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Akshay Mehrotra reveals what goes behind building India's leading digital lending app, Fibe
198 Plays1 year ago
Take a deep dive into digital lending with Fibe, the leading player in the unsecured lending space. In this episode, we unravel the ABCs of the lending business, exploring what drives their customer selection process, how they crafted the winning customer value proposition, their strategic brand positioning and their journey of scaling from 0 to 1.
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Read more about Fibe:-
2.Customise and digitise your HR for impact: Insights into Fibe’s exciting journey with Akrivia HCM
3.Lendingtech Startup Fibe’s FY23 Net Profit Soars 9X To INR 36.3 Cr
4.Axis Bank, Fibe partner to launch India's first numberless credit card
5. Guest Talk: Mr. Akshay Mehrotra, Co-Founder and CEO, EarlySalary
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Transcript
Introduction & Company Background
00:00:00
Speaker
My name is Akshay Mehrotra. I'm co-founder and CEO of Fibe, India's largest consumer lending app for salaries professionals. Lending is a big business. In advanced economies like America and Japan,
00:00:24
Speaker
Almost 2x of the GDP is the amount of loans in the economy, which means that if the country produces $100 worth of goods and services, there are $200 worth of loans that exist in that country. In India, this number is just 0.5 of GDP. So you can imagine that there is so much opportunity in the lending space in India.
Understanding Lending in India
00:00:48
Speaker
In this episode of the Founder Thesis podcast, I'm speaking to Akshay Mehrotra, the founder of FIVE. FIVE is one of the largest digital lending players in the unsecured space. There are a lot of jargons that we use in this episode, and I break down those jargons as I talk to Akshay to help an outsider understand all about the lending business, which is a highly complex, highly regulated business.
00:01:12
Speaker
If you really want to get a deep dive understanding of what lending businesses are all about, then this is a must-listen episode. I'm Akshay Dutt, and you're listening to the Founder Thesis podcast. So could you give me an elevator pitch of five?
00:01:42
Speaker
Hi, let's give you a quick elevator picture of what 5 is. So when young people really wanted to figure out credit, we said that can we solve this problem to introduce the country's first product to introduce credit to salaried professionals? Today, anyone who's young, as long as he's salaried, if he needs money, we'll make sure that he can get a credit line approved in a minute and get
00:02:04
Speaker
Let's say a 50,000 rupee transferred within the next 10 seconds to him. So FIBE is the largest, fastest lending product available in Asia. It's meant for young Indians. It's meant to be simple. It's meant to be very rationally priced, much cheaper than a credit card, available runtime within a couple of seconds. Okay. You're saying fastest in Asia. How have you validated this?
00:02:34
Speaker
We give our average loan dispersal window as one, 22 seconds. Wow. Okay. And this is a number that all other fintechs also released, like how much time it takes them to reverse, or this is like an estimate based on you being an industry insider. Well, when you become market leaders, you send the benchmark, as follows then.
00:02:59
Speaker
Okay. Okay. So, uh, your market leaders in what would be unsecured personal loan, that would be the category of the product, right? Yes. Yes. Okay. Okay. So unsecured because there, there's no collateral here. And like say a home loan where there's a collateral. So, so this is, if you need money for no matter what reason, uh, you can just come and go through some sort of an assessment and, uh, you will get the loan and the average time to get the loan is 122 seconds.
Fibe's Target Market and Offerings
00:03:28
Speaker
Great.
00:03:30
Speaker
When you say you are largest in the country, can you give some numbers to help you understand what that means? Typically, in any given month, we do close to 900 crores of dispersal. We are working with at least 700 active borrowers at any given time. We receive more than 2 million people coming to us each month.
00:03:50
Speaker
and we're able to service, let's say, at least loans works, $12,000 on the platform each year. That makes us the largest lending product to salary professionals under 200,000 rupees being delivered digitally in almost operating in 321 cities.
00:04:13
Speaker
Okay. So when you're saying largest in India, the caveat or the star, there is that this is for digital players in the digital player ecosystem. You are the larger. So in the non-digital, it would be like a bank, which would have a bigger loan book than you. See, very interestingly, see banks, you, you can't be really larger as a financial entity. 1% means your HDFC bank.
00:04:40
Speaker
So that just sets a benchmark that even if a bank is really big, is a mammoth, 1% of lending in the country means your HDFC bank. India is a very huge market. Everyone finds their niches. Our job is to find a niche which is addressable and really build an ecosystem behind it. Today, if I look at the niche that we cater to,
00:05:02
Speaker
We are catering to salaried people. There are almost 220 million households that we are talking to. These are 100% salaried, 100% bank customer, but not been able to borrow from yet a bank. They've not got access to a credit card. They've not been able to get an access for a larger loan. And that's what we provide access to early age so that they can start using credit for improving life every day.
00:05:30
Speaker
Okay. So are you saying that you give loans to new to credit customers, like customers who don't have a civil score? We also give loans to a customer who's new to credit. But having a bureau is not the reason why we give you a credit. We love people who have just started their jobs. In fact, when you walk into many large
00:05:54
Speaker
companies, typically the HR intimates us that my employee is joining, help him with a small loan so he can pay his house deposit. It could similarly be just passing out of a campus and you're coming into let's say Bangalore to pick up a job and reach out to get credit from us.
00:06:09
Speaker
It could be a two, three years old, been working somewhere. You have tried a couple of credit products, but you haven't been able to access to quality credit yet. Typically, you're borrowing from very expensive instruments, or the only thing that you tried was, let's say, buying a mobile for an EMI, will become your first credit product to use you better.
00:06:29
Speaker
But over time, what we have noticed is that a consumer who's young, let's say typically between 24 and 30 years old, we're able to service him the best. We're able to give him the right amount of money and we're able to get him to accept a credit product really as an everyday lifestyle product. And that's what we're really focusing on.
00:06:51
Speaker
Okay. So when you're saying that you, a young person who's not had access to quality credit products, so it means like instead of taking a loan, they're just using their credit card and revolving that, or rather... So credit cards are phenomenally expensive, as one example. Let's say 30% of our customers who come to us, maybe have experienced a credit card before.
00:07:15
Speaker
But they get over leveraged on their credit cards, also very expensive credit limits are very muted. But let's say 18 months down the line, most of our customers have a credit card for being through credit card. What we want to avoid is getting over leveraged there. What we want to avoid is revolving on the card because card reward is very expensive.
00:07:34
Speaker
Right. And so it's a two way part. We acquire a customer who's not experienced credit, but as he matures, he will access more credit products. We try to make sure that he's now borrowing more rationally, not getting over leveraged and getting the right amount of money. And what would the credit cost through five as opposed to through a credit card? What's the difference?
00:07:58
Speaker
Let's give a benchmark example. Typically, it's a consumer taking a 12-month product on our platform, which is like a cash withdrawal directly into his bank versus a credit card cash withdrawal. We should be at least 40% more rationally priced than the credit card product. The consumer pricing could vary from, let's say, 18% to 24% interest in a 12-month product. It's very competitive.
00:08:23
Speaker
and he finds it much better. Credit cards not only are more expensive, they also the interest on a credit card tracks GST. So it's always going to be 18% more expensive.
00:08:34
Speaker
Wow. Why is it that credit card interest attracts GST and not a personal loan interest? That's how financial markets operate. But credit card is an instrument. You're not supposed to be using it for, it's a transaction instrument. So it requires different type of interests and different type of charges on it. And I think credit card interest is typically 3% a month, like 36%. Almost 3.5% a month plus GST. Right. Yeah, plus GST. Okay.
00:09:03
Speaker
Okay. So credit card as a source for shortfall, like making up shortfall in your cash flows is like phenomenally expensive. So five is a much better option. And most of the time it's more than cash flows, right? It's the right amount of money, which is important. I would say typically a consumer, we're trying to give them let's say 60,000 rupees, which is close to two, one and a half to two months of a salary. So it's not just time over the month. It's actually to have meaningful money coming to.
00:09:30
Speaker
Okay. In a credit card, if your salary is at 30,000, your limit will also be something around that, I guess. Correct. And most of the time you think that you end up paying minimum balances on a card just to survive the cash flow because you're not getting hard cash from it. While we give hard cash, you can pay off your card, you can do something meaningful with it and then pay over time or installment.
00:09:55
Speaker
Okay. You said that you give a credit limit. So is it like a limit where I can choose how much cash I want to take out from it? Or is it like you give a loan and that loan is disbursed? So it's both. Let's give an example. You have a credit limit, let's say of a lakh 20,000. You could choose to withdraw only 80, but it's only a one loan created at one time, which means unless you pay off the 80,000, the limit will not get reactivated.
00:10:24
Speaker
But your interest will only be on 80,000. You'll not pay interest on the remaining 40,000. Absolutely. And one of the most interesting parts that we run is we charge daily. And we have no prepayment penalty, which means that if you took 80,000 rupees on, let's say, ninth of the month and you decide to pay back on the 31st of the month, you're only going to pay 21 days interest and no other charge. Amazing. Are there other companies which offer this kind of a daily interest product?
00:10:53
Speaker
I think mostly no. Most of the companies, while they calculate interest to it monthly, they also don't provide, let's say, flexibility to prepay without penalties. If you remember, when you borrow large loans from
00:11:08
Speaker
private and public banks, they attract large prepayment penalties almost 4 to 5%. So they are focused to make sure you survive the three to four year tenure. While we believe the day you have more cash paid back, you'll come back and again borrow. In fact, let's say five day repeat rates are almost 80 odd percent for us. So people come back and re-take it. What is the five day here? Sorry, five day. So you paid the loan today. Within five days, you come back and again borrow.
00:11:37
Speaker
Ah, okay. And how much did you say? What, what is the percentage there? So today our overall repeat rates are crossing 88%. So we have the, I again put this benchmark to say, I think we have one of the highest repeat rates financial services ever seen in the country. And I think this is because when Kanju comes back, he sees a better product. He's seen even a lower yield product for him. And he sees a one second product, which means open app enter OTP money transfer.
00:12:07
Speaker
which is a very interesting journey that he experiences. So essentially you are an alternate to a credit card in every sense of the word, like there is flexibility, you get a limit of which you only pay interest on the amount that you need. That's one component of the product. Credit cards provide credit on demand for a specific segment. Let's say 40% of our customers will never be eligible for a card.
00:12:36
Speaker
So we have a line of credit for those customers. We're also a more rational price, personal loan for shorter needs. Let's say there is a wedding in the family, I need to travel for that. Going, coming, truso, and gifting, et cetera, will cost you 50,000 rupees. There is no personal loan for that. Typically, you'll end up borrowing 3 lakh rupees from a bank. They won't give you less than that.
00:13:00
Speaker
What we allow is the flexibility. Take 50 today, if your salary comes on the first payback, otherwise it comes in a, let's say minimum six month EMI. Okay. So because banks have the infrastructure costs, so they are not interested in giving us low ticket size loan. Absolutely. That is what you are able to do. Okay. Absolutely.
Financial Strategies and Profitability
00:13:20
Speaker
What is your book size? Like, you know, the assets under management, is that the right term?
00:13:29
Speaker
Yeah, that's right. So today our AUM is crossing upwards of let's say 3200 crores. Our book is linked to not such large tenure so it's difficult to build a larger AUM in our business.
00:13:45
Speaker
Today, we have crossed, let's say, the 3,000 crore mark. What's the good component? This book is also a very similar customer type originated. It's 100% salary customer.
00:14:01
Speaker
So it's very interesting that how you build a book behind a similar customer type and a similar product type, which allows consistency and understanding of risk in a better manner. Okay. So like your prediction of what will be the default rate is better than somebody who has a diverse book where they're lending to business owners and
00:14:27
Speaker
people in an organized sector and people who are working in organized sector getting salary, so they would have a
00:14:33
Speaker
less predictability of what will be the NPA. So you're able to price it better. Yes. And that's the reason because of the customer segment choice is interesting. It's a large segment. Let's say we are able to grow two, two and a half times a year in that segment. While we are growing, we're able to control credit cost. And more importantly, as you keep retaining the customer, you can predict what's going to happen at the end book.
00:15:00
Speaker
So end of the year, you need to build a book which is profitable. At the same time, the yields are low and the margin model and the ROA efficiency is much better on it.
00:15:12
Speaker
Can you explain some of these terms? You said yields are low. So yields is, let's say, the net IRR for the customer. Many other times, people try to price out the risk. So you'll find many products in the market who try to mimic us. But suddenly, you say, why the cost of that product is almost twice our cost? Because he could understand risk in that manner he tried to price his risk out. Because he's trying to do every segment and then trying to enter our segment.
00:15:40
Speaker
The second is the consumer comes and says, listen, I need to borrow rationally. Typically, let's say if you're borrowing 20,000 rupees from us, I think the per day interest cost comes to 12 rupees a day. So customer also says, listen, I need money, but I only need for a few days. Let me try to understand what that cost is. I may not drink one coffee. It may cost me 200 rupees, which means I can get that 20,000 rupees for nearly 20 days. In his mind starts calculating in that manner.
00:16:10
Speaker
Right. Got it. Okay. So because your NPAs are predictable, so you are neither leaving money on the table, nor are you overcharging because you can very precisely predict that this will be my NP. And just for people who don't understand why NPA prediction is important is because the interest you charge a customer is your cost of interest plus your margin plus what you predict as the NPA would be. Am I right in my understanding? Yeah. So let's see, there are three parts of the NPA, right? The first is
00:16:41
Speaker
looking at what is my cost of borrowing, what is my cost of, let's say, risk, I add those two and I subtract from what I charge from the customers that gives me the contribution income coming in and then comes, let's say, my overhead costs, etc., coming in.
00:16:57
Speaker
Typically, if you look at any business which can contribute upwards of let's say 14-15% or nearly 40% as contribution income to it, it becomes a very healthy business. And any business at the end of the day, financial businesses are built on leverage. So I have 100 rupees, but can I go and level 5x again? When I'm leveraging that business, can I operate upwards of 5% ROA?
00:17:24
Speaker
That becomes very important. And I think we have modeled ourselves to say we are like a credit card business. ROA efficiency is close to 6%. And that's what makes the business very interesting from financial services markets. You're building a business which can level quite well. You are attracting a customer segment where you can predict risk. So you know what your outcome you're chasing every time. And if you're able to borrow and level well, you can build a healthy
00:17:53
Speaker
revenue line and you can also be remaining very heavy in profit lines also. Okay, so I'm just kind of like summarizing my understanding. If you have 20 rupees as your equity, you don't necessarily need to restrict what you're lending to 20 rupees. You can also borrow 80 rupees more and then lend out 100 rupees. And that's how you make money. If you make only on 20,
00:18:20
Speaker
You can get ROE. This is the ROE business where you borrow from someone else and you get much higher returns. Typically, let's say the ROE in a financial services lending model should be upwards of 22%.
00:18:36
Speaker
Right. And let's say some of the credit card businesses and let's say Bajaj has come an example where they can do upwards of 26, 27%. And that's why they become very profitable. And that's because they're able to never, well, they're able to never more than four times, which gives the efficiency on the model coming in.
00:18:54
Speaker
Okay. So when you're saying 5% should be your ROA, which means that that hundred rupees, which includes 20 of your own money, 80 of borrowed money should give you a net margin of 5%. So you should have five rupees out of that, which five rupees, if you look at return on equity, then that's like one, so it's like 25% return on equity. That's how it gets added up, right? That's how it gets added. So that's how these businesses are modeled to be very interesting, scalable, and that's why they can attract, let's say more debt.
00:19:23
Speaker
And whenever you attract more debt, then you're able to build larger businesses behind. What is the multiple for you? Like I said, Bajaj is able to get 4x. So which means if Bajaj has more than 5x, they will go 5x.
00:19:39
Speaker
I think this is what is interesting in FinTech, right? I think the regulator also changed a lot to make life better on leverage. There are two ways of leveraging today. One is directly on your own balance sheet, so we own an NBFC and that's a lender. But we also do co-lending with other institutions, which allows us straight away 5x level.
00:19:59
Speaker
So while we are building, let's say, better rating and better acceptance from lenders to keep raising debt as we go along, the co-lending gives the extra cushion coming in, and you can then build a better lever model. In fact, interestingly, we showed almost 6x lever before our last funding round. Just to show that, listen, if push come to shove, can we generate much better efficiencies? And we demonstrated that. Of course, today we are not that well-levered. We have more than 1,000 crores of net worth.
00:20:29
Speaker
and we're also profitable. But as we are growing, level is very important to demonstrate so you can really build a larger outcome. Okay, so you said your asset under management is 3200 crores and your net worth is 1000. So you're currently at a 3.2 kind of a level. What is the difference between balance sheet level and co-lending as a level?
00:20:54
Speaker
So, co-lending is a liquidity tool. There's no difference. Co-lending or sales balance sheet, but the rating means your lender says it's one. Margin is also exactly same. It's just a leverage option. There are different types of capital providers and co-lending and different types of lenders on the direct lending side.
00:21:15
Speaker
I would have thought that when you are doing on balance sheet, then you borrow at let's say 10, 12% and then you lend out at 18%. So that 6% is there, plus you remove your NPA cost and your own cost of operations from that. So that is your margin there. Whereas when you're co-lending, then the person who's lending with you would give you some sort of a feast for loan origination.
00:21:41
Speaker
This is where some of the models differentiate. Some of the companies prefer pure synthetic, which means that they are not trying to be the lender, they're trying to be the platform. We were a little fortunate from day one we had a well capitalized NBFC.
00:21:58
Speaker
So we said, no, we would prefer to do classical 80-20 leverage. And we were also fortunate to then work with very large financial institutions who came and said, listen, we understand what you're doing. So we like the mix that you do. You do 60% on your own book, and you do 40-50% on cold lending. It's a very healthy mix. And this looks like the way today business can grow well, and we can build in the leverage model coming.
00:22:24
Speaker
So even in colending, they give you a percentage like whatever, let's say five percent is what you're ideally targeting. So they will give you a five percent for.
00:22:35
Speaker
No colander should ever lose money. The day he loses money, the credit line disappears. The risk belongs to us. That's very clear. It's how you adjust the risk and how you manage. Of course, the 5% FNDGs are given to manage the entire infrastructure, but we are definitely operating below the 5% to kick in. That's the important part. You need to operate much lower credit costs in the entire model.
00:23:03
Speaker
What is, so I didn't understand what you just told me, much lower credit cost. Your credit cost is that 10, 12% which the bank will charge you. No credit cost is what we lose, money that we lose when we lend to a consumer. Borrowing cost is when we borrow from the bank.
00:23:19
Speaker
Okay, okay, okay. Credit cost is your NPA, essentially. Yes, it's your NPA, correct. Non-performing assets, the bad debts, people who don't pay back. Okay. But the NPA has to be then, let's say annualized to calculate the credit cost because 10 years are different, et cetera. Okay. And what is your current credit cost? It's lower single digits. So we are very healthy in this entire part. Okay. Okay. Interesting. Interesting. Okay.
00:23:46
Speaker
What is the reason why your leverage was 6x earlier and now is 3x? Oh, it was just to demonstrate we were raising around. Typically upward, we prefer to run this model at a 4x level. Why is that? Why not? I mean, the higher you go, the more... 5 would be the maximum you should leverage, right? Before, 4 is when you get uncomfortable. See, we also have a lot of corporate governance which has to be maintained.
00:24:13
Speaker
End of the day, remember it's a risk business. You can't go wrong, right? And you always have lenders whose money always has to be given back.
00:24:21
Speaker
Okay. Right. So we prefer to, let's say every time we cross 4x, we like to go raise more equity to build the cushion before the 5x have the money. The last time we were raising money, we knew the term sheets in our hand were there. It was taking time to close out because a very large round happening and very complex fee funds coming.
00:24:44
Speaker
We said, why don't we show and listen if there is availability of coal ending, can we build something larger? And just to showcase the lesson, if push come to shove, we can always build a larger outcome without too much of capital.
00:24:58
Speaker
How did you hit 6x? Even in colending, 5x is the knob? No, in colending you can go up to 10x. How much money have you raised till date? We have raised close to 136 million in equity and almost 700 million in debt.
00:25:21
Speaker
Wow. Amazing. Okay. And for you, the 136 million fundraise, I mean, there's a different way of looking at it, but let's say if Bijou's raised 136 million, it means that that's cash there is to burn for customer acquisition, building product. You never lost a single rupee all the ones out.
00:25:40
Speaker
136 is lying as capital with us and lying as net worth in our financial entity. That's the interesting part. We have never lost a single dollar. Maybe what we raised in the first seed in the first year, we're too small and we're trying to build an organization. But apart from that, never single rupee has been lost. We may have lost a million dollar during COVID.
00:26:02
Speaker
But that's it. We today generate, I think this year we should generate upwards of, let's say, 115 million or 12 to 115 million Pat. So we're actually doing a very good job of generating large amounts of Pat. We have crossed the million dollar monthly Pat number.
00:26:22
Speaker
Wow, amazing. Okay, that's phenomenal. And so essentially, money is just an input for you, because you're lending out money, so you need money, and that money, then you're able to leverage 3x of that or 4x of that, ideally, so that you are earning better return on the money which you're lending. Absolutely, absolutely. Amazing, amazing.
00:26:42
Speaker
So you said your book is 3,200. What would be, let's say the book size of the biggies, like say an HDFC or a bajaj. Oh, it goes in lakhs of crores. It goes in lakhs and bajaj is the four lakh crore balance sheet. Right. So it's a overall book, I think unsecured. The personal loan segment would be 20% of it. Okay. Right. So if I look at it is a $3 trillion market in India growing at 30%.
00:27:11
Speaker
All loans are unsecured. Yes, unsecured. It's a huge market. And that's the opportunity that we're all going behind. Of course, the segments are different. There are going to be people like you and me who will borrow maybe at 11-12% for which STFC bank comes into picture. There are going to be people who are borrowing marginally higher. And that's where every player has his own slice, every player has his own risk model, cost to capital model. And that's how the model then evolves to really build out something better.
00:27:39
Speaker
Okay. How do you manage risk? And because you are also lending to new to credit where there is no civil score. I'm guessing when someone has a civil score, then it could be a relatively more straightforward way of managing risk. Then like the civil score would feed some sort of an algorithm, which would throw up like this is the risk profile and this is the interest that should be charged.
00:28:02
Speaker
So this is interesting. While we look at the bureau, we have our own scorecards. We decide yes or no and put the customer prediction model. We run two types of scorecards and each scorecard has maybe four different versions running parallelly. So almost eight, nine origination scorecards are running and each of them has then seven various categorization within the scorecard.
00:28:26
Speaker
Some of them are very complex. There are more than 5,000 variables in these scorecards to explain to a human mind anymore. In the beginning, they were still easy to tell. They become more complex. But let's say if a consumer has Bureau presence, we're looking at how is his credit history being where is he spending money. And we also try to then enter into account aggregation and look at his bank statements in the last six months to understand how is he spending
00:28:55
Speaker
Right. So this is how you look at analyzing our data about the consumer. And of course, it's also a lot of other data that comes in to look at because you've done
00:29:07
Speaker
let's say, decisioning to almost a crore Indians, you'll have really powerful data segments then create your how to lend, how to run risk management. Typically, if I look at classical banks, they may be large, but they really don't have large customer bases who have applied to them. And interestingly, over the last six months, more than 30 million people have applied to us.
00:29:31
Speaker
So the database, and we have maybe we have captured maybe a million, maybe a crore bank statements. So analysis capabilities phenomenally large. So we can look at bank statements and listen, these two statements look very similar, or five transactions look similar, looks like some fraud happening, right? Or people who work in X companies, we know when, when and how do they get their salaries, if they need nomenclature changes, we can catch that.
00:29:56
Speaker
So scorecards are one element, but also then the engines on top of it to build rules and build risk engines and put fraud management systems, a large run business at scale.
Innovations in Lending: Technology & Frameworks
00:30:07
Speaker
Okay. Fascinating. What is the account aggregator framework for people who are unaware?
00:30:13
Speaker
So typically, if you remember, you have to provide a bank statement. It becomes more difficult. You download a six-month statement, and you upload a bank statement. The AA is an easier way. You can add up using net banking or other, or the AA sign-in. And today, everyone is accepting through their banks to become accessible to a, today, almost 23 banks are on AA. It makes easier access.
00:30:41
Speaker
while using net banking over 97 banks can give you access to the same six months bank file. Okay, so through account aggregator you can authorize the loan provider to get access to your data as much faster.
00:31:01
Speaker
So let's give an example. The app is so much easier today. You open the app, you answer a couple of questions, which includes, it automatically answers your pen number. The minute you select your bank, it says, can you just click your A access? Again, an OTP comes and you're into a bank. It just says now, give me your ADAR ID and you're done.
00:31:22
Speaker
and a repayment instrument will also link to the same other ID. So in a way that 122 seconds when you're doing all these, the loan is approved. At the back, we're not taking more than a second. But the question really is that you are doing these steps to get money. So while you're answering everything, you can calculate at the back. And this is why the engines become faster, better, quicker to get that dispersal done for you. Okay. Okay. Fascinating. What are some of the other ways in which you are
00:31:50
Speaker
The fact that you have access to so much data helps you in better risk management. So our biggest tool that we run is what we call the behavioral scorecard. See, we are not underwriting to you once. We're underwriting to you all the time, which means that if you decide to go over lever on your credit card or some other loan or you decide to go to a very expensive lender, I can decide to cut your line out.
00:32:14
Speaker
Or I can decide to listen, I saw you getting over-levered or taking too much of transactions on your expense credit card. I can give an offer to you. Listen, I'll pay off your card. You can't anyway pay it. It's too expensive. I'll pay off your card. Instead of paying 48% there, I'll give you a 12% or 18% personal loan. And just pay off your card for the next 12 months. Don't be in a panic mode. So this is the capability of the behavioral scorecard, which runs on the consumer. It can manage the customer better. It can make sure our portfolio is healthier.
00:32:44
Speaker
The scorecard keeps removing, let's say, one, 2% of the worst customers, but it upgrades a fair segment of our customers. Nearly, it upgrades half of our consumers each month. And this allows us to deploy more capital on the same repeating customers. I did mention they have a repeated of 88%. That's because the scorecard is pushing these consumers to borrow again. And when they come back, they see a cheaper product. They almost see three times higher limits.
00:33:12
Speaker
So he goes from 50,000 to almost a lakh 50,000 rupees. He goes from, let's say, an ex-interest rate to now 40% lower interest rate. Consumer is happy. Everyone's happy. And interestingly, the behavioral scorecard were able to reduce the risk by three times.
00:33:29
Speaker
So why I gave you a better offer is because my risk came down by three times. And I think this is the singular reason why let's say five is considered a better lender that we run a very strong back-end driven continuous underwriting model using a BRS scorecard.
00:33:46
Speaker
What is feeding the behavioral scorecard? One is the account aggregator gives you access to past data and that's it, or you can continuously keep getting access. Actually, you can get in the AA platform continuous bank statements for the consumer. We today are moving to that framework. We haven't yet switched it up. But the more important is we are pinging your bureau and getting the updated bureau file regularly.
00:34:13
Speaker
So every customer is re-decisioned every month and the Bureau data is completely redone. And that gives us the largeness of the entire pie to manage systems, look at the entire pie and re-run the business. Okay. Okay. Interesting. What data does the Bureau have about me as a consumer?
00:34:33
Speaker
So performance data on every single credit product that you carry from your home loan to car loan to bike loan to every application that you make to every lender and how your repayment history is across every instrument. So did you pay this month? Which day did you pay? Was it late? Was it not late? Did you have any overdue? All of that the Bureau comes in. Okay. When you say performance, this is what performance means like the repayment behavior.
00:35:01
Speaker
Yes. Okay. Okay. And if you're applying for a lot of cards, then that is also like a red flag. It means that you're in stress or you need money. You are too desperate for money and why are you getting rejected from so many other places? What happens suddenly? Okay. Cool. Cool. Got it. So
00:35:19
Speaker
Help me understand the broad space here. There is a NBFC and then there are FinTech players who are not NBFCs who are also making money through lending. What are the different types of players in the lending space?
00:35:38
Speaker
So I think let's first divide the universe into digital lending space and physical lending. In the digital lending, the regulation has become clearer for consumers to understand. There is a DLA, digital lending platform.
00:35:56
Speaker
There is a TSP, which is a transaction processor who could work with the BLA and the regulated entity. And the third is the RE, which is the bank or the NBFC finally giving money. So the three players come in the ecosystem. The RE is common in physical and digital world. You could be only digital, you could be a digital, you could be a physical. The RE provides the money at the end of the day.
00:36:21
Speaker
In the physical world, you have branches and you have DSA is, or you have someone who creates elite someone who services elite in the digital world deal, digital lending platform does the job of the DSA right and cure and talks to the consumer works on the consumer behalf to interact with the lending entity to the conversion.
00:36:41
Speaker
In our case, we are all three. We are the platform. We are the TSP. We are the lender ourselves so that the journeys are more seamless. It's not like, well, I found you at two o'clock at night. Now let me go and find, we'll give you money. When I like, when I find you, I give you the money. What would Paytm be? Paytm also does LSP. No, he's the LSP. He's only the platform. So we're like, we are one of the lenders there.
00:37:09
Speaker
Okay. Okay. Okay. And when you say you are the largest lender, you are talking of the RE's here or even like say what PTM lens you are learning more. So when you, when you can, if you go to PTM and if you look at loans under a hundred thousand rupees, you'll find it says powered by five.
00:37:29
Speaker
Okay. Okay. So it's us only who's running the engine, our API stacks are deployed there. In fact, if you go to, we have 30s, we have almost 44 large partnerships where whenever you go online, you may be borrowing there, you'll certainly see a line which is powered by five.
00:37:45
Speaker
Interesting. Okay. Right. It's our API is driving the entire stack there. We have been able to, let's say, build a capability without our mobile app just on API to manage the customer. So the entire infrastructure then comes on the API platform to beat up. Interesting. Interesting. What do you pay Paytm then when Paytm is originating alone? He's a distributor, right? So they're all coming in as classical LSP distributors. So they get a distribution fee.
00:38:15
Speaker
Is that like a percentage of the amount dispersed, something like that? A percentage of the loan dispersed. It's like classical, like a physical BSA or a web app ringleader, the same way is followed up. Like a single digit to an X3. Low single digit kind of a... Low single digit, absolutely. Absolutely. Okay. Okay. Understood. So all your lending happens through partnerships or do people directly also download the FIVE app to apply for a loan? No, the largest is the FIVE app.
00:38:42
Speaker
The FIVE app is the largest sources of loans for us. It is the largest sources of lending to salary individually as a platform. FIVE is the largest salary platform. The app is known for that purpose. No partner of ours is more than 5% ever.
00:38:59
Speaker
Okay. Right. And every customer is managed on the five platform, which means you could come from anywhere. The loan you'll repeat will happen here. The servicing will happen on the five platform and we will give you more and more products as you go along.
00:39:14
Speaker
I would have thought that the fintechs like PTM would want the engagement to happen on the PTM app only like repayment and stuff like that. Yes. So let's say some of our partners, let's say GP, some of our partners with some of the distributors, we've been able to build
00:39:34
Speaker
many capabilities on their site, but many times we prefer, but their use cases, complexities are too many, and we prefer to handle the customer at our end then. Let's say when you go to a pizza bazaar or India lens or let's say a buddy loan, et cetera, they may be originating, they'll have all our API sitting there, but we keep the dispersal sitting on the five app, because the app has then become the similar
00:39:59
Speaker
let's say, communication engine. What are consumers like is the simplicity of our platform. When you come to us, you'll never receive a phone call. Right. Everything is interesting. So that's the first component, right? That's the assurance that we are giving him, that mission, we're going to treat you well.
00:40:18
Speaker
We're going to keep providing you financial products. It does not mean we're going to push down some other third party product, trying to sell you something else, trying to be everyday calling you up. It'll nudge you a few times. If you're interested, if you're not, we'll say come back when you want some DMs.
00:40:33
Speaker
What we see is a consumer likes us for the simplicity. It's a sophisticated product meant for younger, sophisticated consumers. And at least on the demand and subs side, we seem to attract a very large consumer segment coming to us.
00:40:51
Speaker
Okay. Your collections is also pure digital. How do you ensure the collections happens seamlessly? Because I mean, that's the key, right? To keep your credit costs or your NPA low, you have to have a strong collections engine.
00:41:05
Speaker
It's very interesting. See, if I look at, we collect digitally as the first foot forward across the way. There is no physical way of paying us. We don't collect cash. We have no other instrument coming. When a customer borrows the first time, we set up a repayment instrument. It could be a physical match or an other match, an NCH match, or what you call as a UPI based match coming in. It's set up on the platform immediately. What's a match? Can you give a one-on-one on that?
00:41:36
Speaker
Natch is like multiple checks being presented by a consumer. It just allows every month deduction to take place. It allows us to debit once a month the customer EMI without every time seeking approval every month or the customer not presenting a check to us.
00:41:55
Speaker
Okay. So within Adhar nights, any bank account linked to the Adhar will get debited. Is that how it happens? So the bank account in which you sign in, provide the bank statement and the same account that we transfer money to and the same account we recovered money to. Okay. Got it. Right. So we maintain relationship with a single account of the customer. We liked that account. We gave you money on that account. We want money back from that account.
00:42:21
Speaker
So for a large portion of users, like I'm guessing more than 90%, this is it, that you don't need to do anything more than setting up an ads. Correct. What's interesting is I told you that we recommend a consumer to come and pay back any time and there's no foreclosure charge. And we charge per day. What's interesting is, let's say your NACH date may be set at fifth of the month, and this month your employer was kind enough and give you money on 31st.
00:42:50
Speaker
You'll be surprised that 50% of our users come and pay on 31st and save that five day interest.
00:42:57
Speaker
And that's a very interesting behavior that we have been, we've been inculcating with our consumers and we see that coming quite well. And we see our customers being quite happy doing that behavior. Is it seamless that if you've prepaid, then your NSEH will not get debited or do you need to like also cancel the NSEH for that month? No, no, it's absolutely seamless. See, we have to manage at least let's say 700,000 payments every month.
00:43:23
Speaker
Our operational efficiency will go away. It's just too many transactions happening. Our entire company is just 731 employees on today.
00:43:36
Speaker
Now to run and this is when we are lending, collecting in, I mentioned 321 cities, running business that deep, everything has to be fully automated, well-run. It has to be like a well-run oil engine, right? There are no parts that have breakages in them. Amazing, amazing. So for that single digit percentage where the NSE doesn't work, because let's say the account doesn't have balance in it, what happens then?
00:44:04
Speaker
So you start getting nudged, let's say, by the bots, and then followed by polite callers, and then little bit not so polite callers. But let's say in the first 30 days, we collect ourselves to build the efficiency between us and the language callers that we manage. We are able to recover from 85% of the single-digit who didn't pay on time.
00:44:28
Speaker
That makes it very efficient. Interestingly, let's say an average AMI amount is close to 8,000 rupees for us, which means we're not really recovering 1,000 rupees from a consumer. So when let's say the portfolio is crossing 30 days, even if you outsource to a collector who may be present in your city, may ring your doorbell or first call, he finds it very efficient to call and collect or send someone to your house to collect.
00:44:55
Speaker
Right. Because you're not really collecting 1000, 2000. It's like recovering on a car loan or housing loan. So the efficiency in the model is much better. Typically, let's say what we call as classical hard buckets where money is now needs to be recovered locally in your geography. We're still able to recover 65, 70%. Let's say a single digit coming down to 85% of that. Then from that, another 60% will be collected, which makes the model very efficient.
00:45:23
Speaker
Amazing. Okay. So 85% is collected just through a call with your in-house call center or an outsourced call center. And then the remaining 15% goes to a collection agency and they are also able to collect 60, 70% of that amount. Okay. Okay. Interesting. This 730 odd people, your head count, what is the split? How many people doing what?
00:45:47
Speaker
So if I break up our teams, we'll divide our teams into two clear parts. One is the team who's building the platform, scorecards, product, and intelligence on that product. Nearly 40% of our teams are that. So hyper degree teams who build the platform, build their machine learning systems on it, build the product sciences behind it, all the customer journeys.
00:46:13
Speaker
20% would be the business operations team sourcing customers, running financial operations, running underwriting, running operations. And 40% would be the service and the collections infrastructure that we run. That's how I'll split the entire team structure. What's interesting is typically the 20%, which I mentioned, in most companies, that's 80% of the manpower.
00:46:36
Speaker
This is what we have been able to digitize to reduce and build the operational efficiency. We had 11 underwriters, we had 11 underwriters eight years back. We used to do 1,000 loans a month. There now we do upwards of 150,000 loans a month. So the efficiency in manpower comes when you build digitization better. What does an underwriter do?
00:46:59
Speaker
He looks at the cases where the machine said, I found a problem. I'm not yet authorized to approve it. Please eyeball it. Okay. That's around 5% of our cases get eyeballed. Okay. Okay. Got it. The decision is given by the machine already. Okay. Interesting. Interesting. And whatever decision the underwriter takes would again keep feeding the algorithm so that such cases in future are also automatically decided.
00:47:27
Speaker
It's also the type of underwriters that you appoint. Our underwriters are groomed to teach the machine learning team what they found. I don't want to see that case ever again. Right. Yeah, obviously. So it's also how you build your team culture. Either you are saying, no, you're just doing underwriting or you're saying that, listen, you want to eliminate the function and all of you then figure out how to do it more efficiently and better.
00:47:50
Speaker
Okay, so there is this metric which most VCs use to measure a startup that is like the customer acquisition cost over the long term or the long term value over the customer acquisition cost. LTV to CAC. Yeah, LTV to CAC. What is that ratio like for you? It's five and a half times. So whatever is a CAC, it will generate five and a half times within two years. That's the first component.
00:48:16
Speaker
Interestingly, financial services, let's say terminal value of a customer can be phenomenally good. That's a terminal value for a customer to us is almost $400. And that's the magic of the high repeat rate. Right. Yeah. 88% repeat rate is phenomenal. It's not that we are earning small when we originate him, but because we retain him for a very long window that allows us to really have a large revenue on that customer side.
00:48:41
Speaker
So this five and a half times as the LTV to CAC ratio, what would be? Within two years. Within two years. What would be a comparable number for other companies just to understand like? It's very interesting. You can have similar matrixes, let's say in e-commerce, right? But let's say there the GM, the GM beyond the customer would be $20, right? It'll be $200.
00:49:10
Speaker
So the five and a half means 16,000 rupees. It does not mean a smaller amount. That's the fundamental difference. Right, right, right. I think for the D2C space, generally, this is about three, right? It's almost touching four. Many of the four, four and a half is what we're seeing the most successful ones coming. But again, the income per customer is less than $10.
00:49:36
Speaker
Right. Yeah. So this is a very different orbit. Can you generate $400 at a customer income? That's why financial services are very complex businesses and they're built for lifelong. It takes time to build. It's not in one year you can achieve those numbers. It takes many years to build a book and profitability. But once it gets built, you're there.
00:49:55
Speaker
Okay, so there are two ways to make this ratio go high. One is of course you increase the long term value by making your product sticky, repeat usage, which you told me you have 88%. Second is you reduce your cost of acquisition. So what have you, help me understand your customer acquisition strategy. What are the ways in which you acquire customers?
00:50:17
Speaker
So our primary marketing is what is, so there are two ways of acquiring first. One is what we do directly. And in our direct engine, we are working with, let's say, organic Facebook, Google as an affiliate partnerships. Here it's all performance driven work happening.
00:50:35
Speaker
We are one of the highest rated lending apps. We target consumers in a geographic kind neighborhood. For example, if you are a borrower in Bangalore between 22 and 28, the chance of you to see my ad is almost every day for the next 30 days is very high. You happen to be a 35 year old, see my ad may be impossible.
00:51:00
Speaker
That's one way of sourcing. The second way of sourcing is visibility in every financial platform. So it could be looking for money on aggregators and DSA's. It could be approaching your bank for money or approaching your current financial institutions. Interestingly, we have an interesting channel where your current financial institution can't give you a hundred thousand rupee loan. It refers the customer to us.
00:51:26
Speaker
That's also becoming a very powerful franchise that, listen, my customer, I'm not okay to lend to him small amount. Can you do it because your efficiencies are better? And then we bring in the coolant to do it together along with him. Oh, wow. Interesting. And who are the partners here? We have a couple of banks, we have a couple of large NBFCs. The top two largest NBFCs and I think the fifth and sixth largest bank are doing some pilots with us and really building in good volumes.
00:51:56
Speaker
Wow. Amazing. Okay. Okay. So you also have another way of acquiring customers, which is through BNPL, right?
BNPL Focus: Education & Healthcare
00:52:06
Speaker
We had like a previous discussion where you were talking about some of the new initiatives that you've taken in the last two, three years. Help me understand that. I'm guessing that BNPL is also in a way, a way to acquire a customer. Oh yeah. BNPL is a complete way of only acquiring customers, nothing else apart from that, right?
00:52:26
Speaker
I'll answer it in a slightly more better manner. My definition of vnpl is where we are able to manage
00:52:39
Speaker
a use case for the consumer, but at the same time we are able to create impact and improve his life. We are not financing mobile phone purchases and let's say spend behavior. We are financing improvement in education, improvement in skills. We are powering better healthcare and better health insurance.
00:53:02
Speaker
Right. And also trying to improve your life if you want to have children, if you want to have better appeal, better health, etc. So let's give areas that we are available. When you decide to upgrade your skill set, if you go to an upgrade scaler, you'll find ourselves a zero cost EMI partner. If you decide to walk up to a hospital. And one question here, how BNPL or Buy Now, Pay Later typically works is the
00:53:30
Speaker
seller, which is like say an upgrade or a scaler will pay you some money. I mean, they will bear the interest here, right? That's how it's shown. So this is a classical Bajaj finance model, where there's a margin adjusted between the manufacturer and the lender so that the consumer doesn't end up paying in large interests on it. Right. Okay. And this is called a subvention. It's not a subvention. Right. Okay. Yeah.
00:53:57
Speaker
So one is the education space. Similarly, if you walk up to a large school, you'll find the monthly fee payment being powered by us, enabling parents to make the entire transaction. If you walk up to a leading hospital, it could be a maternity hospital or a large surgery hospital like a polo or let's say Narayana, and you'll find we are available at a 24 month zero cost EMI to enable surgeries for you.
00:54:24
Speaker
So we're looking at areas where impact is possible. We're not financing use cases which are frivolous. At the same time, we are providing elements which enable you to live better. Either improve your income, look after your children, or look after your health.
00:54:42
Speaker
Okay. Okay. Fascinating. How big are each of these practices? So we beat out this vertical post COVID. So they're very new. I would say they are now adding 20% of our incremental customer profiles are coming from them. So they're growing from zero. Remember the core cash business has grown six times or maybe 10 times since COVID. So anything to become 20% of them is very large.
00:55:09
Speaker
I would say in the education space, we are on the top two lenders in the digital space. In the healthcare space, we are the largest healthcare in the digital space, but I would say the others are just too small. The only physical player, we may be still 30% of his volume, so we really built out a large company fast.
00:55:28
Speaker
So the physical play would be like a bajaj, I'm guessing here, which does... Correct. And so the education pieces are something which I can understand how you would have built it up, because you need to crack a few partnerships, maybe a dozen of them with an upgrade, a scaler and similar companies. No, but school runs are very complex. You have to go school by school to tie up.
00:55:52
Speaker
Right. Okay. So yeah, that's the infrastructure to be built. And of course, the education industry also collapsed. Let's say the gate wells completely collapsed. So we went when two years back when we were starting this business, there were 200 tech players to partner.
00:56:07
Speaker
We also had 200 partners. Today, we have 11 active partnership. We shut down most of them and said their models are collapsing. That's only focused on skilling. That seems to be more rational. Or if there is a university powering the course, then we go and do something along. Because we said end of the day, BNPL had a customer acquisition engine.
00:56:26
Speaker
you need to cross sell something else to make money. The salary guide does skilling. He will need a loan later on from us. We become a good origination for him. Similarly, we can also bring a large qualified customer based or digital skilling platform. If you're looking for, let's say, IT professionals in Bangalore, I may be having half a million people who have applied to me from that city.
00:56:52
Speaker
How will you direct them to the platform? Like on the five app, there'll be a banner. Yeah, there'll be on the five app. What they see is when they go to the platform, you'll see payment options, you'll see five limit already available. So then you're not figuring out what to do. The limit can be used straight away. Okay. And how does Upgrad or Scaler know that this is a five customer which has this limit? It's all integrated. There are lots of integrated play happening here.
00:57:19
Speaker
We're also available, let's say, on a couple of payment gateways between JustPay, RazorPay, we're available as a payment option. But your way of identifying customers through the ADHAR or PAN, right? Mobile numbers. So the mobile number. OK. So someone who's signing up at undergrad would have given a mobile number for an OTB. Yes. So that's one way that's how you're able to validate.
00:57:42
Speaker
Right. Okay. And remember I said we are the fastest learning instrument also, even if it's a new to us customer, we can onboard him in runtime. So by that it's like an e-commerce journey happening. You're choosing a course while you're choosing the course will approve you at the backend. So your entire transaction, but you're the important for us is the customer segment selection. You could do the same thing for mobile phone purchase.
00:58:05
Speaker
but the credit cost is very high, you end up acquiring a customer which most other lenders will reject. Here, we are financing a specific use case so we know who we want, how we want to do it, and then we work jointly with the company to enable their systems.
00:58:19
Speaker
A person who's investing in upgrading his skills would definitely earn better in future and therefore would be a better prospect. And similarly someone who's spending on school education for his kids is again a more stable household. Not only household, what we have noticed today parents like to send children to a notch above school than what they went to.
00:58:45
Speaker
And most people end up having two children. So let's say if you end up sending to a slightly better school today, you're talking about one and a half lakh rupee per child into two, three lakh rupees to be paid on first April. It's impossible to pay in one bullet, right? So converting into a monthly mode just enables a better life for the parent. It's also a consistency product. You start at nursery when it lasts 12, which means 15 years are built in in repeat. And I told you for us, repeat is important.
00:59:14
Speaker
Right, right, right. The school product
00:59:21
Speaker
A lot of schools don't even have a digital payment option. How did you integrate and build the school product, the school fee financing product? Yeah. So we realized that if you had to go to school, by school is too complex, right? Where school owners are different and school principals and admissions are different and people, right? Money is run by the owners while the admissions run the school. So we went through the ERP route.
00:59:46
Speaker
We have taken the top ERPs and top school payment integrators and done direct integrations with them. We realized there were many challengers in this category. They wanted to go school by school. I think it's a very slow journey, trying to convince a 40 year old institution to have something new will take you 18 months to close. But they all have ERPs in place. So we just piggy banked on the ERP network to really speed up the distribution there.
01:00:14
Speaker
Who are the major ERPs in the school space? We have Teachmen class 365. So we have a couple of, we have eSpus, or Jaspi, et cetera, who have done some work at the back end. And we're using all of them to integrate faster to come back with a distribution reach. I think there's no point entering a category where you don't service, let's say, the top 2,000 institutions. And schools are also segmented, right? Every five kilometers is a big school.
01:00:42
Speaker
And so it's an India's a huge population. So you have to go and build partnerships and build distribution. Okay. Fascinating. So I had previously interviewed the founder of Leo one, which is also into this school fee financing business. So they have their own ERP, which they are selling to schools. But what you're saying is doing that means a slower scale up because you have to go school by school, convince each absolutely the ERPs need to monetize.
01:01:08
Speaker
Lending is always the best monetization. Remember, lending is a complex business. You can't be something else and a lender. You need to be a lender. If you're doing anything else, you can never be a successful lender. It takes just too much of time and energy to run that business. It's a precision business. A company has originated to manage that one piece better.
01:01:33
Speaker
And how have you done the healthcare lending? Healthcare was a more tougher job. This was actually a category where first we had to go and learn what's happening. We run this in two ways or three part, three things. One is any type of healthcare, which got digitized. So from pristine care to help define me, those type of players to work with them. Pristine is a great example. We work with them.
01:01:57
Speaker
to anything which is new age catering to younger people, the insurance doesn't cover. So less sex, smile and teeth improvement, hair care, IVF, where we found the younger consumers, and let's say people between 25 and 35 will use, we've gone and partnered them out. We have today 2,500 physical touch points where they can use us, including dental centers, including
01:02:25
Speaker
let's say, hair transplant companies, IVF companies, et cetera. And then we built out the physical hospital business. We're still building it out. We're only live, let's say, in 200 hospital locations, only in seven cities right now. Very complex and very tough to do. But I think it's so impactful that we are happy to invest our energies. The softness in the brand has come.
01:02:51
Speaker
I would say acceptance that we are doing a high impact work has started coming in. And many learnings came in when we entered the hospitals. We don't talk to the finance department, we talk to the surgeons in the hospital. The product team running this vertical is actually doctors. We hire doctors to build this business out.
01:03:11
Speaker
We said, if we go to the finance department, only negotiate pricing, we never create impact. They look at us alone. But the minute we spoke to surgeons, they said, listen, I will do better surgeries. I want better treatments to happen. I want patients to be better taken care of. And there, I think we built out a product distribution, many more things behind it. And we're seeing scale coming.
01:03:32
Speaker
So you don't necessarily need the hospital buy-in because the hospital doesn't care. No, you need the hospital buy-in because the subvention has to be paid by. But instead of... I'll give an example. See, in a medical emergency, someone will create money. Don't worry on that part. It's only when you are getting a treatment, you want better treatment. You're not talking to the billing desk. You're talking to the surgeon or the doctor.
01:04:02
Speaker
So this doctor pings us and say, listen, I like this customer. Can you give him something? Can you approve him a larger limit so I can do what I want to treat him for? Okay. Okay. Interesting. Okay. And how is that happening digitally?
01:04:18
Speaker
Do they have an app or something? So there's a QR code. The QR code enables a digital asset, which invokes and that digital asset then interacts with the hospital management server so that we can originate like authorization. So we issue an authorization to the hospital and say, I like the customer. I'm going to give him three lakh rupees. You start the treatment. Whenever the bill is to be paid, I'll transfer money.
01:04:41
Speaker
the QR code authorization office and he can just tell the patient scan this QR code and something that could trigger. Okay. Correct. Okay. Okay. Fascinating. And this you have to go hospital by hospital. There's no easy way. This is what we have to go hospital by hospital.
01:04:59
Speaker
This is where I think the first time we're learning physical and we're learning distribution as an organization, we have never done it before. There's lots of learnings, hiring people, never used to having low-end people, how to track how they end hospitals and not in a hospital at nine o'clock in the morning, how many patients they met, what were the interactions. So that's where I think learning curves of every company comes in and we're enjoying that new phase.
01:05:24
Speaker
You need your team to also interact with patients, like just to help them through the navigate the process and get the loan. The journeys are fairly simple. You don't need it really. But our teams are available because let's say in a hospital atmosphere, people are too stressed.
01:05:43
Speaker
So to reduce the stress, you'll find some of our team members there, but not really enabling business. So sometimes what happens is a patient can't be the one filling up the form the family member is. Yeah, that's true. So at that point of time that we have to manage things.
01:06:02
Speaker
Okay. Interesting. Interesting. So 20% of your customer acquisition is coming through the BNPL products, all of these. I'm assuming these would not be as profitable as the unsecured personal lending products. Like the revenue contribution, margin contribution would be much lower than 20%. No, I mentioned the interesting business because there's no CAC.
01:06:30
Speaker
When you source a customer yourself, there's a CAC. In B&P, there's no CAC. So it just adjusts. I also mentioned that you're acquiring, for purpose of cross-selling, then the same repeat rates has to come in. So you generate, it's a feeder business to acquire customers. It also removes the monoline capability that you don't have a single monoline and you've got only attracting people for one single product.
01:06:56
Speaker
Okay, but this would not be like a product that would have like a 18% kind of a rate of interest on it.
01:07:03
Speaker
It will. In many cases, it will have, because earlier also, let's say the manufacturer there is going to arm twist you, because he's the big boy in the room. But many of the use cases, the risk is also phenomenally low. The credit cost is not even single digit. It's very low to manage the entire business. OK. Interesting. Interesting. OK. So can you tell me about the journey of building it up?
Founding Challenges & Overcoming Adversity
01:07:30
Speaker
What made you the right founder to start this business? Let's start with that. Give me your background and you know what made you the right person to do this.
01:07:41
Speaker
Yeah, I think everyone is right at that point of time of what they want to do. I think it was a time where we had enough experience. Maybe I'll take you through my pedigree, and I'll also cover my co-founder's pedigree. So I was the youngest CMO in India in a large organization. I ran in sales and marketing for Bajaj Allians. Then I moved in to set up policy, but I was Yashish.
01:08:04
Speaker
And then I ran a future retail as their CMO. So I ran retail sales for the largest retailer where almost 50% of modern retail was controlled by one company. The exposure level was very early. By the time I was 33, I said, let's go and set up our own company.
01:08:21
Speaker
Wow. I had. So it wasn't that I was going through the grind slowly to learn. I think I skipped at least eight bands of work culture because of hyper growth very early. But that gave me exposure how to run very large financial institutions, early stage startup, which are very well funded and then run large retail operations across the length and breadth of the country.
01:08:47
Speaker
Right. So that gave a great knowledge level how to build a consumer product. On the other hand, it's a risk business and Ashish, my co-founder, he used to be the CIO for Bajaj Alliance and manage an 8 billion dollar portfolio himself. So he understood macro risk really well.
01:09:02
Speaker
So when the two of us are best friends for almost 22 years, we've met and I think we timed the market to perfection. People in the circuits were talking about banks have to be disrupted, FinTechs are coming out. There were some few FinTechs in let's say in Europe coming in, some examples in US just emerging out in India and China with the next big buzz that they could be something interesting. Pity was also very small at that point of time, but lending was never heard of. You can give a loan or an app.
01:09:31
Speaker
So we were the first lending app in the country. Right. Customer acceptance was extremely high because we did go through the grind. The original day was early salary when you started. Yeah. In fact, it was a first love name. The first people that we said, we run out of money because salary is over. We said, if you get your salary early, would you like it? So we said, this name resonates quite well. It became the category. Many of our competition started launching. We have an early salary type product.
01:10:00
Speaker
Yeah, okay. So we said, listen, we need to disrupt and say we do something more. Today, it's not that we have the same ethos that you can, whenever you get your salary payers back, but we do many things to impact your financial life better. Okay, okay. So and this was 2015 when you and Ashish quit your jobs to start up.
01:10:23
Speaker
How did you initially use your own funds? How did you build it up? It was a dream seed. It was a dream seed. Me and Ashish met. I wrote a case study on a little tissue paper on Thursday. Friday met Ashish.
01:10:42
Speaker
took a flight to a friend who could build a mobile app. He made a one screen. Sunday met the first seed investor and said, okay, I'll give you $2 million in NBFC license. It was done. So then we figured out for next three months how to quit our jobs, convince our bosses and let us go. We seem to be happy. We want to do this. It is money. And then was moving to Puna, setting up a company, transferring the license, getting regulatory answers.
01:11:10
Speaker
And actually, interestingly, in 98 days of setting up the company, we launched the product. So the, it was a fast product. And the NBFC license was really the game changer, I'm guessing, like very few lending fintechs start with an NBFC license on day one. Yeah, I think that was very fortunate to see, gave us the NBFC. In fact, he chose, he offered us, I have a few of them.
01:11:32
Speaker
In his family, every time a child was born, they opened an NBFC. So he found one original name was Ashish Security. So you started with Seed Capital and the NBFC. And in three months, your app was live. How did you get the early customers? Like through Facebook marketing and all?
01:12:00
Speaker
So we started off as a Facebook lender. That was the most interesting thing that we positioned ourselves at the company who lends on Facebook. What does that mean? Like the whole transaction happened on Facebook? So you had to open the Facebook, you had to log in through social media. Ah, okay. Right. So that was the primary way of accessing money from us.
01:12:26
Speaker
And back then, I remember there was this big move that your social profile can be used to do credit rating. I think it was something that we created as a mindset. Listen, we are doing something disruptive and better and brilliant and fun. We closely remember that it was us moving to introduce alternate data and social lending.
01:12:55
Speaker
and us then shutting it down to say, listen, we are a financial player. Let's be more rational. Cuteness won't take us anywhere. How soon did you realize that you need to shut down that approach? I think the approach was never shut down. It was about we have larger issues to go and solve.
01:13:14
Speaker
Right. We didn't see the serious business and money business, right? You need to really know what's happening in money. Uh, it, I think by the time version three scorecards came in, we were there. We said, listen, it's okay. We need to be better. Okay. That would have been a year or two into the journey. I think, uh, I think that scorecard every year, we have a new scorecard coming out. Okay. Okay. And, uh, so.
01:13:44
Speaker
What was like a key turning point for the business? Like, you know, if you had to choose one pivotal moment for the business or a turning point, what would that have been? I think the biggest point was us running out of money every time helped us become better. That was the most interesting part, that every time we ran out of money, we became better as a company.
01:14:12
Speaker
So running out of money implies that you have no more money to lend, so you cannot take on more customers. Yes. So it just allowed us to say, listen, we need to work harder. What were the ways in which you solved this problem? Was it by increasing the leverage or by going out fundraising? Maybe.
01:14:36
Speaker
Okay, let me just take an example of things that we did, which will give you a little bit more sight of structural work, et cetera, happening at our end. And see, when we started off, we had a small amount of capital. We started lending very fast, but we realized that we had to see maturity of portfolio, which may be wait for six months and we didn't have money. So then we got supported by, let's say friends and family who went banking and at the time, RT came to our rescue and said, use my cool ending book.
01:15:04
Speaker
No one is uncool ending ever. No one heard about cool ending, but let's say Sri Ram Capital was the first cool ender to us. I'd ask them not to deploy our capital and create the runway to go raise series A. When we went out to raise series A, we were told no by 127 funds. They said FinTech lending impossible. It's too cute, too early.
01:15:25
Speaker
The 128th, 129th gave us money and the 127th then came back and said, I'll give you more. So we did 2 million, 2 million, 16 million back to back. Right. And this was when you're running out of resilience to actually hear 126th knows. Yeah. And in fact, there were 30 IC meetings. IC is when you pitch the whole fund, right? The full day goes on those. And that was painful to sit through the end and someone saying,
01:15:54
Speaker
We don't know why the IC is not clearing you. Reaching the IC is like 50-50 is done. Yeah, yeah, yeah, yeah, yeah. Then you start wondering what you did wrong. But I think this is what makes you entrepreneurs, right? It makes you really work hard to get what you want to happen. And why was it that there were so many nodes? Was it an ecosystem thing? Because I mean, FinTech today is like a
01:16:23
Speaker
hot category, a lot of funding. Was it that the ecosystem was not there to fund FinTechs or was it like there was not enough conviction in your category of unsecured personal loans or your approach of the social way and alternate data and all of that? I think it was just too early. Many of them were because we were pretty early. The models were not shared.
01:16:49
Speaker
Okay. Okay. Okay. Right. So you raised your next, you said 16 and two and two, so about 20 million. And then when did you run out of money next? Then it was an interesting time. We had a term sheet and it backfired. Something happened in that fund. They in a way lost their, let's say fund manager and the term sheet just disappeared.
01:17:13
Speaker
And this was after the 20 million was raised, the next round. After the 20 million, the next round. And luckily we had very good internals in the previous round. Fidelity had come in and then they anchored and said, listen, I know he was supposed to raise money. At least half of that we still give you.
01:17:30
Speaker
How much do we still manage? We were supposed to be, I think, 16, 18 million that time. We raised 10 and that stage. But that just helped us tie over. We were very fortunate to get that money. It was a month before, two months before COVID. If we had not got that money and it would have been a very tough situation. But interestingly, during COVID, we learned that we actually run a very good ship.
01:17:53
Speaker
We had the best customer quality. We had the least monotodium request. We had the highest repayment rate. And we were able to bounce back in September again. Most lenders were off for that financial year, which means they were a seven month window. We had zero fintech competition. Wow. And were you lending during COVID or you stopped giving loans? Of course, everyone stopped lending. But in COVID, we went and built BNBL. So we went and built a new company.
01:18:20
Speaker
We went and built a new company, we went and said that we will now lend larger loans. Which part of the BNPL did you do? The EdTech part? The EdTech is what we started after. Because during COVID, EdTech was the flavor of the season. Absolutely. So let's say when COVID started, we had a 330 crore AUM.
01:18:41
Speaker
end of COVID, we had 170 crore, 160 crore, right?
COVID-19 Impact and Recovery
01:18:46
Speaker
Our AUM ran down, we stopped lending, so we're focusing on collecting. Interestingly, in the next 12 months, we ended up at close to 1600. Wow. Phenomenal. So we took 10X when there was, and everyone was sleeping, and we went and really built out a franchise. We moved from the one month product to the slightly longer tenure products. We went with a much better customer quality, and we came out profitable.
01:19:10
Speaker
End of the COVID year, we were profitable. Everyone was losing money and we were profitable. So it came out of the car and that's where we saw when we went out to raise money, we raised three times the more money that we wanted. We closed around in four days. That was the most interesting insight that four term sheets, four days and we closed it.
01:19:30
Speaker
There's 110 million round which you're talking about. Tell me something. BNPL products would also be leading customers outside your comfort zone to apply. I mean for school fees you could have a 28 year old
01:19:49
Speaker
but you could also have a 36 year old who wants a school fees, a kid's school fees to be funded. So how do you, what happens is by the time you're 35, you have figured out life. School children are part of life. So you know how to manage cash flows. It's only when you're 30 and you have a child and where you're struggling, you're not earning that well. Okay. Okay. See the decision which school happens at nursery doesn't happen in class six. Right. Yeah. Right. So that's the only difference.
01:20:17
Speaker
Your decision, and this is where we come into the picture. Right. You make the decision easier that you don't have to pay everything in one go. Correct. Break it out for you.
Expansion & New Products
01:20:28
Speaker
And you will acquire maybe slightly older segment customers also, but this is that you build other product lines. Let's say the card vertical that we are building, and you can still cross sell that, still can have monetization, still can deploy more and still make money on that consumer. Okay. So a 35, 40 year old will not go for a personal loan typically.
01:20:47
Speaker
Yes. So you need other products to come in and this is where the innovation takes place. What else can you do? How else can you manage things, et cetera. Okay. Interesting. So what is the, what are the new products? So you mentioned a cards product. What is that product about? So we're doing, so we introduced the country's first number less credit card, right? This is a very interesting product and we've been able to build out, uh,
01:21:14
Speaker
It's the first UPI-based, numberless, real-time issued credit product. So for example, let's say we offer the product to you and you like it and you take it. You'll complete your KYC, the card will set up immediately. You can start using the card on the app, but the plastic will come in some more time.
01:21:34
Speaker
the plastic is secured because there is no number. How much time does it take from applying to being released? It's real time. It's all real time. It's just vkvises to be complete. In minutes, you can get it. Then comes the second component. Once you're approved, what are you doing at the backend for it?
01:21:53
Speaker
you're able to use the card immediately because the QR scanner is supposed to be used. You don't need the plastics, you don't know, wait for it. You have the plastic. Any QR scanner, like you can use Google API. Any UPI. Yeah. You can link the card with your UPI app and pay through that. That's a great precursor to doing many more things.
01:22:17
Speaker
Also, this is a credit card. It's not a debit card, which means that you can pay with credit on a chivala, which was impossible today. He didn't have a credit card on the machine. Right. I think Rupe has been the new disruptor and we are capitalizing on the disruption to do things better. Amazing. Do you think this will stay restricted to Rupe only or will Visa and Mastercard also offer this UPI linkage?
01:22:47
Speaker
Well, I think it will, I think it will take some more time before other, let's say, card platforms have access to this. Okay. This is because NPCI runs both RUPE and UPI. So therefore, this has happened so seamlessly and quickly. Okay. So how do you earn through the credit card product? How does it improve your margins?
01:23:15
Speaker
This is not a program that we felt it's for margin creation. It's a program that I think we have created for customer acceptance and opening my app more every day. Of course, there is a distribution fee, there is a spend ratio fee that we share with the co-branded bank partner.
01:23:36
Speaker
right? What is this more value proposition? Like, so when we sell, we it's not I in credit cards, I can't be the manufacturer only banks can be. Yes, your access bank is the issuer. Okay, he gives me a fee to onboard a customer. I'm cross selling this to my customer. Okay, the second is every time the spend I take some portion of the spend is mine. Okay. But interestingly, the customer proposition is very strong on the on the spend part here. So
01:24:03
Speaker
The spend, there is like a 2% is charged to the merchant on whose boss you swipe your card. But in this case, like you gave the example that you can pay a chivalas for credit card. There is no MDR, their merchant discount rate. Yes. So there are lower MDR or no MDR, very small transactions. But let's say if you're doing a proper transaction, 2000 rupees above, there is an MDR applicable.
01:24:29
Speaker
Okay. That's where the income is shared. I'll give you a few use cases where incomes are better. Let's say most of our consumers are young for them e-commerce payment, Uber, Ola payments, we use the matter is the primary engine that doing it. All of them get a 3% cashback.
01:24:48
Speaker
So the customer value proposition is phenomenally better. Usually only the Amazon card gives you on Amazon, doesn't give you anywhere else. Flip card, card gives you on Flip card. Here it gives you on both. It gives you also on Swiggy's Amato. It also gives you on Olaouba. So you have a very strong CVP from the consumer angle. I think we can access jointly when we build the program. I think for him, it is a singular customer type. All of them are salaried.
01:25:15
Speaker
They're all credit tested. It's not lending to an unknown customer. So this is like lending to his own corporate salary account customer base. He's not just originated the customer. So he's very happy to build out a strong CVP. And that's what the positioning that we give to the bank. But what's in it for access? Because he gets a customer, the spend is his and the capital is his. AUM is his right. He builds an AUM behind it. Okay.
01:25:43
Speaker
Okay. Okay. The outstanding amount is getting out. Okay. Okay. Okay. Okay. Got it. Interesting. But access, the real money for them would only come if people are evolving, right? Like the MDR would not be that significant. I mean, access would really earn well only if people are evolving, like
01:26:02
Speaker
if they don't pay the entire amount in the same month. I give the example, when you originate a customer, only a handful of them have good credit cards. After two years, almost all of them have multiple credit cards. So if access becomes the first card, it automatically gets a share of the spend, gets a share of the reward. It's a very good program from the bank partnerships end.
01:26:25
Speaker
I think he is able to get the best quality. Young, salaried customer, tested credit profile. I think it's a very good consumer segment. Okay, interesting. What are the other products that you're working on besides credit card?
01:26:41
Speaker
So I think we are doing three more things at the back. Of course, because we're doing so much work in customer traction, we have started, let's say, doing attachment insurance. We're also applying for, let's say, corporate agent so that we can sell insurance properly to our customer segments.
01:27:00
Speaker
The next is, we believe that because we have a UPI based app, we should also have the UPI standard on our app. So we are trying to figure out the Peep Peep app, which is the new flavor in the market, UPI, UPI Lite. Can we bring that functionality on our app as something new?
01:27:18
Speaker
We just introduced the CIR, which is the Free Bureau Report to every customer every month as a traction product. And of course, we are building the Offer Management Platform. I think we learned something from credit that their customers then end up becoming great to buy specific product purchases.
01:27:36
Speaker
And we said, why don't we list those products on our app and see if we can also sell something. If we have a few million MAUs every month and the card program pushes the DAU rates, maybe they can buy something on our platform, which is more curated, more transaction oriented to these young people. Products like these are coming in the entire space.
01:27:54
Speaker
And like credit has that, like, you know, you get credit coins and then some of those coins can be used when you're doing e-commerce on credit app. So you're looking at something similar or you just want. Yeah. So we call it gamification. We call it gamification. So I think many of these are built because we built the version three of the platform. The version three is an interesting platform that we built. It allows us to load anything. If you look at the card, load somewhere.
01:28:20
Speaker
It wasn't there when you take the app, but suddenly just comes from the back. Similarly, the gamification, the scratch cards, the coins, et cetera, are loads which will keep coming. The platform is built. We're hoping that, say, by the end of the year, many of these functionalities will start getting introduced to the consumer. OK. So you'll have a credit-like experience where people can earn coins and then some part of your spend. I would say building better credit
01:28:50
Speaker
Habits could give you better benefits from us. We may not be like, it's a payments platform. You come to pay for something there. So he incentivizes you to pay. We are lender. So many of the habits will be linked to how you behave or the credit life cycle of yours.
01:29:10
Speaker
Eventually, I think most FinTechs at a certain scale want to be a new bank and offer everything, including wealth. No, I don't think so. We want to do too many things. I think we are very clear that we originate a customer for a credit product. We want to make 95% of our revenues only on the credit product.
01:29:29
Speaker
Okay. We're not getting distracted. I think what we see as exits are possible if we do a good execution job in our business.
Future Aspirations & Personal Insights
01:29:40
Speaker
We don't want to become a super app doing many things. We think our consumers love us for credit. Let's keep him on there. If he keeps coming back, we'll make more money. Right. And what do you see as exits? I think emotional high for founders is always listing.
01:30:00
Speaker
Right. We managed to get our deck listed. So we have a listed bond on BSC now for us. The next emotional high would be, let's say in less than three years, can we have an equity listing? Wow. Amazing. Okay. Cool. Cool. So, uh, I'm going to end with, uh, you know, like a, this versus that kind of a rapid fire round. I'm going to give you two choices and tell me which one you prefer and why. Uh, so a billion customers or a billion dollars? A million customers.
01:30:30
Speaker
Okay. Why? I think the billion comes the minute you have them. Yeah. Okay. Right. Got it. Okay. Friday or Monday? Monday. Why?
01:30:42
Speaker
Oh, I love the energy to go back and say, I want to do something fresh. I think I love going to office and I love, I like to see the energy across our teams. We have a rare company where people on Monday at 9 30 are fresh. Okay. Amazing. Experience or energy. And this is with respect to when you're hiring people, building a team.
01:31:03
Speaker
energy. I think today experience can be learned faster. If you are full of energy you cause more work to do and energy flow allows others around you to do better than do you only. Would you like to see your photo on economic times or times of India?
01:31:24
Speaker
I think I used to have seemed enough when I was growing up when I was 25, 26. I'm okay if I'm not that visible. But I would say I'm still the rock star in the team. I still do many things for, let's say, visibility. But after learning a financial business, doing it quietly, hidden is much better. So neither is your answer. You don't want to see your photo, either of these.
01:31:52
Speaker
I think we evolved. When we were younger, I wanted, now I can live without it. Okay, nice. Okay. Email or WhatsApp? WhatsApp. And why is that? It's faster. It's two ways. It's faster. You're not waiting for the other person to get your answer. Okay. Okay. Amazing. Cool. So any advice you have for young aspiring founders who are listening to the show?
01:32:14
Speaker
I think very simple advice, right? You're going to face a lot of no's, very few yes's in life. Learn to appreciate when the guy says no and learn to appreciate when the guy says yes. Money is just very little in life and time is equally less. Value both and don't be in a hurry that things will happen overnight. If you are doing something, just keep doing that, things will become better.
01:32:43
Speaker
And that brings us to the end of this conversation. I want to ask you for a favor now. Did you like listening to the show? I'd love to hear your feedback about it. Do you have your own startup ideas? I'd love to hear them. Do you have questions for any of the guests that you heard about in the show? I'd love to get your questions and pass them on to the guests. Write to me at adatthepodium.in. That's adatthepodium.in.