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Why My previous Startups Failed & What I Learned | Anubhav Jain (Rupifi)
395 Plays2 years ago
"The good thing about starting for the fourth time is that you know what things you should not be doing."
This powerful insight from Anubhav Jain captures the essence of his journey. Unlike first-time founders focused on what to do, this serial entrepreneur has built a formidable "negative knowledge" playbook, using lessons from past failures to de-risk his current venture and scale faster.
Anubhav Jain is the Co-Founder & CEO of Rupifi, a B2B fintech platform radically changing how small businesses access credit. A serial entrepreneur and a credit risk expert from IIM Indore, Anubhav honed his skills for a decade at American Express. His previous lending startup, Qbera, was acquired after building a loan book of over ₹250 Crores. At Rupifi, he is on a mission to empower India's underserved SMEs, having already disbursed over ₹5,000 Crores in credit to more than 150,000 businesses across 500+ cities, backed by global investors like Tiger Global and Bessemer Venture Partners.
Key Insights from the Conversation
- The "Anchor-Led" Growth Model: Rupifi's genius lies in its B2B2C strategy, partnering with large marketplaces ("anchors") like Flipkart Wholesale and Zomato's Hyperpure to acquire SMEs at near-zero cost.
- Underwriting the "Un-bankable": Rupifi uses real-time transaction data from its marketplace partners to underwrite businesses, allowing it to provide credit to the 45% of its customers who had no prior formal credit history.
- The Outsourced-Tech Trap: Anubhav shares a critical lesson from his previous startup, Qbera, which faced a forced acquisition because its core technology was outsourced to a partner on an equity basis, crippling its ability to scale and raise funds.
- Collections as a Core Competency: To solve for the long-tail SME, building a powerful, multi-channel collections capability from day one is non-negotiable. At Rupifi, nearly half the team is dedicated to collections.
- The Power of Subvention: Rupifi's "Buy Now, Pay Later" product is typically free for the small retailer. The cost is borne by the marketplace (a "subvention"), which in turn sees significant growth in sales and customer stickiness.
Chapters
(00:00) The Biggest Lesson from a 4-Time Founder
(01:36) Building Risk Fundamentals During the 2008 Financial Crisis
(02:37) My First Startup Failure: What I Learned from Building an EdTech (05:25) The Second Venture: Building Consumer Lending Platform Qbera
(11:15) The Operational Hack for 24-Hour High-Ticket Loan Disbursal
(17:41) Why We Were Acquired: The Critical Mistake of Outsourcing Tech
(24:02) How 500 LinkedIn Messages Helped Me Find My Co-Founders
(28:14) The Rupifi Thesis: Solving the Real Credit Gap for Indian SMEs
(33:41) The Anchor-Led Model: How We Partner with Flipkart, Zomato & Others
(37:32) The Science of Underwriting SMEs with Zero Credit History
(49:43) Our Secret Weapon: Why Half Our Team Works in Collections
(55:31) How Rupifi Makes Money with a 0% Cost Product for Retailers
(01:04:46) The Key Challenges to Scaling B2B Embedded Finance in India
Hashtags for YouTube
#FounderThesis #StartupPodcast #AnubhavJain #Rupifi #Fintech #SME #B2BLending #EmbeddedFinance #StartupIndia #VentureCapital #Entrepreneurship #FounderStory #BusinessPodcast #StartupLessons #RiskManagement
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Transcript
Introduction: Anubhav Jain's Entrepreneurial Journey
00:00:00
Speaker
Hi, everyone. This is Anubhav Jain. I'm the co-founder and CEO at Triple Five. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take me on a tour. Take
The Role of Credit in Business Growth
00:00:31
Speaker
credit is good. Even though we grew up hearing how people go bankrupt due to bad decisions that involve loans. The reality is that credit is just one of the inputs that a business needs in order to grow just like manpower or raw materials.
00:00:46
Speaker
There are millions of small SMEs in India that are starved for credit. These businesses are too small to be viable for a bank or NBFC to go out and acquire, and they often do not have all the paperwork and documentation that a traditional lender needs.
Founding of Rupify and the SME Lending Space
00:01:02
Speaker
This is the unserved market that became the opportunity to build rupee 5.
00:01:07
Speaker
In this episode of Founder Thesis Podcast, Akshay Dutt talks to serial entrepreneur Anubhav Jain. After stints as a founder of an edtech company and a consumer lending company, Anubhav started Rupify as a tech-enabled SME lender. Rupify is able to help small entrepreneurs get instant access to credit thereby helping them to grow their revenues and survive bad times. Here's Anubhav sharing the multiple insights drawn from his journey as a serial entrepreneur.
00:01:36
Speaker
So I did my summers in American Express and it was good because American Express is not used to recruit a lot of people. While it was, it was a good decision in terms of, you know, building your risk fundamentals and all the number crunching and data analytics and all 2008, 2009, actually, if you would recall was not the best time to be in a.
00:01:56
Speaker
risk management organization if you look at it on paper but i would say i think also created a lot of opportunity to learn because companies were struggling with their risk practices everybody was trying to ensure that they they delivered good numbers especially in the downturn so from that perspective i think i was able to build a lot of fundamentals very strongly during the first two years trust me for the first night months i was only doing model validation and
00:02:24
Speaker
you know, doing quarterly tracking, I completed one quarter and then the next quarter came. So like pretty soon after that Amex tent, you became a founder. Like tell me about that journey, like, you know, moving from Amex and eventually becoming
Venture into Education: The Study Bud Experience
00:02:37
Speaker
a founder. Yeah. So I think during Amex, I wanted to do something and I started this tech thing.
00:02:42
Speaker
I mean, I always felt that we, especially students who work in premier institutions, they got placed at good companies, they got good compensation packages. But when you look at tier two, tier three institutions in India, they were always struggling for placements.
00:02:58
Speaker
So what I realized is there are thousands and thousands of colleges in the country and there are students who are going to these colleges, but they were struggling with getting the right kind of job and started looking at that space, realized that the reason why that was happening is because of the right skills that were being provided at these institutions. So can we create a gamut of necessary skills that we can impart to these people, to these students so that they can get placed and they can get the right kind of opportunities.
00:03:27
Speaker
So with that in mind, we started a company. It was called Study Bud. And I started it like along with Amex, just as an experiment. Then somewhere in late 2012, I thought I have to do it full time so that I do justice to that startup. So I left Amex and started doing that full time. I think I was not made for a tech. We struggled in a lot of things. We struggled to scale the business. We could not create the right technology. I think our go-to market was
00:03:57
Speaker
This was to be your B2C, like were you selling to campuses as a package or were you enrolling individual students? So we were B2B and then to the students to B2B2C kind of, I think that was a big, that was a big mistake, selling to colleges. Yeah, it is so hard to, super hard to sell to a college. Exactly. So we realized we should have done it, gone directly to the students instead of going to the colleges because that was very, very tough.
00:04:26
Speaker
At some points, we thought that selling to a college is more difficult than selling to the Prime Minister of the country. So not a scalable model. A couple of years during that full time, I realized this is not going as per what I expected. So sold that company and I came back to risk. Like sold it before joining EXCEL? Like after EXCEL.
00:04:51
Speaker
So the deal closure happened after EXCEL, but the docs had started. So I joined EXCEL. EXCEL was a great opportunity, by the way, because I was in the two minds in terms of should I continue with study, but I'm looking for kind of an opportunity or a job. And EXCEL was setting up their strategy team in India for Citibank at that point. And they were looking for somebody to lead that, create the team, build it, ground up. So I joined them. And I think that was a great journey again.
00:05:20
Speaker
Yeah. And you had your second stint as a founder. So tell me about how that happened.
Transition to Fintech and Co-founding Kubera
00:05:25
Speaker
I realized after some introspection that it was a mistake to go into edtech, but fintech could be the way forward, right? Indian fintech was heating up Akshay at that time, right? This was 2015. I could clearly see that fintech could become like a big buzzword. There is a lot of opportunity in financial services. So why not do something there? So that's where, that's where, you know, I decided, okay, now it's maybe time to, to look for doing something on the fintech side. So that's how I left the Excel and the second stint happened.
00:05:55
Speaker
So I was looking at what kind of model to go after. Honestly, I did not have a clue. FinTech was very vast. One thing was clear that I had only done risk, so it had to be lending. It could not be anything like an investment or insurance.
00:06:10
Speaker
I had no idea about those products. Even today, I'm not an expert in those areas, but I have some information now. So one thing was there that was lending and I had only done cards. So that means that I could only go for something unsecured, right?
00:06:27
Speaker
Having never done security, I mean, not that it's completely different, but again, that's where your comfort zone is. So I started thinking in terms of what kind of lending place can happen. And just by chance, I think this opportunity came up where there's this portal called Iron Jobs. On that, somebody had posted, I'm looking for a co-founder for a fintech startup. So this was Aditya from Bangalore. I was in Delhi all that time.
00:06:52
Speaker
So I thought there's no harm having a chat. So I reached out. I think he was definitely considering his background, which is more business. He was looking for a co-founder with a risk kind of experience. And he had already raised half a million seed money. And I had no prior experience of raising funds. We can just get started from Devan.
00:07:14
Speaker
So that's how Kubera happened. Aditya and I, we decided we can definitely do this together. And then Aditya introduced me to Anuj, who was also in Gurgaon at that time. I was also in Gurgaon. So he said, why don't you have a conversation with this guy as well? He could be our product co-founder, right?
00:07:30
Speaker
There's the business guy, I'm the risk guy, we needed a product guy or an engineering tech guy. So, spoke to Anuj, liked what he could bring to the table and that's how the three of us came together. Both of us, both Anuj and I were Gurgaon based. Both of us decided to move to Bangalore, to do Kubera India. From then to now, it's been six years in Bangalore.
00:07:51
Speaker
And you wanted to do what? Like credit card play or like what MoneyTap was doing? Like what was the business plan? We were doing personal loans and it looked like I could easily apply what I had learned to personal loans. As we moved forward and as I interacted with a lot of people in the ecosystem, so I met founders from all the capital floats and the lending cards and the
00:08:15
Speaker
zest money and all the companies that were there, right? That's when I realized, you know, where larger opportunities are, what kind of business are being built. Is a line based product more in the market from a demand perspective? Is a card product better in the Indian context?
00:08:30
Speaker
So, you know, you start looking at the space in much more detail. You start looking at that, why bust the loans? Why not cards? What are incumbents doing in cards? What are customers facing as real problems with the bank providing them a card? Why do they need a more digital experience? How can we change that? So those kinds of questions we started asking ourselves every day. That's where, you know, my understanding of the sector also started developing.
00:08:55
Speaker
But the first I think couple of years was keeping your head down building at Kubera. So because we were in a space that also had immense potential. There were not too many companies doing what we were doing. There was only patients we were competing against. Okay. Which is like a fixed 10-year personnel loan.
00:09:13
Speaker
Correct, which was a fixed tenure personal loan and a slightly longer tenure, higher ticket personal loan. So there were companies like early salary and all who were doing almost like payday lending. And then there were banks who were doing like higher ticket, long tenure loans. There was nobody in the middle. So both patients and us, we were very well positioned in that mid segment. And I think volume wise, both the companies were doing something similar.
00:09:36
Speaker
It's just that we had our own challenges when it came to technology and all. So we could not scale that well and eventually the company ended up getting acquired. And this was like subprime, prime, what audience were you catering? So, you know, we were working with some of the banks as balance sheet partners to provide these loans.
00:09:54
Speaker
Our rates were higher because obviously we had to make money in the process. So our rates were typically like 23-24%, which is high for a personal loan. But we had created a fantastic process to get you your money in the bank either same day or next day. And this was not your 20-25,000 loan. This was like up to a 25 lakh loan.
00:10:17
Speaker
So, to get a 5, 10, 15, 20 lakh loan in your bank account same day or next day was a great value proposition we had. So, we were able to get even the best customers, Akshay. While we also expected that the kind of people who will come to us will only be those who are not serviced well by banks or those who will not take this at 23, 24%.
00:10:41
Speaker
But what we saw was there were customers ready to come to
Challenges and Acquisition of Kubera
00:10:45
Speaker
us because they valued experience more than anything else, right? So even the most pride customers with an income of let's say a couple of lakhs a month with a great civil score of 750 plus working for one of the top organizations was taking a loan at 18%, 19% from us.
00:11:02
Speaker
because they needed money right now. He could have gone to a bank and got this money like in a week, right? And at 11% or 12%. But the guy really wanted this money right now. And so they came to us. So our portfolio was quite a mix. Did you manage that like 24 hour dispersal?
00:11:18
Speaker
So I think, as I said, so there are only two ways to solve experience. One is through technology. The other is by creating and understanding the process and solving the process. I think we were a very strong ops shop. We were a very strong process oriented company because we knew we were struggling on tech. So that's the place where we'll make up for. So we created a process where the underwriting was instant.
00:11:44
Speaker
So I mean, that was my, my department. So I made sure that the models were running absolutely fine. We were able to assess a customer in like minutes, even if there was a manual review required on a large ticket size, like a 20 lakh or a 15 lakh.
00:11:58
Speaker
I had my underwriters looking at that case the moment the application came in and, you know, deciding in 10 minutes. So I trained a team of like 10 underwriters to decision cases in like few minutes and quickly roll out the loan offer. We worked with the lenders in such a way, we convinced them that, hey, we need, because we are doing these risk sharing arrangements with you, we need a 24 hour tat for disbursement.
00:12:21
Speaker
So I think we were able to sort those processes out quite well and I was actually looking at all of that. So in Kubera, the good thing was I was not just looking at risk. I was the complete end-to-end business guy at the backend while Aditya was raising money and he was trying to position the product roadmap and the overall business of the company. Whatever was going behind the scenes was completely run by me. So kind of like a pseudo
00:12:46
Speaker
COO is what I was working as and that's where, you know, I've learned about creating good processes in a fintech organization. In fact, if you see a most of lending fintechs today, technology is just a loan application which is digitized by them. Everything else is still great operations that they run. It's not that they have completely changed how a loan life cycle runs through technology. Customer acquisition is digital, basically.
00:13:11
Speaker
Yeah, the way a customer comes to them is digital. After that, it's still there is still a lot of manual intervention, right? But yes, most of the fintechs why that manual intervention is there, similar to a bank or an NPFC, they would run that process in like three to five days, which are typical. NPFC might take like two weeks to run, right? I'm talking about S&E here. In consumer, I think most companies today are able to do a real time kind of a process. That was also one learning that consumer is the data is there.
00:13:41
Speaker
the customer segment is much lesser risk, right? A salaried customer always is a low risk customer. So you can actually go ahead and build models around it in such a way that you can do real time. And your underwriting was purely on bureau reports. If someone didn't have a bureau report, then you would not lend him. Not exactly. So our underwriting was based on bureau and bank statement information.
00:14:07
Speaker
And we were able to get all that in real time because we were using a Netbanking Connect as a mandatory step in our application. If you have a public sector bank account, does that allow this Netbanking Connect?
00:14:20
Speaker
Yeah, see, salaried Indian customer, if you see Akshay, 90% of them have their salary bank account in the top five banks. And in those top five, SBI included, which is a PSU, but net banking is one feature, which I think most banks, even back then, this was 2016-17 when we were doing this. So a lot of people, what they were doing, what they were asking customers to upload bank statements, right?
00:14:45
Speaker
Now, we saw that while that is an option, but when you upload bank statements, then you rely on the customer to give you the right set of data. Because let's say I need six months by statement. If the customer uploads three months, then I'm stuck. If the customer uploads not the latest six months, but some other six months window, then I'm again stuck. So we were always wondering, you know, that the upload option is not foolproof.
00:15:09
Speaker
So I think we were one of the first companies which said that, hey, net banking is the future. We will not even give the option of a PDF upload to customers. Even if the customer drops off, that's okay, right? But we will only make net banking as part of our journey. So a lot of banks and NBSCs came back to us and said, guys,
00:15:27
Speaker
You are going to lose a lot of volume if you do that. We've only seen like 30-40% success rate when it comes to net banking. But again, I think we created a process where if somebody was stuck on the net banking screen for like 10 seconds or 15 seconds, we had a call center at the back end who could immediately call the customer and guide him.
00:15:47
Speaker
solve his apprehension about that, why this is secure, they can do the net banking connect, how to do the net banking connect, all of that, right? So, so I think that that really worked well in our favor, we were able to slowly go from a 40% success rate to a 75% success rate in net banking.
00:16:05
Speaker
This net banking connect, I wanted to ask one more thing. Is it like, say, on LinkedIn, I can connect my Gmail account and import my address book? So is it like that only? Like LinkedIn opens a pop-up where I sign into my Gmail and allow access and then...
00:16:19
Speaker
Yes, it's like that. You just enter your, so you select your bank account, which is, which could be an ICICI or an HDFC. The moment you select that and you say, go ahead and do my net banking. We open a window where that is that bank window where you enter your bank credentials and that's it. And then it immediately logs you out of that. And we have already accessed your data, right?
00:16:41
Speaker
So it was something new to customers in terms of security. People were like, how can I give you my net banking ID password? Am I sharing my password with you? So we had to really educate customers that we are not storing these. This is completely secure. Millions of people have already done it. And we were using a third party, so they were quite successful in this. The good thing about net banking was it was foolproof.
00:17:07
Speaker
You have actually logged into a secure bank website. Now the customer cannot fudge that data. The customer cannot play with that data. It's updated. It's real time. You will always get the latest six months banking data. So I think that was one piece of very critical information we were using in our underwriting on a real time basis. So we were able to get that information. I was able to create some nice variables out of it, push those variables into my risk model. And yeah, I think that was how we were doing the
00:17:36
Speaker
risk analysis of the salaried customers. And why did you opt to get acquired? So I'll share, I think in Kubera, what happened is if you recall, like we had Aditya who came with a business background, I was a risk, Anuj was product, but there was no tech co-founder and none of us knew technology. So what we did is we said that, hey, there are two options. We build a in-house tech team, right? And that's where you raise money because you raise money to build technology.
00:18:02
Speaker
or we outsource the whole loan origination, loan management system that we need to run this business to some other entity. So we outsource it to a third party which was well known in building these systems for fintechs. So we roped in the
00:18:18
Speaker
a technology company based out of Bangalore. They had their headquarters in California, but they had their shop where, I mean, most of their engineers, some 200 engineers based out of Bangalore, right? So Infosys founders, ex-Infosys lies over founders, people who had built these systems for which most of the banks today use. So you might be aware about this software called Finacle, right? Finacle is what 90% of the lending institutions use. And these guys created Finacle at Infosys.
00:18:47
Speaker
So we said that, okay, the background looks great. The company looks promising. Why don't we rope these guys in? So we gave them an option that either you take up a part on the cap table or you tell us what the value of this whole technology is over a period of three years. And we'll agree on some kind of a retainer plus some fee on this business.
00:19:08
Speaker
So these guys also thought that I mean, they had only done business for US clients before this. So they said this is a great opportunity for them to enter India as a market. I mean, though they were based out of India, but they had not done any Indian clients. So they said, let's use this opportunity as a first entry point to Indian market and let's do a more skin in the game relationship. So they came on the capital as a as an entity and decided that we'll not charge anything for this technology, but
00:19:36
Speaker
you know, we value this technology at so much, this company's valued at X, so we take this much ownership in the company. Great. Now, as that relationship moved forward, what they realized, what we realized is that both of us were not a perfect fit for each other, right? They obviously saw that there's a lot of work to be done. They can't just copy paste what they have built for US and India. So what they realized is that their estimates of how much they would be spending on our partnership was wrong, and they would be spending much more.
00:20:04
Speaker
So because that happened and they were not getting any returns right in the short run. Yeah. There was no cash in it for them. There is no cash in it. So obviously this was also the first time they were getting into an equity arrangement. So they realized the money in the bank will not happen for a few years. Right. Unless, unless they cash out, they take some exit, partial exit, or do a secondary or anything. So they were only out of pocket for the first few years. Right. So they, what they did is they started deploying slightly lower cost resources on this.
00:20:34
Speaker
which was a further setback for us because now the work quality got impacted, the timelines got impacted and it became a vicious circle. We wanted them to put better resources and we were not happy and they were anyway out of pocket so they were not happy. So the kind of output Akshay that we got was substandard, right? And this technology that we had created was literally like could not scale. So it was a very, very difficult phase of our journey where, you know, even though we had everything,
00:21:03
Speaker
We had a great business. We had a growing business. We had created a 250 crore loan book. Our loss rates were like less than half a percent. So amazing economics, right? Twenty four percent. We were originating. Half a percent was lost. So great spread. But the challenge was not an investable business because of because your technology looks looks very awkward.
00:21:24
Speaker
So the only option at one point left for us was to see where we could join hands and, you know, where we could just build this business with a larger entity. And that's where the acquisition deal started coming. I think the market knew that the final outcome can only be acquisition. Can only be an acquisition, right? Their destiny is an acquisition.
00:21:41
Speaker
Tell me something. Why did you need to raise funds when your tech was free? Because you had like an equity partner giving you tech. Most people raised funds for customer acquisition or for tech. And I guess by this time you would have had a flywheel of word of mouth happening and you could have, I mean, you could have cut the burn, you know, and like been in the survival mode. That could have been an option. Why did you not consider that?
00:22:06
Speaker
We were doing five-year loans. So the revenue that we realized from the business while the costs were being incurred today. So imagine I'm doing 10 crores of personal loans this month. There's a cost of acquisition I'm incurring. But my revenue I realized over a period of time. So the cash out is much faster at this point, but the revenue realization is much later. So we were anyway burning money. So to build that business, we always needed an equity infusion. That's number one.
00:22:32
Speaker
I think this relationship had become very sour with this tech provider, right? The tech infrastructure itself would not have improved in any way to help you cut costs and be more efficient. Correct. I mean, this guy was constantly pumping money into this relationship. And because if we were not to raise money, then he had no sight of any cash coming, right? Wow, he was desperate to get some money in this. And he wanted to sell a part of his shares. That's the only way for him to make money.
00:22:58
Speaker
So we had to raise money even if we had to continue with this guy. So it became a vicious circle that even to continue or survive with this tech provider, even though his quality was not up to the mark, but let's say we were able to get one engineer to build along with them. We actually did that. We got one engineer in house and we said, okay, let's slowly start building our own tech on top of these guys. But again, that would have needed money. That would have needed money. Yeah.
00:23:24
Speaker
It came to a point where capital was the answer to all the problems. And so finally what happened is we found somebody who were ready to acquire the company. They were ready to give them, give these guys an exit. Which is Incred. Which was Incred eventually. Incred was like an, is an NBFC or is it a FinTech?
00:23:43
Speaker
It's a fintech, but they have their own NBS. And Incred was doing multiple other segments at that time, education loans, home loans, small business loans. They were looking for a good partner on the personal loan side. And I think it was kind of a good match for them. So that's how the acquisition happened. Then what next for you?
00:24:02
Speaker
During that entire phase, when the acquisition deal had not happened and we knew we were raising money, but it was not happening, I started thinking that because we were trying to get engineers on board.
The Birth of Rupify: Targeting Underserved Retailers
00:24:14
Speaker
So I started talking to a lot of people in the ecosystem.
00:24:18
Speaker
I started talking to people to understand what went wrong, how we could have done it better. How do you build tech organizations? How do you build product-led organizations? So I started this massive reach out on LinkedIn where I think I had reached out to like 500 people on LinkedIn and just started conversations with them. Obviously, I mean, out of 500 reach outs, probably 100 connected and at least 50 to 60 conversations I could have.
00:24:42
Speaker
which was an eye-opener for me in terms of how do you build product companies, how do you build technology companies, why you need a tech co-founder on day one. And in fact, all three of us, we exited after the Incred acquisition and today all three of us are doing our own startups.
00:24:59
Speaker
Yeah, Incred probably had their own team in place. Yeah, Incred had their leadership in place, their own team in place. There was a chief risk officer who was there. So I kind of felt like I was more a shadow in that ecosystem. I was on my way out and I started looking at what I wanted to do next.
00:25:17
Speaker
That's where, you know, all these LinkedIn conversations happened. And through those conversations is how I met Ankit and Javed. So Ankit was a strong product person. I reached out to him on LinkedIn. He normally was not very active on LinkedIn, but luckily he saw my message. A couple of people, he saw his common connects. He asked them about me. They said, yes, it's good to have a chat with this guy. We had conversations, we clicked. And then Ankit knew Javed for a long time. He was his batchmate at IIT Kharagpur. So he brought Javed into the discussions once and you know,
00:25:46
Speaker
I could see that team forming. I was the risk and business person. Ankit was a product and growth guy. Javed, having worked in Google for nine years, had that strong engineering background. So I think it was just a matter of time that three of us decided that we can leave our respective jobs and start this company.
00:26:06
Speaker
So that was a long phase. It was a one and a half year phase of discussions. And during that time is when I had reached out to a very senior head of engineering at Razorpay also, for those conversations. Instead of me convincing him that why don't you join me as a co-founder, he convinced me that... Why don't you speak to Harshil and Shishank? He said, there's no harm. Harshil and Shishank are great founders. I mean, always good to chat with people who have built great companies. So that's when those conversations happened.
00:26:35
Speaker
And I think it was a very fair conversation. I was thinking of doing something on the SME side because after Kubera, I had realized that consumer is kind of crowded. A lot of people are doing it. On the SME, on the B2B, there is still a lot of opportunity.
00:26:50
Speaker
So why don't we do something there? That's where I decided that let's do something on the SME side and these guys are anyway looking for someone to head their lending business. So Shashant told me, I know if you are going to raise money, you are going to build a team, you're going to do all that in your startup, run that as a startup within Razorpay. I'll give you full flexibility. I'll give you full freedom. You are the CEO of lending within Razorpay. Do it, do whatever you want. It sounded like a great offer, right? Because A, it was complete, you know, like running your own company.
00:27:17
Speaker
And B, you were part of Razorpay, so you could use all the knowledge and resources from Razorpay to learn and you get paid a good salary on top of that, which we never were as a founder. You don't have to worry about funding and all of those things like that funding question is taken care of.
00:27:33
Speaker
Exactly. So I think from that perspective, it looked like I can try that out while my conversations with Ankit and Javed had not reached a level where we knew what we wanted to do. We were still brainstorming, whiteboarding, thinking of what to do. They were still in their jobs. So I joined Razorpay as head of Razorpay Capital. But I think somewhere that, again, the itching to start something again was there at the back of the mind. So Razorpay was a very short stint of six months.
00:27:59
Speaker
The moment Ankit Javed and I knew we have something concrete, this is what we wanted to do. I think that's when we decided to leave our jobs and we started Rubify. And what was the thesis? Like, what did you want to build this time around? So Ankit's background actually came from running two companies before, which both had a small business kind of customer segment. And he had run into working capital issues. He understood the importance of working capital and all that.
00:28:26
Speaker
I had done commercial cards for Amex the first three years. So I understood small business side of things. And SME was definitely exciting me. So SME was the space we were looking at. That was clear, Akshay. But as we started going deeper and deeper, see SME was not something that was not done. There were companies like Capital Float, Lending Cart, Indify, Windify, Ziplone, all of them were there.
00:28:48
Speaker
when we were starting. So it was not that there was nobody in the market. So we started thinking and asking ourselves what is it that these guys are not doing and what is the problem we are solving, really. As we went deeper, what we realized is the long tail SME is still underserved.
00:29:06
Speaker
So you have FinTechs, you have banks and NBFCs. Banks and NBFCs cater to the top 10-15% of your enterprises or businesses. FinTechs come and focus on the next 20%, maybe. But the long tail, nobody touches. And the reason why nobody touches long tail is also quite obvious.
00:29:26
Speaker
The ticket size is very small, so you can't make money. The cost of acquisition is very high. Again, you can't justify economics. A lot of the business is in cash, so you don't have data to understand. Balance sheet does not exist for a small business. And collections is a big, big hassle for a very small business. They don't understand why they have to pay back, how paying back impacts your credit score. It's just a lack of awareness. So we could see there are multiple problems in the long-tail asset.
00:29:53
Speaker
And this long tail means like what, businesses with one or two crores of turnover, like that scale or like? Sub-two crores, yeah, below two crores. And that's where we realized that there is no way you can go and approach this customer with a lending product, right? We saw how KhaataBook had created a large base of SMEs
00:30:15
Speaker
By offering a product which does not solve working capital on day 1 or lending on day 1, solves another problem of their day-to-day use, like bookkeeping. Which gives them data. Right? It gives them data. We also were almost seeing, though it was not completely, Bharatpe had not scaled to that level, but we could see how Bharatpe was creating that repository of data through their QR codes and then they will use it for lending.
00:30:39
Speaker
So we were very clear that we have to find a hook to first acquire these SMEs and get their data and then, you know, go into solving their capital requirements. Obviously, Ashneer was a friend. Ashneer had invested in Kubera as well. He had invested in Rupify. He was the first person to write a cheque. In fact, when I was joining Razor Bay, I got a counter offer from Ashneer to join Baratbe.
00:31:05
Speaker
to join Bharat Pei as the Chief Risk Officer. But I had already accepted the Razor Pei offer, so I could not say no to those guys. So I had understood Bharat Pei model quite in depth through my interactions with him. This was a learning. So what we realized is we have to be part of a day-to-day transaction.
00:31:25
Speaker
of the SME and then embed some kind of a lending layer on top of it. Now that day-to-day transaction could be bookkeeping, could be payments, could be anything that there'd be. And that's where we realized there's key here. There are 60 million SMEs in India. 45 million of them are retailers. And these retailers, there is a large long tail of these retailers, Kirana shops, medical shops, some small mobile shops, some recharge shops. And they buy supplies from a distributor or from some kind of a vendor on a regular basis.
00:31:54
Speaker
So we decided we'll embed ourselves in that purchase supply journey, right? And that's how Rupify started. We saw that traditionally these retailers have been buying from distributors, but that is changing. Udaan has come up, has completely disrupted the space. In 2019, when we were brainstorming, we, at least this is where I think I would give a lot of credit to Ankit, my co-founder. He said, Anubhav,
00:32:19
Speaker
There are 10 more Rudans that will be built in India. This is just the beginning. Digital B2B is going to be very big. And he's right. Like, Mowgliks is there. Okay. Now you see Mowgliks infra.market. See it to work. Beale share. You know, all these, there are like, there are actually 10 unicorns in B2B space today. So he said, this is the way forward.
00:32:45
Speaker
Why don't we start with digital B2B? A lot of these players are all startups, so they will be open to ideas. We could just embed ourselves inside their journey and offer this like a credit solution. So anyway, while Udaan has built their own credit vertical, not everyone can do this on their own. So why don't we start as a B2B BNPL company? And that's how the idea for Rupify came to us.
00:33:14
Speaker
If you like to hear stories of founders, then we have tons of great stories from entrepreneurs who have built billion dollar businesses. Just search for the founder thesis podcast on any audio streaming app like Spotify, Ghana, Apple Podcasts and subscribe to the show.
00:33:35
Speaker
Essentially, you want to create a transaction solution, like khatape is a transaction solution, which gives you data. So what was that transaction solution you were creating? Because Pudan and all these unicorns already have a digital ordering solution. They are essentially digital. So what is the opportunity for someone else to come in and offer any kind of transaction solution?
00:33:57
Speaker
So I think actually what we said is that data already exists with them. We'll use their data, but we'll create the underwriting and the collections and the lending layer on top of it. So let's say there is a B2B marketplace. They have their own ordering systems. These hundreds and thousands of SMEs are ordering from them every day. Why can't I just use that transaction data to work with these marketplaces? It's their customer, it's their data, of course.
00:34:22
Speaker
But they don't have the experience of underwriting. They don't have the experience of collections. They don't have the experience of sourcing a balance sheet. I'll do all that. End-to-end, I will manage and help their customers get 15-day, 30-day, 45-day, 60-day payment options, credit options.
Innovative Models: Buy Now, Pay Later in B2B
00:34:37
Speaker
Essentially, like you, Empowered, and Oran, and other such B2B eCovers companies with BnPL. The way Amazon offers BnPL through partnerships, like Amazon doesn't have its own BnPL.
00:34:49
Speaker
We work with some of the very large names in the ecosystem today outside Durand. And yeah, so we went to everybody right from the Zomatos and the Swiggies and the Amazons and the Flipkarts and they all have B2B businesses. So on that B2B side of business, we started. What is Zomato and Swiggy's B2B business? I thought they were B2C companies, Zomato and Swiggy.
00:35:16
Speaker
They are largely, you see, but, you know, Zomato had acquired a company which is now called Hyperpure, three, four years back. Okay. Now what Hyperpure does it, it supplies raw materials to restaurants. So restaurants can buy fresh fruits, vegetables, pulses, all your staples, everything that they need to prepare food, right? From Zomato's Hyperpure business.
00:35:41
Speaker
So we got hyperpure as our first client. We were able to convince hyperpure that guys, you are doing, you're providing these two restaurants. So we can be your BNPL partner on the, on that side. So, so that's, so Matto's B2B business. Swiggy has a similar B2B business called.
00:35:56
Speaker
I think Staples Plus or something. I'm not sure about the name. We're not tied up with them, so can't comment. But all of them have. Flipkart, for example, has a B2B business called Flipkart holes, which supplies to Kirana stores and mobile shops and all of these. In fact, they are one of our largest clients, Flipkart holes. So we could see that B2B will be bigger.
00:36:20
Speaker
In fact, B2B digitally is always four times than consumer. Because for one transaction that you are buying a phone from a shop, there are four different B2B supply chain arms at the back end. Brand to old seller, old seller to distributor, distributor to retailer. There are three more chains. So there is 3X business to be done on B2B for every B2C transaction.
00:36:50
Speaker
So I think we were very clear that P2B will get digitized. Covid happened after we started. So our thesis proved even more correct because now those businesses who were even transacting offline started going digital and that's why you've seen Akshay that in the last two years so many digital marketplaces have secured a lot of capital.
00:37:13
Speaker
because businesses have started going digital. That's the future of digital B2B is the way forward. And we found ourselves at the right place at the right time. Okay. So most of these companies like Katabog, Bharatpe, they are doing underwriting based on sales data. How do you do underwriting based on purchase data? Sure. So, you know, let me take a step back and give you a better sense of the kind of solving. So what are we trying to solve? You know, we are trying to provide our working capital
00:37:42
Speaker
credit line to the retailer to buy from a distributor. Now, why does he need working capital limit?
00:37:50
Speaker
They are essentially buying, let's say, supplies. I'm a Kirana shop. I'm buying supplies. I'm keeping them in my shop, and then I'll sell them. Now, it will take some time for them to sell. So, I'm out of pocket for 15-20 days till that material is sold. So, that 15-20 day period is what I need capital for, right? So, essentially what a distributor does is he tells the Kirana shop that, okay, take this, pay me after 20 days, right? You take this material on credit.
00:38:20
Speaker
Now, the same thing we have to do for a B2B marketplace that if, let's say, a Flipkart wholesale or a Rodan, just as an example, is selling to a Kirana shop, we have to offer a 15-20 day credit to the Kirana shop. Now, the question comes, how do you underwrite how much limit should you give to this Kirana shop? So, essentially, what we are doing is we are trying to assess how much do they need and how much will they be able to sell, right?
00:38:50
Speaker
So what we do is based on historical data, we know that this particular retailer has been buying, let's say, for the last 12 months on this marketplace, X amount on an average every month. Let's say that's 20,000 rupees. That means at least 20,000 rupees of stuff he is able to buy and sell every month. That's why he's coming every month and buying from this B2B marketplace. So what we typically do is we look at that history of purchase.
00:39:20
Speaker
and try to assess how much business this particular retailer is doing, which is 100% guaranteed based on this data. See, he could be selling much more because he's buying only 20,000 from one particular marketplace, but he's buying 2 lakhs from another marketplace. He's buying another 5 lakhs from distributor. So his total sales may be 10 lakh, but I don't care.
00:39:45
Speaker
I just have to give him enough limit so that he can continue buying 20,000 from this marketplace. So that's what we do. We only assess the transaction relationship of an SME feedback supplier and not his overall business potential. Typically in traditional lending, you will ask him for a bank statement. You will ask him for his IDR and other financials and then try to assess his overall potential and then give him a limit. I don't have to do that.
00:40:11
Speaker
there is no point giving him a 5 lakh limit on a particular marketplace when his average monthly purchase on that marketplace is only 20,000. So what we do is we look at the historical transaction data of that retailer on a marketplace and look at various things. What is this frequency of purchase? What is his consistency of purchase? What is his volatility? How many times does he buy in a month? Is it seasonal? Is it not seasonal? Is it growing? Is it is it declining? All of that we see.
00:40:39
Speaker
and basis that we give him a limit. Now that limit on an average of 20,000 can be 20,000. It could be 40,000 also because we may see that, okay, its average is 20, but it's growing. We should give him us some buffer so that he can increase his business. So that's how we underwrite and that's how we assign a limit to the Kirana store. Now, what is definitely possible and it's happening today in our use cases, the same retailer. I'm approving another 50,000 on another marketplace.
00:41:08
Speaker
Right? Because this guy, he is buying supplies from five different places. He is going to Flipkart also. He is going to Walmart also. He is going to Metro Cash & Carry. He is going to Udan. And then he is going to his offline distributor.
00:41:24
Speaker
Yeah, whichever has the best deal basically, like that deal hunting behavior is ingrained in. Exactly, exactly. This retailer is very smart. He will buy different SKUs from different places because he knows where he's getting it the cheapest.
00:41:41
Speaker
He is splitting his supplies across different suppliers or marketplaces. The same way I'm splitting my overall exposure to this guy depending on his purchasing on these different marketplaces. So that's how we underwrite and that's how we have been able to limit our risk and exposure because we are only taking that much exposure which data suggests is possible.
00:42:05
Speaker
And through KYC, you know, okay, I've already given him a limit in another platform. Like they'd probably upload a adhar or a pan or something, which helps you identify.
00:42:14
Speaker
Yeah, so KYC, they only have to do once because they don't have to do KYC again. And yeah, so you're right. But how do you know this is the same merchant on Flipkart and the same merchant on, let's say Hyperpure, like based on a phone number or something like that, log in email ID. Yeah, mobile number. Correct. So mobile number has kind of become the unique identifier. In a salaried customer, it could be pan also, right? But for our business, we use mobile number as the unique identifier.
00:42:43
Speaker
in
Overcoming Integration Challenges at Rupify
00:42:44
Speaker
most cases. And if we see the same number appearing in two different partners, we know it's the same merchant and we are able to, you know, reduce friction from his onboarding by not doing KYC again. And our lender also knows that. I mean, as per compliance also, lender also does not need to do KYC again, right? I mean, if let's say you are a savings bank account customer with a bank and you then go to them for a loan, they don't have to do your KYC every time. They've already done it once.
00:43:14
Speaker
And okay. So what is the experience for the merchant? Like at the checkout, he will have one more option. Like it would be net banking, UPI and pay later, something like that. Exactly. So it's, it's a checkout option. He will see UPI, he'll see net banking and he'll see pay by Rupify.
00:43:32
Speaker
Now pay by rupify is nothing but the credit line option where you'll see you are placing an order of 20,000 you have 30,000 available limit so you can use rupify to pay. Let's say if he doesn't have sufficient limit so he has only 15,000 limit then also he'll see rupify 15,000 will go from the rupify line and 5,000 he will have to pay additional.
00:43:53
Speaker
Right. Okay. And so tell me about the integration journey. I think that's a key part, right? You essentially need to integrate with these marketplaces to grow the business. So how did the first integration happen? Was it a smooth experience? What did you learn from that? And how does it happen today now where your integration, what is that status like?
00:44:14
Speaker
Integration journey has been evolving. I think our first integration was quite tough. It's not easy to convince someone like a Zomato if they are your first client to integrate with you, especially when you are a 10 people startup who has not even raised a million dollars. But you had raised some sort of angel or family round.
00:44:37
Speaker
We had something like a 650K, but we were very small. We had no credentials, no background, nothing. So while they decided to give us a chance, but not in an integrated manner, it was a semi-automatic, semi-manual mode.
00:44:53
Speaker
So integration, I would tell you the learning has been that now we obviously push for integration on day one. But initially when we started, you have to start in a physical manual mode. Show some volume, show some traction, show some confidence, build some confidence in the other party. And then they integrate, right? Because technology bandwidth is like the most prized thing today in the country, in the startup world. So nobody likes to give you their engineering bandwidth so easily.
00:45:22
Speaker
So that first integration, they gave you data of buyer's history, and then you would underwrite and give it back to them, okay, these buyers, we will give this limit. And then they would send an email to the buyer or something or whatever. Correct.
00:45:37
Speaker
they would manually enable them on the checkout page. So they would tell us that, okay, these hundred restaurants data is here. We will, we will underwrite them. We'll tell them that these 50 are good to go. Those 50, they will manually enable in their backend. And those 50 will now see a Rupify option as they go on their checkout page, right? So that was the journey.
00:45:58
Speaker
Now it's a fully seamless journey where we have APIs to integrate. So today to take Rupify live is less than a week process. Right. I mean, the goal is to make it as easy as a payment gate to integration, I'm guessing. Absolutely. Absolutely. So when we started our integration was almost like a month long process. Then it came down to two weeks.
00:46:22
Speaker
You have to talk to the database so that you can do underwriting and each database would have unique way of structuring data. So your underwriting engine would need to be tweaked to that. Yeah. I mean, initially we were tweaking it. Now we've created a process where, you know, we are flexible. Whatever ways a particular marketplace has structured their data and we can read.
00:46:41
Speaker
We are absolutely open to that. So I think from that perspective, a month-long integration timeline came down to two weeks nowadays, one week. The goal, like you said, is to reach a one-day goal life. Like a payment gateway, you know what we say? This is a line of code. You put it in your, you place it somewhere and then you can start accepting payments within 30 minutes. Something similar to that is what we need to achieve. We're still not there. We are still working on it, but I think that's the end goal.
00:47:09
Speaker
So yeah, integration wise, I think because it's BNPL, there are four integrations we do. We have to do an integration on the checkout page for transaction. We have to do an integration with the ordering management system to get the data for underwriting. We do one integration on, on repayment because we don't have our own app.
00:47:27
Speaker
So if the customer uses Rupify, how will he pay us back? So we create a repayment screen within the Marketplace app. So there is a repayment integration. And then there is a statement of account API, which basically tells the guy that what's your statement looking like? How many transactions you've made on Rupify? What's your total outstanding? When is the next transaction due? What is the due date? What are the due amounts? All that detail. So four simple APIs is what we have to integrate today.
00:47:54
Speaker
So the repayment bit is interesting. I want to dig a little more over there. Why not manage collections through your own app? That's like, again, making the integration tougher, right? Where the business also needs to create that additional repayment. And then you would also need to enable some notifications to them through the app, like the Odaan app should tell them your amount is due today or whatever. No, that's a valid question. And that's what is work in progress. So initially, you know, when, see, Rupe5 was not a brand name when we started.
00:48:22
Speaker
Nobody, it was difficult for us to convince someone to download our own app, just for repaying. I mean, what is the use of that app other than collecting repliments, right? So, and secondly, you know, we always knew that this is a marketplace customer in the first place. It's not a rupify customer. He understands marketplace more.
00:48:42
Speaker
he has more relationship with them so what we did is we used that to our advantage where we said that hey it's not a rupify credit line on flipkart wholesale it's a flipkart wholesale credit line powered by rupify so when we used to call them for collections we used to tell them your flipkart credit line is due can you go to the section in the app
00:49:03
Speaker
where it says credit line powered by Rupify and make-up payments. So, customer would always respond to that kind of a call rather than saying, I'm borrowing from Rupify to collect your money. He would say, who is Rupify? And that's a true embedded product. We are embedded deep inside the marketplace.
00:49:21
Speaker
So we use that. But what you mentioned is absolutely correct. Now we are thinking in terms of if that makes the integration heavy, can we keep the repayment side of things on our platform, maybe somewhere on the cloud or maybe make it a WhatsApp feature where we can collect this money from them without making the integration with the marketplace heavy. So that's right.
00:49:42
Speaker
Okay. How does collections work for you? Like you send like SMS email reminders and with links to pay and like you handle collections, right? That's not the, because you are the lender basically.
00:49:56
Speaker
Yeah, and also we have to own collections because we take risk with the lender.
Rupify's Financial and Collections Strategies
00:50:02
Speaker
So we have to do collections on our own end. And as I said, when we started Rupify, one thing was very clear that collections has to be built as a capability. There is no other way for we to scale a long tail SME business if we can't ace collections.
00:50:18
Speaker
So we have had focus on connections from Devaal. So what do we do in collections? We have multiple parts of solving for collections. One is we have a stop supply arrangement with the marketplace. So if the guy does not pay, we block him on that app. So that helps us collect because nobody wants to stop their supply from a Flipkart or a Walmart or anybody. Basically, you've done that.
00:50:43
Speaker
Even if it's 10% of their business, that business will get impacted. Why would you stop for a small-ticket credit line? We are not giving him 20, 30, 50 lakhs. He will take that kind of an exposure. So, he will not take that kind of an exposure for a small-ticket line. He will not disrupt supply. Nobody will do that. That's number one. But on our internal side for collections, what we do?
00:51:05
Speaker
multiple channels of communication. We do WhatsApp reminders. We do IVR and SMS reminders. Then if you still don't pay on time, then we start calling the customer and educate him why paying on time is important because A, it impacts your credit score. B, it impacts your future buying with the marketplace because we could block you. C, it obviously attracts penal interest. We tell the customer to make the payment.
00:51:33
Speaker
And then if, let's say, some very small percentage of customers are still left, then we have on-ground collections team as well, who go and visit the customer, you know, because the customer also needs to know that these guys are for real. They're not just some online app and I can escape without looking payment. A lot of, you know, in India, a lot of digital apps have struggled because they don't have presence on the ground.
00:51:56
Speaker
And customer also thinks that these guys are not going to chase me for this small amount. So I'm very well okay not paying this. So we have to just give him that signal that hey, we are here. You may be a small retailer in Jharkhand or you may be a small retailer in Odisha. I have my team present in your city.
00:52:15
Speaker
But this would be through an agency or something. It will be too expensive to build this. Yeah, obviously. So 30, 35 locations, the top 30 cities, we have our own team. Outside that, it's all third party. In fact, what we do is, let's say we work with a marketplace like Flipkart would say. Now, they have their own BDA or the Business Development Associates in every city. We ask them to do the nudge for us.
00:52:42
Speaker
Right? Because in their best interest to help us collect, so that it retains that customer. So we know their help. We tell them that hey, while it's great you have helped us acquire the customer, can you also help us collect? Just give him a nudge. Just tell him that he needs to pay this much. Right?
00:52:57
Speaker
So we get a lot of support from our partners also, and we have a collection team. So to give you a sense, I mean, it's a very important topic collection. So we actually got a very senior collections person on board very early on in the journey. He had done collections on cards for nine years for one of the top banks. He had done loan collections with two of the largest NBFCs for five years. He had done telecom collections
00:53:25
Speaker
Airtel, Tata, all these for six years. So the good experience he has built. And you know, between, when I was in Cuba, I had gone to Shanghai once and I met this P2P lending company there. And they used to do this very small ticket loans. And they told me that they had 6,000 employees in that company. It's a listed company on New York Stock Exchange. And they said out of 6,000, 3,000 people are in collections.
00:53:51
Speaker
today if you see rupify we have we are 170 members strong and 990 same ratio half of us are in collections so I think that's a that's the focus you know we have on collections that
00:54:04
Speaker
There is a 30 member tele-collections team. There is a 60 member on-ground collections team that we have and we constantly keep innovating on both. How can we use technology for collections? But we also know in India, FinTech is not just like a WhatsApp of team of 45 people, right? You can't build a lending FinTech without getting your hands dirty. So you have to have, you have to have collections.
00:54:30
Speaker
Got it. Okay. Okay. What is your default or NPA rate? Like what kind of rate do you see? So we have less than half a percent. I can't give you the exact number, but we have less than half a percent as of today. It's very, very... Which is extremely low compared to... Yeah. It's very low double digits. But you know, Akshay, I think while obviously this is a good number to have, but I think this or something we expected because it's a closed loop product. It's a supply chain product. It's a day-to-day use product.
00:54:58
Speaker
The customer is very clearly aware that, you know, this is a payments product for him. We are just helping him defer his payment to manage his working capital. There is no money in the bank for the customer. We directly disburse the money to the supplier. So, there is no incentive for the customer to default on this, right? Unless he's really struggling, he's really stressed, the business is on the verge of shutting down. There is no reason for the customer.
00:55:27
Speaker
Help me understand the economics of the business. What does the money cost you? What is the cost of funds to you? What is the cost of funds to the customer? What is the spread in between and so on? So for the retailer, there is no cost. If he buys 10,000 rupees of stuff from
00:55:44
Speaker
from a Flipquat wholesale, he pays only 10,000 rupees back to us. Not a single penny more. It's a fully subvented product. Like all other... What is subvent? What does subvent mean? So like all other BNPL products that you see, like if you, for example, you know Bajaj Finance, how they give you a consumer loan when you go to buy a TV and it says 0%? 0%. Right? Now somebody is paying the cost of that loan.
00:56:14
Speaker
Right? So, in that case, subvention is basically the brand. So, if you're buying an LG TV, LG knows that by tying up with Bajaj Finance, my sales is going up. So, LG bears a part of that finance cost and the retailer who's selling the TV only in his shop also knows that by offering this finance option, my sales will go up.
00:56:33
Speaker
So the retailer bears a part of that cost of that finance cost, right? So that's that's a mention. So the same way, in our case also, the marketplace knows that by offering Rupify BNPL option, my sales will go up, my customer stickiness will go up, you know, my customer will be more happy. So they offer a part of the sale to us.
00:56:54
Speaker
right, as, as subvention. So this, that's how we make money. Now that subvention can be depending on the sector, depending on the credit cycle could be anywhere between one to 4%. Right. So for let's say FMCG, most of the credit that we offer is 14 day credit for pharma, for electronics, for fashion, most of the credit we offer is 30 to 45 day credit.
00:57:18
Speaker
for home improvement, for production, construction goods, the credit we offer is 60 days and for to be agriculture inputs, the credit is 90 days because agriculture is a longer cycle. So, depending on these cycles and depending on the sector, our subvention or our revenue is anywhere between 1 to 4%. So, that's our gross revenue. From that, you subtract our cost of capital because we are also
00:57:42
Speaker
basically working with a lender so we have to pay them a certain percentage as a hurdle rate. That could be anywhere between 12 to 14% annualized. So that comes out to be, let's say on a 30-day product that could be 1%. And let's say my subvention is 2%. So I have a 1% spread. That's how the business makes money. Now from that 1%, I have to cover everything. I have to cover losses, I have to cover collections cost, I have to cover my OPEX.
00:58:12
Speaker
CAC for customer acquisition cost for me is almost zero so that I don't have to really worry about. So that's how the economics work. It could be half a percent or a percentage up or down. I've given you a broad range of how this business works.
00:58:27
Speaker
Do you also have an opportunity to make money if someone wants to roll it over further, wants to take more loans on it, like extend the period or things like that, like how on credit card you can convert your balance into EMI and pay something on that? We have all that option. So let's say I'm a Kirana store.
00:58:48
Speaker
standard credit cycle is 14 days but for some reason it's festive season i want to stock up more i need 30 days so we have that option the marketplace will obviously not pay for it so they will only pay the first 14 days of subvention the extra 14 days the the retailer can pay from his own so that we have we give that
00:59:08
Speaker
So it's a very flexible product. We do help businesses extend. In fact, I'll tell you, when we started, it was bang in middle of COVID. Nobody was ready to lend to SMEs. Government had announced all those moratoriums and let it guarantee schemes and support schemes. And also lenders were quite under two minds in terms of how this portfolio is going to evolve.
00:59:29
Speaker
So a lot of lenders had stopped new sourcing and new lending to SUVs. So we used that as an opportunity to scale the business. But then the second wave came. So obviously we had businesses coming to us and saying, guys, there is lockdown. There are only a few hours of business available. We can't pay you in 14 days. We can't pay you in 30 days.
00:59:49
Speaker
So we give them that flexibility, right? We had to offer it to businesses. And that's why, you know, while there were some short-term impact on the portfolio in terms of delinquency going up, but all of these guys eventually, when the business became normal, they paid. So we've had people delaying payments, but we do not have people defaulting on payments, right? And that is a possible because we've been very flexible with businesses, right?
01:00:16
Speaker
And it's not like your salaried customer who gets his salary on first, so he will pay an EMI on fifth. That does not happen. In SME, there is no fixed date. There is no fixed income. So you have to be flexible with them. 14 days product can go to 16 days. You have to be flexible and give them that two-day buffer, right? And I think that's
01:00:37
Speaker
But 16 day will be without any extra penal interest and any of those costs like that. Correct, correct. You have to give them some grace period. You have to be flexible around it. If you start charging like a credit card, if you start charging like interest right from the next day, right, that does not work. You lose customers, right? Because
01:00:58
Speaker
These are SMEs, they may be one or two days delayed and that is where we are right now innovating Akshay and working with lenders and telling them that we need systems, we need flexibility in your LMS.
01:01:11
Speaker
to do that. You can't come and tell me that my loan management system will start calculating penal interest the moment the due date has crossed. I understand that. I understand where lenders are coming from. But if you have to disrupt the long tail SME, you have to create more flexible systems. You have to create a system which knows that we can give two days of buffer, that we can give three days of grace period.
01:01:39
Speaker
that there is a possibility of a two-day delay in payment. I don't have to charge a penal interest on that. I think that's where, in fact, I was discussing with one lender. They said, we can't do that. I was like, you have to think about it. If you have to do business with Rupify, you will have to either go to your LMS provider or tell me, I can get you an LMS which is flexible enough. But we all have to evolve. Otherwise, there's no difference between us and traditional lenders.
01:02:03
Speaker
Right, right, right. And how much of your revenue comes from subvention and how much comes from when customers decide to roll over or convert to EMI and things like that, where in a way you are earning from the customer.
01:02:15
Speaker
I think 95 to 97% is a subvention. We have very few customers rolling over and we also don't charge very high rates there because that's not how we make money. We are not a credit card. A credit card company wants you to revolve, right? That's how they make money. That's how they make money. Otherwise, they'll not make money. We are not like that. We don't want you to revolve.
01:02:40
Speaker
We want you to pay online. In fact, we are happy with people paying early because that is a small margin.
01:02:48
Speaker
So we promote, we incentivize people to pay early, we educate them, that's why even a one-day delay is not good for you. So the same thing, I think, you know, the same kind of interesting also applies to reporting. So when we speak to lenders, they were like, okay, if the customer does not pay in time, I can give you grace period, but my sister will start reporting him to Civil and Bureau as two days delayed or three days delayed. I told them, don't do that.
01:03:17
Speaker
You can't, you can't keep spoiling these small businesses credit score for one or two days delay. Like your one day DPD will civil will impact it. Civil will completely, you know, reduce the score by 70, 80 points. Right. And this is not a, this is not an intentionally bad customer. This is the nature of his business.
01:03:38
Speaker
So we are creating that product. We are talking to these lenders that how can we inculcate this buffer period or this flexibility in every aspect related to reporting. In fact, we spoke to RBI last week. So RBI has come up with a sandbox on MSME lending where
01:03:58
Speaker
RBI is saying we are inviting startups to come forward and we will give them a sandbox where we will relax some of the regulations, right? And they have to prove why that regulation has to be relaxed and how does it not adversely impact the business, right? So for example, this whole requirement of penal interest being charged from due date, if I want to relax it, right, as a regulatory practice.
01:04:21
Speaker
We have to show them that, hey, we have relaxed it and there is no impact. We have still maintained a good portfolio and all that. So we are discussing some of these aspects with RBI on the regulatory front. It's a long journey. These things don't happen overnight. They take months and months. But one thing we are very clear that if we have to solve for these long tail SMEs, there are significant radical changes that have to be made.
01:04:46
Speaker
What is the size of your loan book today? We've done close to 500 till date. There's hardly a loan book Akshay because ours is a very short term product. So every 30 day loan book gets churned. So there's no book to be built honestly, but cumulatively we've done 500 crore plus to sofa.
01:05:05
Speaker
Okay. So what is the key challenge for you to solve? Is it on the demand side, like finding more ways to onboard more customers, like, you know, doing more collaborations, or is it on the supply side, like finding more sources of funds, finding lenders who are flexible? What is like the key challenge?
01:05:21
Speaker
I think two challenges. One is the supply side, definitely, like you understood, right? This whole flexibility, this whole openness to innovate and change things the way you have been doing for decades. Now I'm telling them that, you know, change it. That's a challenge, obviously. The second challenge is what we discussed, right? Marketplaces, today I have a seven day integration timeline. How do I bring it down to one day? That's something we are working on. So these are two things which are very important for us.
01:05:47
Speaker
Demand is there, but to capture that demand, you need to make it frictionless. That's what we are working on. What kind of numbers do you see yourself hitting by 2025? Do you have some targets? How big would the business be by then?
01:06:05
Speaker
So our North Star metric is how many SMEs have been impacted. Today that number is close to around 75,000. So 75,000 small businesses actively use Rupify. We have a target to touch close to a million by next financial year. And by 2025, we want to impact 15 million SMEs in the country.
01:06:27
Speaker
People who borrow through rupify, in a way you are also helping build up their credit history, right? Anyone who borrows, then their civil record gets created. Correct. 45% of my customers had no history on bureau when they came to me, right? Because I was underwriting based on transaction data. I was not
01:06:45
Speaker
looking at Bureau as the primary source. So we've done a lot of impactful lending, I would say, because customers who have no credit history, they've also been able to get credit from us. And now we've helped them build that credit history.
01:07:00
Speaker
Right. So now it actually unlocks a lot more for them because that credit history will enable them to get bigger loans should they want to in future and different kind of. Yes. Yeah. And that and those different loans or cards or other credit products, that could be anybody. I mean, it could be us offering them or it could be anybody from the market. Right. But at least we've opened up that chain of events.
01:07:22
Speaker
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