This space is occupied by a few legacy banks, but not many others are in it. At this point, our competitors are ‘Moneytap’ and 'Earlysalary’, but the difference is that while they are focusing on a channel (product line), I am covering the ecosystem. I don’t want to own the channel, but can I own the segment of 24 to 35-year old salaried millennials? The problem for banks in this space is the credit history. How will you give out loans when the person doesn’t have one?
And how have you gone about profiling customers?
You have alternative ways of judging such customers. We look at their mobile bills, at the social data along with education and work experience. Or what we call the social loan quotient (SLQ). The footprint says a lot about how we live and behave in the larger social world, and we use big data and artificial intelligence. Look, what is the credit history basically about? It’s about visibility. But the problem with credit history is that it is telling you that the guy was good; and so, the future will also be good! What the credit bureau does is diagnosis; what I am doing is prognosis. I am interested in your trend line; not your credit score. You may have taken loans five years ago; and for some reason, would have defaulted on a credit card also. And in the past five years, nobody would have given you a loan. But if I were to check, there would not have been a single bounced cheque, and you are also paying your bills on time.
We started around two years ago, and have given out 4,00,000 unique loans. The monthly strike-rate is 18,000 loans. My book size is churning fast — the outstanding loans are around Rs 230 crore and the total disbursement till date is approximately Rs 1,200 crore.
Non-banking financial companies (NBFCs) are finding it difficult to fund their game. How have you gone about it?
Banks are not lending to NBFCs because of asset-liability mismatch issues. But I am their blue-eyed boy. I have 21 lenders to my platform and they are pleased with the book. I am both lending and borrowing at the short-term. I will be able to churn these short-term loans by the end of a financial year. And banks will know within six months as to how good or bad my portfolio is.
What happens to this model if banks were to adopt the same approach as yours?
It will never happen! My average ticket-size is Rs 40,000. For the amount of work and the expenses banks will have to incur to originate and service such loans, they will never make any money. But I will make money on the first loan itself. If I remove all the charges other than the cost incurred towards customer acquisition, I will make Rs 800 on every loan I give out. On the sixth loan, I will break even. A bank will not (and can never wait) for six loans to be given out to the same person to get it right. Again, 75 per cent of my customers come back to me, and have in the past two years (since our inception) borrowed at least four times. Of course, unless my loan is repaid, I never allow another loan to be given out. I cannot run two parallel loans at the same time.
And just how do banks look at millennials?
You see, I am lending to millennials with salary accounts. The point is banks are not giving money to their own salaried account holders! They always look at the CIBIL score. Now the know-your-customer norms are the same, but their (banks) idea is like if he has a score of 750, then he is a good guy. Anything below, and that’s a bad guy. There are five crore salaried people who file returns, and you have only around 110 million credit cards. There are a good number of people whom banks just don’t want to cater to, or are not worth their while. At a million customers with a ticket-size of Rs 40,000, we will be a billion-dollar company, at valuations typically two times the book-size of Rs 4,000 crore.
Can you give a glimpse into the credit behaviour of millennials?
This generation doesn’t believe in saving at all! They don’t keep a single penny as savings. It is all about the here and now. Take insurance. If you tell a 24-year old he is going to fall ill or die, he will laugh at your face. But if you tell the same guy that he could lose his job someday, he will get scared. If you sell job-loss insurance, he will buy. A millennial takes loans for a holiday once year to travel within the country and abroad. And changes mobiles every nine months.
Are you open to the idea of selling banks’ products to your customers?
Now, let me play the devil’s advocate. What stops me from being a digital bank five years from now? You see, I am also looking at the CIBIL score on a regular basis from the time a customer came to me even as I am creating my own score. We are talking to two banks. I am going to eventually lose these customers after they have reached 35 years.
So, can we partner? I have told them to give me a small amount across the products they sell on our platform. We will help them sell 10 products to a customer, but of the income, they are making, give me a share of it since you don’t have to bear the acquisition cost.