Speaker
I said that first I want to build a much larger play in India because everything boils down to a single statement is saying that how much focus you want to build and how much single-minded focus you need to have because that is very critical for us to build and service a class. I will not do a justice to my consumers if I start not having that kind of products which provides in the best-in-class experience.
00:56:20
Speaker
I think also the other advantage in India is that more and more people are moving into the formal economy from the informal economy. Absolutely.
00:56:29
Speaker
That will happen across the globe. I think everybody is in a journey. I think Bangladesh, to me, looks like a very promising country. Also Sri Lanka, both of them you mentioned, purely because of the fact that there is a large amount of startups coming up across the board, which are formalizing many of the places. Second, with education levels going up, everybody is getting formalized. Like today, just to take an example, Torres formalized so many employment, which was an unorganized segment.
00:56:59
Speaker
Tens of lakhs of people here. Tens of lakhs of people got formalized in the economy. Okay. So, what is the risk underwriting that you do today? You told me about when you started the kind of underwriting you were doing then. Today, it must be extremely sophisticated. You know, you would have evolved it over the years. So, what does that look like today? Like, how do you do that underwriting? Today, I think it has become a very customised journey. Whenever we think of risk management, the first thing comes to mind is scorecards.
00:57:28
Speaker
or the roots. Let me give you an example that if you are above 40, you are past, if you are below 40, you are failed. So it is like a pull-cutter. If you are at 41, you are past, if you are at 39, you are failed. But from afar, there might not be much difference between 41 vs 39 guy.
00:57:48
Speaker
Right? There was no logic of saying that a random number 40 is a passing percentage. No? So similarly, the Bureau scores or our internal scores can give that cookie cutter kind of experience saying that if your internal score is more than 650, you are passed. If it is less than 640, you are failed or something like that. And today we came long way from there. Today we use technology and our thinking of a customer behave a multi-dimensional way.
00:58:17
Speaker
We allow the risk management to work intuitively. We run multiple scorecards. We run multiple rooms together to ensure that we can take a holistic view on an individual customer and then accordingly give him an experience which gets him what my comfort level is. But how do you run multiple scorecards together? How do you then take a yes-no decision?
00:58:42
Speaker
So multiple scorecards, the one way is that he would design. So just to take it like going back to my question that whether you were at 41 or 39, you come back and create a rule which is quite complex when you extend to a 12th grader or a CA foundation that out of 10 questions, whether he answered the first five questions right or the second five questions right.
00:59:03
Speaker
or whether he answered the first five questions in 30% of the time and then he took 20% of time he spent on answering one of the questions. You get that kind of information when the customer is working with you. So you run multiple scorecards for multiple set of people and you run at the top some characteristics to find which is the best suited scorecard for that set of customers.
00:59:26
Speaker
Okay. So do you also give loans to gig worker? We do. So because they don't have fixed salary as such. So is that part of your target customer base? So it is a part of our target customer base. We definitely are doing experiments out there to build the model. But I think if you ask me, we are still in a process of putting our entire model together. So it is something like you rightly said, income variability is very high, attrition rates are high.
00:59:56
Speaker
So we need to work very closely with the employer. We need to work and find a new business model out there. So we are working on it. We have been in a lot of experiments, both are like... Quest is a classic example again. It's not a gig economy, but at least it provides the new color employ, employ, employments and which also are more or less the similar kind of a characteristics.
01:00:19
Speaker
And my last question to you. So what is the biggest problem you want to solve right now for early salary? What is that one obstacle to growth that you are focused on today or over the next two, three year period? What do you see as one big challenge to solve?
01:00:35
Speaker
So I will answer it differently because after running a business for six years, I started seeing that every roadblock is just a stepping stone to the next journey. So I don't see most of the things as obstacles. Rather I see them as challenges and I see them as opportunities to do more.
01:00:58
Speaker
So today, what I do and what I believe and which I keep telling my team also is that while COVID was a watershed moment, it is a time while the digitization was happening for the last few years. But it was happening at its own pace, both at the businesses and as well as at the customer end. But COVID has accelerated.
01:01:23
Speaker
that growth, again both for businesses as well as consumer. So today, every bank, every financial institution is focusing on how do they get their app out, how do they get their digital journeys out, how do they get a customer to deal with them digitally because they realize that is the way it is.
01:01:43
Speaker
Similarly, the customer expectation is that everything can be delivered digitally. Like today, my father's, I think, ability to use a mobile phone is much better than my ability to use a mobile phone. The way he feels comfortable using various apps, etc. And I think that across each spectrum of various, whether it is a tier 3, tier 2, tier 1, metros,
01:02:08
Speaker
the people's adaptability towards using our digital means to communicate has gone up.
01:02:14
Speaker
So, in this kind of a backdrop, the winner which is going to come in next 2-3 years or 5 years is that where you build a rock-solid customer experience. Because in my mind, many of the people will build their digital journeys, will build their digital transformation, but they may not build a digital customer experience. Nope. And that's where
01:02:38
Speaker
I think the winners would be how you really build a customer experience which can be top notch and the retention is the key to build any business.
01:02:50
Speaker
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