INTERVIEWS

‘Mass market in India is yet to experience EMI buying’

How ZestMoney has used technology to tap a huge market for unsecured consumer credit in India that the big banks ignored

For most of us living in India’s largest metros, it seems to be life on EMIs! We work hard to buy a house, a car, appliances or to save for marriage or our children’s education. We are clearing our debt through EMIs, for the more substantial part of our lives. Even credit card payments are being done through EMIs or equated monthly instalments. However, if you were to investigate how many people in India have access to EMI payments, that number would be small. It is mostly a cash-based society in India; you’d be surprised how much cash a typical small business owner living in a Tier-2 or Tier-3 city possesses. Well, that could even apply to a (street) vendor living in a large metro. So it can be assumed that EMIs are really for the middle class and above. Typically, the salaried class, with accounts in a large private bank. Banks in India have not addressed a market for smaller unsecured loans, with a ticket size below Rs 30,000. That’s because they are unable to handle scale – and that can only be achieved by marrying processes with technology.

That’s a market (and challenge) that ZestMoney seems to have mastered. It has been featured in the CB Insights Top 250 Fintech list. ZestMoney claims to be the largest and fastest growing consumer lending fintech company in India. This startup can be considered the middleware for banks and e-commerce companies, to facilitate EMI payments for unsecured consumer credit. It claims it can disburse as many as 5,000 loans a day.

ZestMoney is the largest and fastest growing consumer lending fintech company in India founded by Lizzie Chapman, Priya Sharma and Ashish Anantharaman in 2015. ZestMoney is built as a platform that can meaningfully improve the lives of more than 300 million households in the country, who currently have no access to credit cards or any other formal financing options because of insufficient credit history. ZestMoney’s unique platform uses mobile technology, digital banking and Artificial Intelligence to make life more affordable to millions of Indian consumers. ZestMoney is backed by leading investors such as Ribbit Captial, Xiaomi, Naspers Fintech and Omidyar Networks.

DIGITAL CREED spoke to Lizzie Chapman – CEO & Co-founder, ZestMoney to understand how her company has used technology to achieve what even the largest banks in India struggle to do. Chapman explained the market her company is going after, and how they will serve that market. The banks are now following her company’s example and trying to reach out to that largely unaddressed market.

Excerpts from the interview:

DC: What is the market you are addressing with your consumer products?

Lizzie Chapman – CEO & Co-founder, ZestMoney
Lizzie Chapman – CEO & Co-founder, ZestMoney

Lizzie Chapman: Today unsecured consumer credit is reserved for super prime customers. We know that there are 21 million credit card holders in the country. Then, if you look at someone like Bajaj FinServe, they have 24 million customers, and there’s actually a huge overlap with credit cards. So if you look at all the people in the country who have accessed some form of unsecured consumer loan, it is probably less than 50 million people, probably less. Moreover, those are all salaried class people, some with high income of Rs 50,000 to more than Rs 1 lakh a month.

It is quite traditional for people who live in the top metros, because of the way distribution is being done so far. They go to the branch, or the bankers come to their house. Penetration is low outside of the top 10 cities. What that actually means is the people who need affordable solutions or need help financing big purchases, are completely excluded today. At the same time, there is a dynamic in India where suddenly all these products and services are being marketed aggressively to the middle-class consumer. If you look at the Chinese smartphone explosion, for instance, we are seeing brands like Huawei, Xiaomi and others offering a range of products that are supposedly affordable.

And this is only increasing. But still, people are expected to pay for these in one lump sum. And that is not the way it works in the rest of the world.

It does not make sense to spend three months of your salary to pay for a phone in one lump sum. What if you lose the phone or damage it? All over the world electronics, furniture, and even holidays are sold on a plan basis where the customer pays 1 per cent extra a month, or the manufacturer pays a little bit extra. So it subsidises the cost of the financing. And that has not penetrated the mass market in India today.

We do not see EMI used by people everywhere, because the top tiered banks only offer these. So it is just not available to the people who actually need it.

ADDITIONAL INFO FROM PRESS RELEASE

ZestMoney announced its partnership with Mi Home to offer one-of-its-kind cardless EMI payment option to the Xiaomi community. This unique form of credit facility by ZestMoney will now enable all the shoppers at Mi Home stores to fulfil their wish lists instantly, without having to make the payment in full or at once. Essentially, the consumers can now spread the cost of their purchase over the next few months through an easy and transparent online EMI payment system.

Read the full release here.

DC: But hasn’t it got easier and more widespread in the last few years due to India Stack?

Lizzie Chapman: In the last few years, it only got easier to use these products because of technology. eKYC was only one piece of the puzzle. Even UPI and all the data and technology that has been built around India Stack, plus it got easier in terms of people’s readiness, consumer readiness to use digital finance products. We love Paytm because they made everybody in India comfortable using their mobile phones to do additional transactions. And that wasn’t the case five years ago.

What that means is today, you can actually distribute a loan product on a mobile phone — you don’t need to go to a branch. You don’t need someone to come to your home to fill paper documents.

We have broken down India by household demographic. And we look at the income of families on a household basis. A lot of those people are not necessary income earning and cannot service a loan (take loans from financial institutions).

DC: So what are the problems you are solving and what is the opportunity you are going after?

Lizzie Chapman: We solve two massive problems. One is just the availability of this mass market customer. Secondly, we have made credit byte-sized. We’ve made it simple to get, and not cumbersome like personal loans and credit cards. The mass market does not need that.

People only want like a Rs 10,000 credit to buy that phone. Alternatively, a Rs 30,000 credit to do that course.

That’s what banks have struggled to do. They actually need to deploy advanced technology to offer these smaller loans. It requires much automation, and you can’t have human and manual processing (when dealing with scale).

Technology solves the ticket size and distribution problem. Technology will do the risk profiling of the customer. 

DC: Who exactly are you targeting for your products? What is your addressable market?

Lizzie Chapman: We have broken down India by household demographic. And we look at the income of families on a household basis. A lot of those people are not necessary income earning and cannot service a loan (take loans from financial institutions). Their children are so young.

So we look at it on a household basis, and not on an individual basis.

We have identified that there are 200 million households who are not served today. But their income levels can service a small ticket loan. They are earning more than Rs 20,000 on a household basis. They can even serve a loan for Rs 2,000 a month, but they are not in the Rs 1.5 lakh income segment. Those are the people who are well served today by banks and financial institutions.

A lot of the growth and demand is coming from non-metros. We started by working with e-commerce companies — because customers are in the metros. But that has changed a lot in the last 12 months. We see a massive increase in application volumes from non-metros; today about 70 per cent of all applications are coming from a non-metro.

Non-metro customers are more cash flow positive than someone in a metro. Their cost of living is actually much lower, so their disposable income is higher.

Many of our customers live in the metros but send money home to the smaller towns. So there are healthy cash levels in Tier-2, Tier-3 and beyond.

On a big sale day, we can easily do 5,000 loans a day. That really speaks about the power of technology. If you were doing that in a traditional way with underwriting then every time there is a sale, you’d have to add more human beings for underwriting. It takes time and costs.

DC: How many loans are your dispersing per day? How do you manage scale? What should be the ratio of humans to technology? 

Lizzie Chapman: On a big sale day, we can easily do 5,000 loans a day. That really speaks about the power of technology. If you were doing that in a traditional way with underwriting then every time there is a sale, you’d have to add more human beings for underwriting. It takes time and costs. So it is much cheaper if you can automate that process.

We started with many humans, but we built a model for automation. But it cannot be completely automated, and some data sources require human intervention.

So we do have some humans underwriters. On the other hand, if you have too many human underwriters, it can get subjective due to biases.

However, we believe that a digital approach to underwriting is really important.

Even banks like ICICI have picked this up and have launched their digital loan products. They use the same technology as we’ve been developing.

Your bank has a lot of data about your spending habits, so they can just put an algorithm on top of that, and they can work out what would be an appropriate loan amount for you.

We have identified that there are 200 million households who are not served today. But their income levels can service a small ticket loan. They are earning more than Rs 20,000 on a household basis. They can even serve a loan for Rs 2,000 a month, but they are not in the Rs 1.5 lakh income segment.

DC: What is the typical size of the loan?

Lizzie Chapman: We can do loans from a few hundred rupees all the way up to Rs 2 lakh; but the sweet spot, where we see more demand is Rs 20,000. Also, Rs 15,000 to Rs 30,000 is perfect. With that, you can buy a smartphone, a cheap laptop, TV or AC. These are all too expensive to pay in one lump sum. Yet the amount is not big enough like the sum you’d pay for a wedding. So definitely, within reach of many people.

Tags

Brian Pereira

Brian Pereira is an Indian journalist based in Mumbai. He has 25 years of technology journalism experience, and he's well known in the Indian IT industry. He is the former Editor of CHIP and InformationWeek magazines in India and has written technology articles for India's leading newspapers groups such as The Times of India and Indian Express Newspapers. Brian also writes on Aviation, startups and covers topics directed at small and medium businesses. He also has event experience and once put together the conference program for CeBIT and INTEROP events in India. Email: brian@digitalcreed.in Twitter: @brian9p Linkedin: https://in.linkedin.com/in/pereirabrian

Related Articles