Simplifying Banking | Vinay Bagri @ Niyo Solutions Inc.

Neobanks are one such disruptor that one day will completely eclipse the traditional banking system.

In this episode of Founder Thesis, Akshay Datt speaks with Vinay Bagri, Co-founder and CEO, Niyo Solutions Inc, which is one of India’s fastest growing neobanks.

After spending more than a decade in banking companies like Standard Chartered, ING and Kotak, Vinay took a leap of faith and started Niyo in 2015, with a vision to introduce better cash flows to the salaried segment. And today, Niyo products have touched over more than 1.5 million customers.

Tune in to this episode to hear Vinay speak about how Niyo is revolutionising banking with continual digital innovation.

Key takeaways!

  • The story behind acquiring Goalwise.
  • Pre-requisites to device an impeccable product roadmap.
  • Fundraising journey.

Lights, Camera, FinTech | Priti Rathi Gupta @ LXME

Financial independence is an essential life skill, and it has been a concept dominated by men.

But not anymore!

In this episode of Founder Thesis, Akshay Datt speaks with Priti Rathi Gupta, Founder, LXME, who is spearheading the mission to bridge the gap between women and finance.

A self-proclaimed financial feminist, Priti has been heading Anand Rathi Shares and Stock Brokers Ltd. It was through her experiences; she firmly believes that managing one’s money empowers women to fulfil their dreams and aspirations. And with her brainchild LXME, she aims to educate women about financial products, while building a community where they can engage in conversations that makes them more confident and in control of their finances.

Tune in to this episode to hear Priti talk about how LXME is disrupting the male-dominated financial sector by providing freedom to women to take their own decisions.

What you must not miss!

  • Running a conventional business vs starting your venture.
  • Learnings from film production.
  • Financial planning: A life skill
  • Plans for fundraising.

Democratizing Lending | Bhavin Patel @ LenDenClub

Getting access to loans, that too timely is a painful process in India. There are numerous parameters for approval and one’s request might be denied for reasons which are nowhere related to a borrower’s credibility.

In this episode of the Founder Thesis podcast, Akshay Datt speaks with Bhavin Patel, Co-founder and CEO, LenDenClub, which is one of India’s pioneer Peer-to-Peer (P2P) lending platforms.

Bhavin has extensive experience working with NBFCs, both as a consultant and an employee. He has closely witnessed the struggles NBFCs face with respect to lending loans and raising capital. This acted as an idea that gave birth to LenDenClub in 2015, which has dispersed more than 500 crores worth of loans in FY21.

Tune in to this episode to hear Bhavin talk about how LenDenClub is empowering both lenders and borrowers and disrupting the traditional NBFC segment with its exemplary execution and automation.

Key takeaways!

  • Identifying what customers want.
  • Automation is the key to success.
  • Learning from experimentation.
  • Vision 2030.

EPISODE TRANSCRIPT

Akshay Datt  01:44  

Tell me about growing up. As a kid, what were you like and what kind of environment did you grow up in?

Bhavin Patel 01:53  

So I was always too much into sports. So during the schooling till 12th, I was a front in both academics as well as games. So I would score first or second alongside I was also captaining our school football team, handball team, up to ninth basketball team as well, later on, I didn’t grow very tall so I had to leave because you require that. I was also a state-level player in all these games, alongside I was also up to district level player for Kabbadi as well as Volleyball. So you will always hear sports from me even today. 

Akshay 02:47

Why didn’t you take sports as your occupation?

Bhavin 02:53

I wanted to. So in fact, when I was in 10th, I got selected for the national handball team. But unfortunately, at that point in time, my parents didn’t want me to pursue it during that year, and it was always a once in a lifetime opportunity because you can’t get selected again and again. But I couldn’t do that. But that’s okay. I see it. I still enjoy that game and I still play football very regularly.

Akshay 03:22  

What is your parents’ background like? 

Bhavin 03:26

So my parents are teachers. Both of them are primary teachers. 

Akshay 03:30

So obviously education was important.

Bhavin 03:33  

Yes, absolutely. So that was the focus. And I think they were not wrong as well. Looking at the situation in India, but yeah, that was the scene.

Akshay 03:43  

What did you take up in +2?

Bhavin 03:45

So I took up science. I wanted to get into chip designing. 

Akshay 03:53

Chip designing, at such a young age how did you have such a specific goal?

Bhavin 03:59  

I know it was interesting. My mother is an avid reader, so even during my childhood days, I used to read a lot. Again, in Gujarati so we used to get literature and I was a part of library groups and all. From Maharana Pratap to Shivaji and a lot of other books I read during childhood and my mom used to read a lot. So she would have all the news of the market, film industry and even today it’s the same with my mother. She inspired me to read a lot and when I was reading about current affairs and all that I realized that the next 10-15 years are going to be into this direction and you know, chip designing is something and during the science fairs, I used to make projects around that domain. Very early on, when I was in 6th or so I made a hovercraft and when it was flying just above the floor. It was too exciting for me. There was a corner in my room where there were motors, cells, wires etc. I got excited by it, what I could become etc. That time I had no idea what chip designers do or how it happens, but it was a goal in my mind.

Akshay 05:19  

What did you do after 12th?

Bhavin 05:22

So, after 12th I was on track to my target to become an electronics engineer. So, I took admission into electronics and telecommunication. So, I took admission and it was going on well till the second year when the actual electronics subject started and suddenly I realized that it’s not something which I would like. Two reasons behind it, one, there were no opportunities in India on the chip designing side and everybody will agree that even today there are very few opportunities. And I did not want to move out of India. My goal was very clear that you know, whatever I would do, it would be here. So, if there is no opportunity in India then there is no meaning in pursuing that subject or that career. So, from the third year onwards, I started thinking about what else I would be doing after engineering and that’s how I got diverted towards management and the rest is history. 

Akshay 06:27

So, you did an MBA straight out of engineering?

Bhavin 06:32

Yeah, so in my life, goals get set very firmly. The moment I will realize that this is not happening, then I start thinking about what would be the next thing. So I started taking advice from my college seniors, my professors and all of them were on one single point that the way you are leading our annual function, departmental functions, and you keep the whole class together or as a single thing,  we think that you should pursue management. I also realised that this is right. I really enjoyed doing that. So that gave me an idea that you know, I should pursue MBA, so I started preparing for CAT and I applied for that. And in the fourth year itself, I secured the position in Kirloskars and post engineering, I joined it immediately after that.

Akshay 07:30

Okay. And MBA, what specialization did you take up and what was the goal at that time? 

Bhavin 07:37

See, I wanted to take up marketing because I used to like interacting with people. I used to experiment with things like electronic things and all during my childhood. So I would love to come up with new ideas, implementing those, and achieving new goals. So sales and marketing was something I used to like. But I used to score very, very high in finance subjects. So I was really good at numbers. So I pursued a dual degree in marketing plus finance with almost similar credits in both subjects. During those days, I used to like finance, I was a topper in accounting, whereas generally engineering students would be very weak in accounts. But I was the one who was defeating even BCom and MCom people from SRCC also. So, but I used to like numbers, and over the period of last 10-15 years, that has been part of my daily life. So marketing and finance was something I pursued and started my career.

Akshay 08:43

After that, where did you get placed from campus? 

Bhavin 08:56

So I got my first job in ICICI Prudential. So that was the start of my journey. But very soon after that, I took up a challenge, where one small startup in 2008 wanted to establish themselves in selling some fixed income-related modelling services to mutual funds and banks in India. So I technically considered that as a first job. Because I spent a sizable chunk of my career with them and learnt a lot.

Akshay 09:23

And what was the product that you were selling? Yeah, what was the service? 

Bhavin 09:27

So it was a modelling service. So when there are, I mean, sizable data of different instruments available in the market. You put it together and try to come up with various analyses, stress testing, whether this company will default based on these numbers or not in terms of the securitization transaction, whether the securitization deal will reach the end goal or not, is there any stress sign possible in between or whatever pricing is happening, whether that pricing is right or not, or there is a possible improvement. Or looking at current pricing and the possibility of default, whether this transaction will be profitable or not. So, I mean, it was a very specialized thing. And in India, that segment was just picking up during 2008-09. It was something very new to the Indian market.

Akshay 10:20

Okay. Was it like high-value sales? I imagine it must be a pretty high price kind of thing. 

Bhavin 10:30

Yeah, it was quite high-value sales. And the conversion will not be like every day, you do some number of sales. So it’s like the sales cycle is very long, at least nine to 12 months. And it’s something that requires the development and involvement of many key strategic people in the back as well as mutual funds. So a very long cycle. And you’re also required to be on your toes during those periods, right? Because they will come up with any queries and you need to have answers to those. 

Akshay 11:03

And what were your takeaways from this? What did you learn and did you build any kind of a playbook or a mental model on how to do sales? 

Bhavin 11:16

Yes, absolutely. So, sales is a day and night thing. I still remember in 2008, on 31st December, I along with my boss was roaming around in Nariman Point. So during that period, Nariman Point was the hub for all the Financial Services Companies and all banks, mutual funds, right. Right now it’s distributed. We were roaming and so we were having tea at one of the tea stalls. So we found two more guys were there and almost nobody was around. It was 3:30-4 in the evening. So we were just chit-chatting that these people must also be from sales. Otherwise, why would they be there at 3:30-4 on the 31st. But the idea was, you know, I never got bored doing all that kind of stuff. I know it’s always exciting that you are meeting new guys pitching the new product coming their way. When I started it was my first job. I did not have any experience. So a couple of times, the incident was like, the person who is sitting opposite you is a fund manager or general manager of a bank. They have 20-30 years of experience and are highly educated. You don’t know what to say. And in one meeting, I told the guy that I am nervous seeing his personality and I am backing off. I don’t know what to say. Then he gave me some time to settle down. But you see, when you are upfront and speak whatever you are into, or whatever you are selling. I think that transparency and straightforwardness help you crack things. So that was one of the biggest lessons. The second thing which I learned from the founder of that company is, you know, always try to understand more and more things beyond your limits. Try to learn beyond whatever you are trying to sell, you know, those areas will help you build a rapport with people, try to sell it along with some additional things, club this with that. So these two things, which I learned, I carry that even today.

Akshay 13:43

Okay. After that, I think you then started your own thing?

Bhavin 13:49

Yes, right. So during that period, I came across a securitisation concept. So during that job, we were arranging a securitization conference. So I came across many NBFCs, banks and all the market participants and it really felt that there is a need for somebody who can help small NBFCs to raise capital through securitization. Right now, it is not happening because they don’t know it is possible. So if somebody will guide them in the right way, somebody can educate them. There is a possibility of a market here. So I along with one of my senior colleagues discussed that. In a lot of weekend sessions, we used to discuss this idea, how to go about it and so on. The only concern which we were facing was that both of us were too young and generally this can be called investment banking services. So people will consider people with experience. they’ll be like who are these 24-25-year-olds talking about this? But then we thought let’s at least try, there is no harm in experimenting. There will be a loss of a few months’ salaries. So with that thought process, we started with it and it went well. It took around five-six months for us to crack the first transaction. But then we worked with four or five different NBFCs of different sizes anywhere between 100 crores to 800 crores of AUM (Assets Under Management). It helped me a lot in terms of creating an understanding of lending businesses in India. How each product works, how personal loan works, how two-wheeler works, how three-wheeler financing works, how commercial vehicle financing works. So that was an interesting period in my life. Those two to three years, which we spent, were definitely not very smooth sailing. But that journey with struggle was very, very helpful and insightful, which is now helping me build LenDenClub.

Akshay 16:02  

So like, eventually, you had to shut it down. Like what happened?

Bhavin 16:08

After that, I joined one of my client’s companies. So we were facing a little bit of struggle over there and RBI norms were changing, banking norms were changing up. So both of us decided that let’s do something else for a couple of years. And then probably we can come together or we can continue going in our own direction. So in 2011, I joined one of my client’s companies, which was Electronica Finance, so they were also going through some crisis period and we both found that you know, let’s do it together. So I set up a securitization desk for them. We did raise around 200 crores or more through securitization over the next two years.

Akshay 16:53

Okay, then you joined Electronica and after that?

Bhavin 16:58

So Electronica was a time when the roots of LenDenClub started growing. So, the continuous desire to find a solution or to raise money from the market is when the idea of LenDenClub started coming up, right. So, what I had seen during those five, six years is that these lending companies are continuously struggling to raise capital. They are not fighting every day to source more customers, but they are fighting every day to raise the capital. So is there a new possible instrument where the lending company is not dependent on the banks to get the capital? Because that’s the raw material and something else is there or can we access the public capital easily, etc. right. So, in India, that concept was not very easily available, because, in India, only big NBFCs can raise public capital like Shriram, Tata, Bajaj and all but not for those NBFCs which are smaller. So is there any way we can come up with some new model, right, and it’s a time of technology? So if we can use technology to come up with new ideas, we can use technology to build very complex solutions also. So that pushed me towards a possible solution and that solution was the P2P (Peet-to-Peer) concept, that we can open up the capital side of the lending business by getting a number of investors on the platform which will invest into these borrowers and then the borrower repays the loan and that is how the ecosystem will run. So that started. So Electronica was in Pune, and I wanted to move back to Mumbai. Because if I have to execute this plan, it will require at least a couple of co-founders and a bigger support system right? And Mumbai being a financial hub, we get resources very easily. And also the speed is much higher. So Pune is definitely a slow thing. Slow market. So I came back to Mumbai, helped companies in raising capital, and also started doing a job with an NBFC. They wanted to complete the acquisition and they wanted to set up the initial business. So I was working three days over there and three days I was working on LenDenClub. So that went on for a year, a year and a half. And during that period, the LenDenClub plan was also on track, I got Deepesh as a co-founder. So he was also coming out of his existing startup. So the timings matched and…

Akshay 19:38

What is his background?

Bhavin 19:42  

So after completing his engineering from NIT Kurukshetra, he started working with a company called NewGen Software. And post that he co-founded a product with one of his college seniors. So that product was into a complex piping solution, which was built through technology. Otherwise, earlier, people used to draw product drawings on paper, and it used to take a couple of months. So that used to happen in 36 to 48 hours, this solution which he built. So that solution was being adopted by many companies across different countries. And that was supposed to be part of one product company in France. So he was about to come out of that product because a part of that takeover is done, that product will no longer be available to be developed by him. So that’s how our timings matched. We started working together on it for five, six months, we launched the first version of the platform in May 2015 

Akshay 20:48

Logically, isn’t there a need for regulatory approvals before launch? Isn’t this like an NBFC because you are basically taking money from people and lending out front right?

Bhavin 20:59

Yeah, correct. So there were none at the time when we launched. Now it is regulated and the RBI has NBFC P2P regulations in place, where you have to take prior approval before you start the business but in 2015 it wasn’t there. 

Akshay 21:13

Okay. And were there other companies doing this, as an alternative to peer to peer lending?

Bhavin 21:21

Yes, like when we were building our platform, another company was launched which was working on the same concept. So looking at that, we felt relieved that there is someone else thinking on the same lines. But at the same time we need to buck up.

Akshay 21:45

What was the other company? Are they still around? 

Bhavin 21:48

Yeah, it’s Faircent. So they are still around.

Akshay 21:52

So all your prior experience was like in high-value lending and I don’t think peer to peer lending is high value. Peer to peer lending typically is used for much smaller ticket sized lending right?

Bhavin 22:07

So, see I’ve worked with around six to seven different NBFC, both as a consultant and as an employee. Out of them on Electronica was very high value and the other was like ticket size of 80,000-1 lakh rupees, two-wheeler through a three-wheeler or microfinance or you know, some other kind of credit lines. So, they were all around one lakh rupees and that we generally considered them as a small ticket loan only.

Akshay 22:34

And peer to peer lending would be how much on average ticket size?

Bhavin 22:37

So, for us the average ticket size to businesses is around 50,000 rupees and salaried is around 15,000 rupees.

Akshay 22:48

Okay. And is it largely business owners who take loans? Who is the bigger chunk of loan takers in this?

Bhavin 23:02

Business owners are the bigger chunk because of their frequent requirements and are much larger when compared to our salaried customers. Because the salary is for consumption. And for the business side, it is for income generation.

Akshay 23:18

Yeah, inventories and working capital.

Bhavin 23:21  

Absolutely. So there the demand is definitely much higher. So around 70-75% of business comes through that segment and 25-30% from the salaried side. 

Akshay 23:32

So, why would a business go for a peer to peer lending platform instead of a bank?

Bhavin 23:38

So they don’t go just for a peer to peer lending platform. They go for a lender. The most important part is capital and the second is timely capital. So if somebody is giving you capital after 15 days, but you require it today, I mean that then it doesn’t make any sense and especially in business, timing is very important. I mean, whether it is business or for salaried people, timing is important. If somebody is admitted to hospital, or you have to pay your kids fees, I mean, you can’t wait for 10 days, 15 days. So capital and timing both are important and for them, we are a lender. It doesn’t matter whether it is a P2P lending platform or it’s an NBFC lending platform. It doesn’t matter.

Akshay 24.27

Okay, and why would people give money to a peer to peer lending platform? So for the loan taker, the value is speed right for the reasons of quick approval, not a lot of paperwork etc I’m guessing. But what are the reasons for those putting the money?

Bhavin 24:46 

You tell me. If you are investing your money somewhere, what will be your primary reason?

Akshay 24:52

Return on investment. 

Bhavin 24:54

Perfect. And so people get a sizable return on the platform. And that’s what makes it an interesting instrument for them. 

Akshay 25:02

How much return will they be getting? Compared to let’s say an FD gives 4-6%, how much is it here?

Bhavin 25:13 

Historically, at LenDenClub, we have been delivering anywhere between 12-15%. Now also, we target to have anywhere between 11-13% returns.

Akshay 25:26  

Who underwrites the loans?

Bhavin 25:30 

So it’s a mix of underwriting. It’s not as straightforward as how it happens with any other lender like NBFC and bank because they have their own capital right. So, here the assessment of the customer is done by the platform, it is approved by the platform and then the lender takes the final decision to invest money. So, lenders can set their auto-invest parameters. So based on whatever parameter they have decided the system will keep matching them with the relevant borrowers. So, if you mean to say underwriting by deciding whether to give money or not how much, that right is always in the hands of lenders, but if it is related to approving a loan then it is in the hand of the platform.

Akshay 26:15

So what is your risk control like? How do you ensure that only genuine loans are being approved? 

Bhavin 26:24

There are many things here. Today in the digital era, you can understand anybody from their digital footprints, from their mobile phones, from the data, which you can get from other third parties, like your bank statement or credit bureau. So, considering all these different data points, we try to understand your intention as a borrower. So based on that understanding of the borrower, our system takes the decision whether this borrower will repay that loan or not, if the repayment probability has some default probability, then accordingly your loan rate will vary, right? So based on the risk assessment of the customer, we approve or disapprove or approve in different pricing on the platform.

Akshay 27:12  

Okay, so what all data do you ask lenders to provide to do the risk assessment?

Bhavin 27:20 

You mean to say borrower, right?

Akshay 27:23

Sorry, borrowers, I meant borrower.

Bhavin 27:26

Some data points are provided by the borrower and a lot of other data points we access directly. So as I say, digital footprint, which is already left by the borrower.

Akshay 27:38

Like what? Facebook profile or like what does that mean? 

Bhavin 27:42

Those were the older times when people used to talk about Facebook data and all. One, they don’t share too many things now. Second, I mean, it is not required, it’s not essential just to understand a customer from that social media profiling, right. It is important to understand what they actually do on social media, people can fake a lot of information, right? So it’s not the only thing, we use a lot of secondary data points, which customers otherwise can’t fake, like the kind of transactions they are doing in their bank accounts or the way they are using their mobile phone, the different kinds of mobile apps they are using, the time they are spending on the phone, the kind of instrument they are using it right over the last 30 days, what on the different website you have visited. All this information is very fruitful and that helps us build a thesis around a borrower that what type of person he is. So see traditionally also if you have to give money to somebody or if you have to give a loan to somebody, you try to understand the person right. So let’s say I’ve to give a loan to Akshay, then I’m going to try to understand him, what is his income, expenditure, what kind of a person he is, what is your intention, past experience with loan repayment. All these digital aspects of the thesis are possible in the digital world. So we try to get those.

Akshay 29:44

This is not proprietary information, but if there’s something we just I’m curious to know. So for example, if someone plays a lot of games on the mobile, is he like a high-risk category? How do you analyse the digital footprint?

Bhavin 30:00

Yeah, so I won’t be able to share a lot of details with you but I can give you an idea. See, nothing is bad as far as a person is disciplined around the finances. Just because a person is playing PUBG, doesn’t mean the borrower is bad, right? You might be spending a couple of hours every day on PUBG. But still, you are earning a sizable salary every month and you are very disciplined around your repayments. You have been serving your EMIs correctly. So definitely you are a good person and you know how to manage your liabilities as well. 

Akshay 30:36

Now timely repayment like that you will come to know through like if there’s an SMS for late payment. Like that would be the data point?

Bhavin 30:46 

Correct, SMS also or a bank statement or bureau data and so on. See, when you know that what things are being assessed you can fake it like if I give my bank reading, they’ll assess it so I can fake it. But they don’t know how many places I can check and verify and crosscheck so it is very difficult for them to fake the data.

Akshay 31:09  

Basically, like the mobile app, they have to install. So in that app, they have to give permission so that the app can read the SMS and other things and then draw pictures of the creditworthiness of the person. 

Bhavin 31:22

So that’s one part, then we fetch data from the bank accounts, then there’s the credit bureau. And then there are third parties. 

Akshay 31:30

How do you fetch data from bank accounts? Is there an API integration?

Bhavin 31:34

It is an API based system. 

Akshay 31:36

They can authorize you?

Bhavin 31:42

Correct. See, if you’re a genuine customer, you will do it, right. But people who are not genuine and they want to do something bad with the system, then only they will not be authorized. 

Akshay 31:55

And does this happen with public sector banks too or only with private sector banks?

Bhavin 32:03

90% of customers will have their salary bank account as a private bank account, including SBI, as a PSP, the rest of the banks will fall within that 10 % bracket.

Akshay 32:18  

How did this entire risk management process that you have today evolve? When you launched what was the process and how did it become better over time. 

Bhavin 32:32

So it was very basic when we launched it, over the period of time it got built, and now it is moving towards betterment day by day. So it takes time, and especially in the lending business, it can’t happen overnight. You may have money to lend, that can happen overnight. But you can’t create a customer behavioural pattern overnight. So it takes time and time to experience that and according to that, you build your system.

Akshay 33:00

So every time there’s a defaulter, you study that defaulter’s behaviour and that adds to your algorithm?

Bhavin 33:07 

Absolutely. 

Akshay 33:10

Okay, so how is your NPA, how has it evolved like how much is the defaulting percentage?

Bhavin 33:15

So it has been moving between 3-6% over the last six years. Based on certain factors, it may stress, it could go up or down, but right now it’s stabilized around 4.5-5%. 

Akshay 33:30

Okay, and how does this compare to other NBFCs?

Bhavin 33:35

So generally, unsecured portfolios have default rates of 4 to 5% in NBFCs. But the difference here is we don’t need to write off anything. Whereas in the case of a normal bank, or NBFC, they can write it off against that available capital. In the future, it reduces once they write it off.

Akshay 33:57

Here because you are not the lender, you are the intermediary who’s connecting. Right? Okay, the default is total, like the hit is total to the person who’s giving the funds. 

Bhavin 34:12

Correct, right. But after default, our fees also make handsome returns. So it doesn’t affect because the default is always a relative term, which should be coined along with the net returns. So as far as that is achieved, it’s good enough

Akshay 34:32

I mean, net return would make sense if someone put a lot of money, right? Like if someone put money 2-3 times, out of which once it defaults then he would be in a net loss.

Bhavin 34:45 

So, generally, we suggest our customers start investing at least 25-50,000 rupees right. So, one of the basic principles of P2P lending is diversification. So, let’s say when a customer invests one lakh rupees, that one lakh rupee is given to 200-300 different borrowers. So even if it defaults, it doesn’t matter. And our optimization algorithms are also built according to how to achieve the maximum diversification by keeping different risk categories to a single lender so that you know everything is diversified in a proper way. So, that lender is achieving that 10-12% return target

Akshay 35:31  

So, this is actually not like one to one but it’s like many to many. There are many borrowers, many lenders and one lender is split among many borrowers and a borrower gets from many lenders. Got it. And is this like a long term investment option for people or a short term? Let’s say I put money in and I want to remove it after 2 weeks. Is it the right place for me to put money then?

Bhavin 36:02 

No. You should at least keep the money for a year to see really good results right. So, we don’t suggest keeping this money with the P2P platform for a very short period of time. So, because see in P2P our optimization algorithms are you optimizing your portfolio based on the time period. So, when you are saying that I will remain invested for 12 months, the algorithms are reinvesting based on that 12 months strategy. If you disturb that in between then there is a chance that you may lose out some of the principles or your returns may not be adequate. So, you come up with a relevant time period and keep it for that period and post that you take it out.

Akshay 36:43

So, what is the flow for an investor like, if you can just tell me the flow? He lands on the platform, signs up and then what’s the journey like?

Bhavin 37:00

So, investors have to open the LenDen account by providing basic KYC information. Once an account is opened on our system, he can transfer money, let’s say transfer one lakh rupees and set his auto-invest parameters that this is the type of borrower I want to invest into. Based on that system will keep investing and then later on lending money to those borrowers who fulfil the parameters. That keeps going on.

Akshay 37:29  

It’s on autopilot. If someone wants to remove it, then? He loses some money if he drops out?

Bhavin 37:40

It is not necessary that he will lose money, but there is a probability because the system is designed to create that 10-12% return over 12 months. When it is disturbed in between there is a probability but it is not necessary that it will happen. But you always have a right to stop it in between.

Akshay 37:58

So it is visible to me in real-time as to how it is progressing? So I can remove the whole value anytime I want.

Bhavin 38:12

Correct.

Akshay 38:15

Then how do you handle it? If I remove the money, the one who has been lent that, they won’t give it, right?

Bhavin 38:24  

So generally, the match will be with 1-3 months of the loan. So let’s say you want to take out money today itself then you can stop reinvestment. So whatever money will come in terms of EMI that will keep accumulating and you can take it out. So in a month or two, your full liquidation is done.

Akshay 38:46

I understand. Okay. And what is the flow for a borrower?

Bhavin 38:50

So again, the borrower has to complete a loan application, like he has to provide basic KYC and then there are certain authorizations, a bank account statement etc. So that’s done and in the backend, my system rates out those digital footprints, his metadata, etc and the system will automatically keep reading those data points and create their behavioural analysis. Once the borrower completes the loan application he also accepts the loan agreement. By the time a loan agreement is accepted my system will have all the data ready, all the understanding ready, it will underwrite the loan and decide whether to give it or not right, within a couple of minutes the system will throw the result to the borrower.

Akshay 39:31

The result will be like how much loan is maximum and in what percentage? That should be the result. Correct? 

Bhavin 39:37

Correct. 

Akshay 39:40

Okay. And over time, that limit can increase or the percentage down or go up, right? And then I can set a duration and an amount, and then I can get the loan to my account here. Once the system gives you approval, what happens then?

Bhavin 39:57

You can take out money to your bank account anytime because we have already verified your bank account. So we have all this information.

Akshay 40:08

Got it. And if there is a default, what do you do for collections?

Bhavin 40:15

So for that, also, we have tag-based processes. So generally we collect 94-95% of money within the same month. Whatever borrowers are unable to pay due to whatever reasons they are subsequently paid. So we have a full-fledged collection mechanism, collection team, legal collection mechanism, everything is in place.

Akshay 40:35  

Okay. The lender doesn’t bear the cost for that, like collection costs.

Bhavin 40:40

No, no, everything is on the platform. So we provide that as a service to our lenders. Because an individual lender can’t do anything. It’s difficult for him. And as a platform, we know what to be done, how to be done. So we take care of that part.

Akshay 40:55

But there’s no extra charge for collection, like, again, that is part of the platform cost only basically.

Bhavin 41:00

Correct, correct, right.

Akshay 41:02

Okay. Okay, and what is the platform cost? Like, how do you earn?

Bhavin 41:05  

So we generally charge 2-2.5% of fees from the lender. So that’s the fee. On the investment.

Akshay 41:16 

Okay. And that covers the cost of collection, the cost of tech, the cost of marketing, and how do you acquire customers, like both sides, like the lenders, and the borrowers? How do you acquire them?

Bhavin 41:29  

Again, all digital channels, partnership routes, so all various types of possible routes, like affiliates, or performance marketing, everything, and a lot of customers come to us through referral routes as well on both sides. Because they see the effectiveness of the platform, and then we source users through partnerships as well. 

Akshay 41:51

Like what kind of partnership?

Bhavin 41:53

So we have partnerships with companies like BharatPe, GooglePay, we are available on GooglePay borrower can find us right, so these are all digital partnerships, which we have and customers can see us over there or come to us through them

Akshay 42:12  

Okay. So, when you launched, so, what kind of numbers-wise growth you had. So, you launched somewhere in 2015, right? So in 2015, what kind of numbers did you have? Like what was the corpus that you collected in that year and how did that grow?

Bhavin 42:38  

So, if you look at the last three numbers, those will be more accurate. In the last three years of FY19, we did disperse around 30 crores worth of flow, in FY20 it was around 55 crore with FY21 was 500 crore plus worth of loans. 

Akshay 42:55

Wow, that’s huge.

Bhavin 42:58

Yeah, so that has been exponential growth across all these years.

Akshay 43:07

Okay, so how did this jump happen? Like this is a pretty big jump 21x?

Bhavin 43:12

Yeah. Now also you will see some big jumps.

Akshay 43:15 

How much are you expecting roughly this year? 

Bhavin 43:20

We are targeting to disburse around 1200 crore worth of loans.

Akshay 43:27 

Okay. Okay. This year meaning ending 31st March 2022. 

Bhavin 43:30

Correct, yeah.

Akshay 43:32

Okay. So how does that compare to other players in the P2P lending segment? How well do they disburse? 

Bhavin 43:42

Public domain data is not available. So it’s difficult to comment but if you look at monthly disbursement volumes, then we are very large and significant here right now.

Akshay 43:58

Well, who would be as large as you or larger than you? Like, where do you rank?

Bhavin 44:04

I think with monthly numbers, we would be number one.

Akshay 44:07

Okay, and who is like number two, three? Like who are the close competitors?

Bhavin 44:12

So some of our competitors are Faircent or Finzi. 

Akshay 44:20

And do you have separate segments of customers that you target or it’s the same segment only like? Is there a specialized segmentation?

Bhavin 44:30

Ours is a very, very differentiated product. So none of the P2P platforms offers the two products which we offer. We talk about InstaMoney which is for the salaried customers or my merchant loan solution, which is for businesses, both are very differently curated and built products. And the targeting is also very, very focused

Akshay 44:55

In what way are they different?

Bhavin 44:58

So like, the majority of the P2P is targeting customers for loans worths of lakh or more, whereas our targeting is only for some thousands right so it’s a very small ticket size, high churning loan product. On the merchant side also, we focus only on ticket sizes like 50,000 rupees.

Akshay 45:16

And this would be short term like one to three months.

Bhavin 45:20

Short term, like three, four months you pay that loan and take another loan if you require. Okay, so we’re a very clearly curated product and that’s not something which other players are operating.

Akshay 45:33

The other players have bigger ticket sizes.

Bhavin 45:36

Bigger ticket size and I think they are offering more on the lines of other NBFCs rather than coming up with a product because this product has its own pros and cons. High churning, but at the same time, you have to take care of a lot of aspects like on a smaller ticket size your running is low whether you make that loan profitable or not. Collection cost is high in terms of percentage so whether you will make money on collection services or not. So it has some cons as well but over the period of time we have overcome those and we know how to update it.

Akshay 46:15

So how do you keep your collection cost low? You said it’s all tech-based. What is your collection process like?

Bhavin 46:22

So whatever people can do, technology can do. So we keep thinking and keep asking ourselves questions that if this process is manpower-oriented, how can we make it automated? So is that a way of making calls to customers where you don’t require manpower? Is there a way to make follow-ups to customers where you don’t require manpower and slowly gradually now we have reached this system where even 70% of my collections are completely automated.

Akshay 46:49

Give me an example like pre-recorded voice calls go or reminders? 

Bhavin 46:56

Nowadays you have technology that you know, I mean, whatever customer will say, your system can react exactly to that question or that query in a human language. And you can set a lot of preferences about what time customers will pick up a loan. What is his preferred language? I mean, if I’m calling on Sunday, what should be my preference for human language.

Akshay 47:22

It’s like bots, it’s not human calling.

Bhavin 47:26

Yes. Language is the way any human speaks.

Akshay 47:32

Like, is this an off the shelf thing that you can or did you build these bots? Well, you know, this sounds like very complex technology.

Bhavin 47:43

See, today, ingredients are available. All ingredients are available in the market. Right, and you have YouTube to know the recipe as well. It’s the question as to how we will make that recipe. So we have made it a reality.

Akshay 48:03

You get regional language compatible bots that you can integrate. Okay. So your calling basically you have completely made it into a bot-based calling. There’s no need for humans to call?

Bhavin 48:19

Almost 70-80% through bots. 

Akshay 48:23

Okay. Well, if multiple calls don’t get a result then a human will call, right?

Bhavin 48:28

Correct.

Akshay 48:31

Okay. And what else besides calling? Are there also WhatsApp reminders and all of that?

Bhavin 48:37

I mean, that’s part of the journey. So other channels…

Akshay 48:42

They are relatively easy to automate.

Bhavin 48:45

That has been automated for ages, some new things are definitely there and we keep implementing those. So keep experimenting and some of the other things will work and you’ll see really good results.

Akshay 48:58

Okay, so tell me about your fundraising journey. When you launched in 2015, did you raise funds at that time or was it bootstrapped initially?

Bhavin 49:06

Initially, it was bootstrapped. And when we launched, we raised a small amount of capital through friends and family networks. So that we can use that money towards initial operations. And subsequently, we raised in a couple of rounds, seed and then pre-series. So we raised USD 1.5 million worth of capital so far that we became profitable, and then it wasn’t too much of a pushy thing that we’ll have to raise capital to grow the business. 

Akshay 49:40

So as of now, you don’t need external funding. Well, if you are generating enough cash.

Bhavin 49:45

Yeah, so we are profitable and we don’t need cash to run the operations.

Akshay 49:50

Amazing okay. Any plans to raise more money now?

Bhavin 49:55

I would not say so, that could be a plan for the future, but the point is business doesn’t require money to run the operations right. So, you are free to scale up the operation to any extent from wherever.

Akshay 50:10

And what is your customer acquisition cost like how much does it cost you for each customer you acquire?

Bhavin 50:18

So, I mean I can’t comment exactly on the amounts and all but it varies from channel to channel and one of our strong points is the cost of acquisition. So, we have developed channels where the cost of acquisition is very reasonable. And we still make money on each and every customer that comes to us.

Akshay 50:38

Tell me about this, how did you bring down the customer acquisition costs?

Bhavin 50:44

Focus. Keep looking into the costs which are coming up to you, the channels which you are using to source the customers and keep reinventing the way you are doing it. For example, on Facebook, you are doing an ad and each ad can get multiple responses. But you should not do only one type of ad, you may have to experiment with five more things. So keep experimenting till the time you reach the level where things are acceptable or very effective and again all that comes in the top to bottom. So the way push comes from the top, the team members also work accordingly and they also come up with more ideas to keep it lower.

Akshay 51:32

So what are the best channels that you have found?

Bhavin 51:38

All channels are good. So at different points in time different things work. So during festival seasons, some channels work.

Akshay 51:48

Do you have any tips for other startup founders in terms of customer acquisition?

Bhavin 51:53

Oh, there are so many digital marketing advisors that are there, I can refer and they can figure on their own. Knowledge is available, they can do it. So one thing which will work for us may not work for others. For every product, it will be something different.

Akshay 52:08 

True. Okay. And what is your vision for LenDenClub like a couple of years down the line, you have some concrete goals or milestones that you are chasing?

Bhavin 52:25

See, we want to be one of the top 10 lenders by 2030. So we are on track to that and we believe.

Akshay 52:32

Top 10 lenders across all segments or in P2P?

Bhavin 52:36

Top 10 lenders across all the segments. So we should be among the few banks and private lenders, NBFCs. So that’s the idea and that’s the reason which we are taking and we believe that it is possible because of the revolution which we are coming up with in terms of accessing the capital in the market and taking the loan product to the end mile customer, customers who were denied a 5000 or a 10000 rupee loan. So we believe it is possible and we are reaching near that target.

Akshay 53:13

So top 10 means what like 10,000 crore plus?

Bhavin 53:17

It’ll be way more. Every year we will have to disperse at least 15000 to 20000 crore worth of loans.

Akshay 53:23

Okay. Amazing. And how has the regulatory landscape evolved like when you started there were no regulations, how is it today?

Bhavin 53:39

So that time regulations were not there but RBI got into conversation with players at that time at a very early stage and the idea was to regulate at the right time so that the wrong practices can be avoided and the sector can get a boost in terms of what to be done, what not to be done and legal confidence of the participants, investors as well as borrower. So RBI I think came up very rightly in terms of timing, when they announced the regulations in October 2017 and subsequently they modified it as and when they saw some scope of change so that a sector can flourish and they can become one of the mainstream lenders in the country. And you’ll see the result today. So, I believe they are bullish and they have recognized the importance of P2P lending. And if that structural support is there with the same optimism, I believe that within the next five years RBI will see positive results and we will be able to demonstrate it to the government.

Akshay 54:50

What are the regulations as of date like a broad summary as to what requirements?

Bhavin 54:57

So, it is similar to what the NBFC regulation says. There are certain fit and proper guidelines for the directors as well as management, you have to have two crore worth of funds to start this business, you will have to have certain technical requirements to match with and submit that to RBI, you have to keep conducting certain technological audits time to time, you have to follow the payment mechanism which RBI has prescribed in their regulations. And then there are certain operational guidelines on who can become a lender and how much they can lend.

Akshay 55:32

Okay, got it. So there was this controversy about these Chinese lending apps? I don’t know if you are aware like there were these apps, which we’re doing shady loans and stuff like that. What was that about? And did that affect you in any way?

Bhavin 55:51

No, it hasn’t affected us because of the practices which they were following. They were there in the market for a couple of years. And see in lending if you…

Akshay 56:02

Can you explain it to our listeners who don’t have any about the controversy?

Bhavin 56:07

So the controversy was created because the majority of the Chinese apps were dispersing loans by taking very few data points without understanding borrowers in the right way. Without even knowing the customer through the right KYC processes. So the issue was, what they will do is they will give you some 1000 worth of loans, but by just taking your Aadhaar card number, they will access your contact details. And then when you don’t pay or you’re unable to pay, they will come very aggressively. And within four or five days of delaying the loan, they will start reaching out to your contact details. Or they will start…

Akshay 56:49

Call your employer and…

Bhavin 56:51

Everything, right. So, different things are needed at the right time. You can’t reach out to references also within two or five days time period, people require time. And specifically when you don’t know your customers. When you start following the same process for each and every person, when you know your customer, we believe that our customer delays and there is a genuine reason. So there are certain slabs there are certain time periods which we provide to them. If they don’t pay within those time periods, then only the next step starts right. This wasn’t the case and they were following very bad practices in terms of collection mechanisms. So some borrower was under tremendous pressure, he committed suicide. And then the whole idea got triggered about how many lending apps are lending money without the approval of the RBI. Then I think there were instructions given to the Google Play Store as well. So they also started validating the licenses of the apps which are available and landing on the platform. So all the practices started and I think now it is much better. The majority of those apps have gone away now. There could be some who might have gone blindfolded or something. But now it is cleared and it’s good for the ecosystem as well. You know that it happened so early because when they become too big and so many bad practices are going on, it will spoil the whole industry.

Akshay 58:23

Right. So how big is your team now like LenDenClub as an organization? 

Bhavin 58:30

We are now 75 people. 

Akshay 58:32

And how many are in tech, what is the split?

Bhavin 58:37

So around more than ⅓, around 40% is in tech at productive and remaining across different teams. Operations, credit, risk, marketing, alliances, customer support.

Akshay 58:48

Customer support for lenders?

Bhavin 58:52

Lenders as well as borrowers if they are facing some technical challenges.

So that was Bhavin talking about how he is scaling up LenDenClub to be the most preferred P2P investment platform. Do download the LenDenClub app on Play Store or App Store if you are looking to earn inflation-beating returns on your invested money.

FinTech for Gen-Z | Sambhav Jain @ FamPay

Catch them young, watch them grow!

Great thought! But when it comes to managing money, it’s always the elders who have taken decisions. And that is the sole reason that as adults, people still struggle with savings, taxes and investments and why financial literacy in India is a tough nut to crack.

In this episode of the Founder Thesis podcast, Akshay Datt speaks with Sambhav Jain, Founder, FamPay, who is on a mission to provide financial freedom to teenagers.

Sambhav is a graduate of IIT Roorkee and always aspired to start his venture. He collaborated with Kush Taneja, his fellow batchmate, to start FamPay, which was selected by Y Combinator in 2019.

And within two years it has more than 2 million registered users and recently raised a whopping USD 38 million, making it the largest Series A fundraise in India by first-time entrepreneurs.

Tune in to this episode to hear Sambhav talk about how FamPay is empowering Gen-Z towards financial literacy with its high tech but an easy-to-use platform.

What you must not miss!

  • Internships: A way of understanding how young start-ups operate.
  • Experience of getting mentored by Y Combinator.
  • How can one use a numberless card?
  • Fundraising journey.

EPISODE TRANSCRIPT

Akshay 1:40

So Sambhav, where did you grow up?

Sambhav 1:45

I am from Chandrapur, it’s a small town near Nagpur, Maharashtra. I was born and brought up here. I did my schooling here. Being from a small town, there was not a lot of exposure.

Akshay 2:00

What did your dad do? What’s your family background?

Sambhav 2:06

My father is a civil contractor, he takes tenders and contracts for, let’s say. Road construction and all of that. Like everyone, I didn’t know much. Just the aspiration of having to go to the best colleges in India. I was always curious about science, since the beginning. It was not like I was good at maths and science so I took it. So IITs were the only option. Everyone said after the 10th you should prepare for IIT. That is where the journey began, I moved out of Chandrapur.

Akshay 2:50

How big is Chandrapur? Is it like Pune?

Sambhav 2:53

No, no. It’s a district. Not really a village but is considered tier 2-3. Smaller than Nagpur of course. But it is a peaceful city.

Akshay 3:12

Okay. Were you a movie buff growing up? Besides studying, what did you like to do?

Sambhav 3:19

Definitely, I used to watch a lot of content. During childhood, it’s a lot of Bollywood. There was no Netflix, Amazon Prime, there was no OTT. So whatever used to come on television, we used to watch that. But if I go back to the school days, 6th, 7th, 8th, the early teens, I was curious about most of the things so I was actually into dancing. So I used to learn from watching videos, TV and trying to copy the moves. At every school event, I used to do that. I was into a lot of cultural things because my mom was also quite keen so she put me into tabla classes and all of that.

Akshay 4:22

Okay. You were pretty confident of being on stage, dancing needs a lot of confidence. Obviously, you must have been on the more confident side of the spectrum.

Sambhav 4:36

Yes. Since childhood, I’ve been more of an extrovert and social person. I was never afraid of talking to new people, I used to make friends and always used to hang out in groups in school. So yeah, definitely I wasn’t an introvert. I’ve been social since childhood. 

Akshay 5:01

So in your early teens, what were your dreams? Did you think you’ll be a startup founder? Of course, the word startup wasn’t there that time.

Sambhav 5:10

Of course, I didn’t know the word startup. If I look back and talk about my very early teens, I had some ambitions that I was interested in automobiles, cars. That time I used to feel that I should have my own car company and we’ll make the sexiest cars and all of that. But at that time I didn’t know that it meant that I had to be a businessman. As education proceeded, I had more interest in maths and science. By the time I grew, it was more about learning and exploring what’s out there. In 11th-12th standard, it was like if I had to change my fate, I have to go to the best college in India. That was IIT in our mind. There was very limited exposure. I did not even understand the actual meaning of what that exposure could be, but I was like, I have to explore things right? There’s nothing in this town that I can learn. So yeah, after that it was more about, let’s explore what’s out there. And after going to college is when I heard and learnt about words like a startup, entrepreneurship. Even though I think by the end of 3rd or 4th year I did not really think that I’ll be a founder right out of college, I probably would have imagined it like a few years down the line, but I didn’t imagine it to be right out of college.

Akshay 6:58

So, was it very, very transformational coming from a small town, what was that like? Give me the highlights of those four years.

Sambhav 7:10

The college has been one of the best 4 years of my life. I think definitely, going to IIT was quite transformational in looking at things very differently, getting exposure, understanding what startups are, what is different, what the world is like out there. Right from the start, I was sure that I wanted to do a lot of things. From the 2nd, 3rd week of college in our first year, I contested in the hostel elections and got elected too. So the first one month after the 2nd-3rd week into campaigning and getting into all of that. So fortunately I got elected as a social and cultural secretary of my hostel. Simultaneously, in standard 12th, I left dancing, so there was a dance club at IIT Roorkee. I joined that. So as soon as I joined and even through four years of college I have experienced a lot of things and then two years later in the whole campus elections, I contested again for the post of General Secretary, Hostel Affairs, I got elected and that experience was very different being in college, and about 8000 kids vote in that and starting from the whole election process to getting elections done in that one year. And, there were so many initiatives that we did for the college, so it was a very different experience. That is when Kush and I worked on a product. So while we were in college in our 3rd year, we built an app called Appetizer. And it is the official mess app of IIT Roorkee. So, the problem was very simple: how many hostels there are, they would collect mess fees at the starting of the semester and then one can have a meal for the whole semester, right? It doesn’t matter whether you have it or not, you have paid for the whole semester. But what usually used to happen was kids wouldn’t eat in the mess, of course, they would go to the canteens. A lot of times and then they would take parties from seniors. The product is very simple. What you could do is download the Appetizer and once you log in using your intranet you could get access, keep a check on the details of the student and all of that. They could see the whole week’s menu like breakfast, lunch and dinner and next to every meal there would be toggles. They could skip whichever meals they wanted, just by a click of a button. So we had made a full user site for the students and an admin page for the mess secretaries, managers and deans who could upload menus on a weekly basis. Students could give their feedback. The best part was for the meals that you skip, you could get the money back for it. So this is the first product that we built together and it had a great impact. 

Akshay 10:48

Tell me about Kush, who is he and how did you guys meet?

Sambhav 10:55

So, Kush is again, I would say a very passionate guy and comes from Ludhiana. Yeah, he’s very passionate, he’s into fitness and cooking. He also has interesting stories. In the first year, in the first couple of weeks, as I mentioned I was contesting the elections. So, I went to Kush and Ayush, who is also from Ludhiana and he’s the first person to join the team. He is from the same batch and they both were in Production and Industrial. During the elections of course we went for support and help for campaigning and all of that. That is how we met.

Akshay 11:58

So from one app to a business partnership, how did that happen? How did you think that you want to do a startup together?

Sambhav 12:09

It was quite accidental. So from the first year itself, we had this urge to try different things and we had started internships. I had done multiple internships, I interned at Rivigo, AEON Learning, Hotstar, while Kush interned at 1MG, ShareChat. We interned in various roles like product role, marketing role, business role. After the first internship only, I think it’s a similar story for both of us, we got clear that learning happens in startups only. The kind of impact you are able to bring, the kind of ownership you get right, the exposure was completely different. So throughout college life, we didn’t apply through campus internships even though there were a lot of companies, the dream companies that came to the campus like giving great stipends, giving a great social status within the campus. We never applied to those and we even didn’t think of applying. We used to apply offline, just meet different sorts of founders to get them to it. Throughout college life, it was very clear that startups are where all the excitement is and learning and growth fast too. So by the end of my final year, I was like I want to join an early-stage startup, not an MNC or not a big company and Kush was like I want to start. So both of us did not pursue placements actively. We had a lot of time in the final semester and most of the time went into discussing, I used to keep on finding different startups and just go to him and I would ask what do you think about it, what do you think about the team? What do you think about the product? And he used to come up with new ideas. Like a few years later I also started going with new ideas that this problem looks real, I faced this problem so you can think something around. So we used to brainstorm but just casual, it’s just like two friends having a chat in their hostel rooms. So what happened was as placements kept on getting closer. And we used to help our friends clear tests, interviews and many of them had started coding. They hadn’t done any coding for three years and had just started preparing for that. So when I asked them why are you coding? I know you don’t like it. The answer would be that the job gives an X lakhs salary, life will be sorted. That’s the typical response we used to get and we had a discussion once where we could not understand how is your life sorted if you’re not looking at different factors while thinking of a job right? There are so many factors. They would straight-up see how big a package the company offers and everything else was secondary, including the title. People were even ready to go to mines in Assam because they would earn 30 lakhs. So we couldn’t understand that IIT was supposed to have the smartest kids in India and why is the thought process still like that. Why are they only thinking about money and not other things? Literally, people wouldn’t even look at the product for whichever product role they are applying for. They wouldn’t even check the website, they would see it offers so much and they would just directly apply. We used to think that why is decision making like this? So we realized they were just looking at money as a primary factor and money for them was important of course, but money was becoming the bottleneck to making the right decision. That is what we thought about it. Right, then we started thinking about it and why it is like that. Though earning more money in the short term is nice, not denying that, but in the long term, it’s not fruitful if you’re just making a decision based on money because one year later you won’t be the one who’s getting promoted, who’s growing, who’s feeling the learning curve, right? The biggest thing is you are thinking about the monthly money and you’re getting into a comfort zone, every day going to the office and not doing actual work. One year later you start figuring out what to do? What’s next for me because all your peers are growing. So now you go back to step one. Should I do an MBA to switch my career or what should I do? Right. And that’s a major problem I think with everyone. So we were having a discussion around this and then we came to a discussion that in India no one talks about money the way it should be talked about right? Since childhood, be it schools, parents, banks, no one talks about money openly, no one teaches financial literacy in India. There’s no financial literacy in India, if you compare it to the western countries, there are concepts of pocket money, right? Kids start getting pocket money early, as they get 15-16 years old, they might start working for delivery or in McDonald’s, Burger King etc. So they start earning for themselves. They feel financial independence. So with that they know that they can have this lifestyle in which I can party this much, I can travel this much, I can shop this much or so. Whereas in India because there is no concept of pocket money, there is no concept of earning.

Akshay 18:08

So it’s basically something to be ashamed of if you are working at a McDonald’s. Like your friends will wonder why you are doing that?

Sambhav 18:14

Even if you forget about Mcdonald’s, I think opportunities have increased so much today right? You can just manage social media for someone, right? There are so many things you can do. But there is no concept of even earning or getting pocket money right? The biggest question is, how will I survive if I don’t have a job when I get out. There’s no confidence that yes, at least it is not a question of survival. In western countries it’s not about survival, it is about how I need to figure out what I want to do. Because there is no financial literacy, there is a lot of gap in decision making etc. If a parent tells me don’t get a Rs 15000 phone but get a Rs 12000 phone, I don’t really know what the impact is on the annual finance with the Rs 3000 I’m saving, or what is the impact if I get my own pocket money and save 3000 bucks by cutting down my finances on shopping and food ordering. It’s not expensive, but at least I’ll fight for what I really like. It’s important for me so I’ll make the sacrifices.

Akshay 19:16

Yeah. You learn to prioritize.

Sambhav 19:19

Yeah, but in India, because there is no financial literacy, there is no decision making or independence or freedom. So, you are bound to listen to your parents or listen to anyone that you should do what they say. You get handicapped in taking the right decision. So we don’t realize it, but if you don’t have that freedom to make a decision you get handicapped. And that is how we, just two college students, were having this discussion and about our different perspectives towards this. And it wasn’t like we will start a venture on this. But just like any problem we used to brainstorm and have these discussions about its implications. And we weren’t talking about credit scores, taxes, etc. It was how to look at money. We realized that it is a big problem. And for us, financial literacy and independence were not about giving a course and getting it right. Nobody wants that. It was more of a life skill like cooking or driving the car which you learn when you practice it. So we decided to solve this and bring in the culture of pocket money to India. Let’s build something digital wherein parents will send pocket money and we’ll gamify the app through which the kid can learn how to budget, invest and all of that. We’ll give them a card through which they can spend. So we thought that this is an interesting problem.

Akshay 21:24

But, for two kids who have not even passed out yet, it sounds super ambitious. That we’ll make an and a card, you have zero ideas on how to issue cards and all the banking relationships etc. So how did you feel that yes, let’s do this. How did you get the confidence?

Sambhav 21:50

Correct. I often say this, it’s nice when you don’t have the baggage of experience. And you wouldn’t believe it but even after our first fundraise, we were aspirational and ambitious that we’ll launch the product in two months, we’ll see everything. We’ll sort the banking partnerships etc, but even today if you ask me, we have these internal discussions that we if have to launch a product, we need to have a practical timeline of 4-6 months, considering how we need to improve the support, operations, product, tech, marketing and launch, in making the product and tech. There’s a 360 degree perspective on everything. Back then, during college, it was similar to how we had made Appetizer. We just thought we’d build an app, people used it and enjoyed it, there was an impact. So we thought okay let’s do it. We’ll see how it’s to be done, who we should talk to. In college, it is even more achievable as one has taken smaller initiatives. It isn’t possible at a startup or a professional level. At least in both of our experiences, we had taken ownership of building something and managed to do that. So that gave us the confidence that we can do this. And at that time it wasn’t an idea of a startup, it was more of a problem with which we connected emotionally. We felt that we’ll be making an impact. Since it was the last semester, we moved to Bangalore to figure it out.

Akshay 23:42

But why Bangalore?

Sambhav 23:50

We had done our internship in Bangalore and we knew that there was a startup ecosystem. There were many IIT Roorkee seniors, from a job perspective, also like a lot of startup founders. Being in Roorkee for 4 years, there was a lot of good exposure on campus, in the sense, we had fests, different clubs, and good people. Everyone was ambitious but we had gotten disconnected from what was happening in urban cities. So we wanted to know what if times have changed. And coming from a small town, we didn’t even know what was happening in bigger cities. The mindset was that maybe parents give pocket money to kids, as parents are much more aware. We just thought, let’s go to Bangalore and see what to do. During the internship, our experience was good, of the city, ecosystem, seniors and everything. So we went there and thought whatever happens we are not asking for money from home. That was the only thing and we didn’t have high demands that we have to earn so much at such an early stage. That is how we looked at money, it was not about money. In the early stage, it was always about learning and growing more. Even today, we feel there’s so much to learn, we are just in the early stages of our startup. So where do we get the kids? We used to go to the malls, and we used to find them, stop them and talk about ourselves. “We are students of IIT Roorkee and we are working on a project. We’d like to interview you for 10 mins and all that.” Definitely, a little bit of the IIT factor worked so they would readily agree. That is where we got the golden insight. 90% of the kids we spoke to, none of them had bank accounts and all of them had smartphones. They were using it and were already spending on Swiggy, Flipkart, Ola, Uber, Netflix. But none of them had access to even digital payments. So when we asked them how they pay? They said we ask parents for cash or we borrow their debit card or credit card. We asked them if they know UPI, and they said no. Haven’t you used Google Pay, they said yes, we have seen people scanning and paying. You don’t do it? So they said no, we can’t do it because we don’t have an account. Yes, because to link UPI ID you have to have a bank account. Because you need a bank account for a debit card, you can’t get a credit card below 18. So kids told us stuff like they get out with 200 bucks before tuition or that they had a 500 rupee note in their secret pocket for an emergency. We were very shocked because we never thought about this. We assumed that everyone has access to digital payments and we started researching more and when you look at India’s population, around 40% is below 18. Can you imagine how big that chunk is?  So whenever we are speaking about the next half billion users on the internet, we often forget that the majority of them are going to be minors and nobody is building for them though they are the most tech-savvy audience. Like I’ll give you an example, I have a niece who is about 2.5 years old. She doesn’t know how to read and write but she knows which app is Youtube on the mobile and even when she clicks, she finds the right video looking at the thumbnails though she can’t read the titles of the video, and the best part is she knows that the video she clicked is not playing, it’s the ad. She waits for 5 seconds to skip the ad. That is how fast these kids adapt to technology. They’re very internet-first and it was crazy that they don’t have access to even digital payments. Financial literacy or independence is a far-fetched idea. They don’t even have access to bank accounts. Let’s solve for payments first. Like this is the main key problem and on top of it will build on banking and all of the literacy and all of the independence things that we want to build. But this is a clear cut pain point. That is how FamPay came into the picture. We are going to build a payments app for teenagers and with that idea, we applied to YC in our final semester through college. Our two months were up in Bangalore. I remember our final B.Tech presentation was on May 7 and the YC interview was on 9th in Bangalore.

Akshay 29:16

You got shortlisted for the interview, how much work is needed to apply for YC and how will you get shortlisted? Did you really work hard and create a fancy presentation?

Sambhav 29:30

I think, definitely, the idea, product, and the market we are targeting are all important factors. But what I have realized in the last two years in all my interactions with YC is they focus more on founders. That is what they bet on because in my batch there were many founders who pivoted their ideas.

Akshay 30:01

What made them shortlist you? Was it the IIT pedigree or what was it?

Sambhav 30:05

No, No, No. I don’t think it was the IIT pedigree. They were just like they loved the energy and clarity we had for this idea.

Akshay 30:19

 Well you really thought it through, you researched on it

Sambhav 30:22

Yes. Like with the limited resources that we had while being in college and especially from India if you look at our previous batches before the summer of 2019, you wouldn’t find founders as young as us in the Roorkee batch. Getting shortlisted for YC in itself was a very big deal for us. I remember, we were very happy that at least we got into the interview stage, which is like 10% of the applications. And now with this probably even if we got an incubator or an accelerator, we’ll be happy. We didn’t have high hopes, to be honest. We were like, let’s give it our best. Let’s try to answer whatever questions they might have. So we used to just discuss what all questions might come up, how are we different from different payments apps, what’s going to be a revenue model? What’s going to be, how are you going to acquire the first 10,000 customers? Are there any regulations? We just used to get through these questions. Let’s try to find answers to them. So 2 to 3 weeks we just spent on creating a list of things that YC would ask us. We did some mock interviews and each one of those went off in different directions. Someone would grill about the competition while the other would about regulations. 

Akshay 31:53

These were your seniors doing it?

Sambhav 31:55

Seniors, YC alumni. On Twitter, a lot of YC alumni would put out their calendar where you could just book a mock interview. We did a few with US founders and a few with Indian founders. It was a great experience. After the interview, we were not sure if our interview went really well or we are feeling it went well because they did not grill us thinking that they are kids. We had a good interview. I think they were quite satisfied with the research and what we were trying to build. We got into YC and after that definitely, there was no looking back.

Akshay 32:43

So what happens once you get into YC, are there classes and then time to work on the product? Just help me understand.

Sambhav 32:56

In YC, there are no classes. I would say it is more like an accelerator program.

Akshay 33:06

And they give you money upfront?

Sambhav 33:09

Yeah, they give you one crore. They have a standard deal. So they do seasonal investing twice a year. Once in the summer batch and the other in the winter batch. Every startup that they invest in, give one crore approximately. So yeah, we also thought that this was a crash course to entrepreneurship and they’ll make us an entrepreneur in 2-3 months. But it’s not true. It’s more about just being very hands-on, whatever you’re building, just build it, whatever problem you’re trying to solve, solve it. YC takes startups at all stages, at an idea stage, revenue stage, go-to-market stage. The whole idea is that after 3 months, there is something called a Demo day. It is basically where all the startups gather and all the investors gather and every startup is given 60-90 seconds to pitch their idea. And people from Silicon Valley gather and whoever is interested, you can start conversations with them and end up raising money for whatever you want to build. So the whole idea is that the one crore you’ve received, you need to utilise it in the next three months. Every startup has a different goal. Everyone has a different goal in terms of, whether they want to raise money, and if so, then how much. So it’s very subjective as per the case. So after YC, we got to know that before demo day we have to actually experiment with something and validate it. So we started navigating through the FinTech space and understanding that if we want to start with payments, how can we enable it or what are the kind of APIs we would need, what type of partners we would need, how can we get the cards manufactured for launch, etc. Do we need certain licenses, certifications? How would the company operate? There were a lot of complications and we would receive a lot of scepticism whenever we used to speak. They would say things like a lot of things about the regulations one needs to consider in payments and FinTech. So yeah it was an interesting period in the next 2-3 months. The learning curve was very steep. We had to experiment, evaluate, design, launch, and understand FinTech. Learn about fundraising and the terms associated with it. What is a term sheet? We didn’t even know what that was. We had to incorporate the company, whether we need people or not. From designing our logo, website and a lot of things. Those 3 months I would remember and cherish for my lifetime. We did so many things hands-on, it is completely unforgettable. And the first experience is always priceless. So if we wanted to hire also, we wrote the JD ourselves. It’s how you build everything with love. It’s like your baby.

Akshay 37:15

So, you spoke to people in the industry like your seniors and others to understand the space and form a strategy. Basically, these 3 months were spent in researching and forming a strategy?

Sambhav 37:29

Researching and also setting up the base for the company. We had to validate as these things will work, we had to know.

Akshay 37:39

How did you validate? Did you launch an app and a card and all that?

Sambhav 37:44

We just, it was a very hacky MVP. Through which the users could load money and they could do UPI transactions by using a payout API in the backend. We designed and coded the whole thing. Very simple product. Just load money and you can do UPI transactions. You can scan and pay basically which the kids could not do before.

Akshay 38:10

And how did you do this? How did you enable UPI transactions?

Sambhav 38:14

By using a payout API from one of the PGs. There is a payout API where there is an IMPS transaction in the backend. You can basically make a transaction.

Akshay 38:27

Okay. So you created your FamPay account and then people could load money which would lie in your account and they can scan so it would go from your account.

Sambhav 38:40

Right, so that is what we connected to the PGs here. Like we just want to experiment otherwise definitely it’s a paid API. So as I mentioned we saved every penny as much as possible. If we had to use a tool also, we used to try to look for how as an early-stage startup can we use it through different investors. We would get something or the other, free for 3-6 months. So we did all of that. And then we launched our product and within 7 days, we got traffic of 35,000 users.

Akshay 39:23

Wow. Okay. How did the word spread? Did you advertise?

Sambhav 39:26

No, we didn’t advertise at all. In just 4-5 days, we built an army of 5 interns. We designed a very quick brand ambassador programme. Each one should get 5 of their friends on board and all of that. We had 250+ brand ambassadors in just 3-4 days.

Akshay 39:56

And what would they get? Some certifications basically?

Sambhav 40:00

Yes. We did not pay anything upfront and we had done a little bit of gamification so that the users who came in and refer a friend, they would earn coins. For every user that you refer, you used to get 18 coins and you could use 30 coins to earn a spinner. And with a spinner, you would get cashback. But it was all done so fast. From building the MVP to getting interns, spreading the word, getting it designed, getting brand ambassadors onboard and then expanding so quickly, building a referral and then capitalising it and then building coins. It just went crazy in the first seven days. We just stopped the experiment of course because we did not expect that much traffic and we were not ready for that scale. As it was just an experiment, we were not doing KYC, no partner and all of that. We just shut down that product but that validation helped us to definitely raise our seed round of 4.7 million from Sequoia.

Akshay 41:25

This was on the back of the 35 thousand number. That’s a huge validation.

Sambhav 41:30

That’s a great validation and even the seed round was more about the validation that we can execute things. Because we had incentivised the brand ambassador programme, we put in some money for the referrals. In one dollar we would get 10-15 users, that is how cheap the acquisition was but more than what it proved was that we did it all in 7 days.

Akshay 42:20

Then, what next? By this time you would have set up your company and all of that you had taken care of.

Sambhav 42:27

Yeah, by that time we had done that. After we got out of college and got funding of one crore, we felt that it was huge. For a college student, it felt that a lot can be achieved with this fund. But soon before our fundraise, we realised that this would be nothing if you want to build a big company. Because even if you need to get 2-3 good engineers, they would take up 30 lakhs as a minimum salary. You have a lot of costs – like tech, human resources, marketing, getting your cards manufactured and so many things. Of course, the first thing we did was shut down our first product, our MVP. We needed to build it with all the compliance in mind, figure out the regulations and all of that. We started building our team, we started reaching out to our friends from IIT Roorkee. I told you about Appetizer right, so in college, there was a group called Mobile Development Group. Kush, Chirag and Harjot were part of that group. So Appetizer was developed by Chirag and Harjot. We had worked on that product together and Kush was 100% sure that we had to bring them on board. So we got them in and started building the product and the team, figuring out how to launch the product and all of that. By Feb 2020, everything was ready and we had the first version that could go out. We had a good go-to-market strategy aligned, we were planning to…

Akshay 44:32

Tell me the details. What was product version 1? What did it all include?

Sambhav 44:38

It included getting your own card, your own scan and pay function ready, and doing peer-to-peer payments. It’s like a full-stack payment option for kids. But unlike other wallets, it was more about giving them a complete banking experience. We were like we won’t make it seem like a payments app, we’ll give them a card and scan and pay functionality.

Akshay 45:16

They can see the balance and all that? Parents can transfer the money and they can see the balance 

Sambhav 45:20

Yeah, we were planning to go live in April, after the Board exams.

Akshay 45:30

How does money load in this? Let’s say you got kids to download the app, how would they take money from their parents?

Sambhav 45:37

So the parents can send money directly to their kids’ accounts or they can download the app themselves. They have their own way. The parent and kid both are part of the onboarding process.

Akshay 45:53

Okay. and parents could also do a UPI transfer to the kid?

Sambhav 46:00

Correct. So that was the first version but COVID happened. All the schools, manufacturing plants were shut. There was a lockdown and a lot of uncertainty as to when this will go on till. We were like let’s not launch the product right now, we might end up investing a lot in growth and may not end up getting the right RoI.

Akshay 46:24

How big was your team then?

Sambhav 46:26

6-7 members.

Akshay 46:29

Okay. Most of them are from IITs only?

Sambhav 46:32

Yes. Six of us. We call them the founding team. Then there were a couple of engineers who had just recently joined. It hadn’t even been two months. So it was a very small team, 4-5 interns apart from that. We were like let’s hold on and see how the spending patterns are changing, how are people adapting to COVID, whether schools are opening or not. We conducted surveys for 2-3 months. We realised that our go-to-market strategy should be online. And finally, last year in August, we finally went live. The journey has been amazing, very crazy after that. In the first 8-10 months, we were growing 100% month on month.

Akshay 47:39

The card was free here or they had to pay?

Sambhav 47:44

In the first month, for the first thousand users, it was free.

Akshay 47:50

That was your growth hack basically? Like your go-to-market strategy, it would make people curious.

Sambhav 48:00

Correct. That excited them. It’s their first card in their life, it was the same feeling as a first bicycle or first phone. It was personalised and also, we launched India’s first numberless card.

Akshay 48:20

Why numberless? Won’t that be a problem for e-commerce transactions?

Sambhav 48:27

The number is available on the app. We were brainstorming and it started as a design problem. We were trying to place the number but that was spoiling the look of the card. It started with that conversation and we thought what if we don’t have the number, it will look so clean. When we started thinking about it seriously, even from a security perspective, it takes security to a whole new level because if the kid is losing the card no one is getting access to the CVV or anything. And in any case, if you are shopping offline, you are swiping the card and entering the pin, you don’t need the numbers to be on the card.

Akshay 49:20

This is what you were talking about, the advantage of doing something without experience.

Sambhav 49:25

Correct. That naivety acts in your favour. It helps you to be unconventional and go beyond what is accepted. Even if I saw my online shopping behaviour, I don’t usually have my card handy, I have to go to my wallet, remove it and then type.

Akshay 49:52

Or like I keep a picture with me. If I have to use it I search for the picture.

Sambhav 49:58

Ultimately, you also prefer the card details to be on your phone because it is handy. So we were like why not put all this on the app and remove it from the physical card. It is much more convenient and secure. Third, it is much cooler. Our card is super cool and fourth is, kids aren’t aware that this information is sensitive. There are so many kids who have put pictures of their cards on Instagram, they don’t have to worry about disclosing information. They want to flaunt it. If you search FamPay on Youtube, you’ll see so many unboxing videos by kids organically. We knew if we want to attract kids to this product, it has to be sexy, it has to be aspirational, it has to be cool. We knew that the brand and the product we are creating has to be of really good quality because these are the kids who have been using YouTube, Instagram, Netflix from day one and already have so much access to great quality products. They can immediately tell which one is a poorly built product. And also we had to beat the banks, of course. Or at least the mindset that kids had regarding banks. They find it very boring and that they don’t want to do it. So we had to break this notion. It’s simple.

Akshay 51:42

How long did it take for you to get the first thousand with all these hacks? The unboxing-friendly, influencer outreach etc?

Sambhav 51:52

I think we got the first thousand in the first 4-6 weeks.

Akshay 51:58

And how tedious was it to get the KYC done? To get the first money into your account?

Sambhav 52:04

That’s a bit tedious, that’s a challenge for all the FinTechs. KYC brings a certain drop off in the journey because people are lazy to do it and when asked about documents, they get more serious, questioning the security of the product.

Akshay 52:26

Kids don’t have too many documents, right?

Sambhav 52:30

They have Aadhaar. It is to build trust that parents also have to do KYC. Parents question as to why is the kid asking for this? It’s very common even in India. Parents don’t trust right away. So that’s a bit tedious. 

Akshay 53:08

So in the first 4-6 weeks, the thousand people were the ones who finished the KYC.

Sambhav 53:13

Yeah and started using and transacting.

Akshay 53:18

From there, how did it grow?

Sambhav 53:23

As I mentioned, it grew 100% month-on-month.

Akshay 53:27

September you had 1000, August you launched, then it was 2000, 4000, etc that was the trajectory?

Sambhav 53:38

Yes, it was multiplying. The average was 100% but in certain months we hit 3x, 4x. It was quite fast.

Akshay 53:48

How many active users are there now?

Sambhav 53:51

We have more than 2 million registered users already on the platform.

Akshay 53:58

But the registered user is someone who has downloaded or entered the app but has not done the KYC.

Sambhav 54:05

Correct. 

Akshay 54:05

Then tell me about the next fundraise like that’s the next milestone in the journey, right?

Sambhav 54:12

Yes, so we recently closed our Series A, we raised 38 million from Sequoia and a few other investors. I think we had the first conversation in February or March and were very sure by the end of December that we had hit PMF. This has a great product-market fit. People want it, we were seeing a good number of kids using it regularly, good retention, the growth rate was crazy. The kind of feedback we were getting from users, the kind of time they were putting in unboxing videos, pictures. These were all signals and we knew it. Now, it was about scaling. That is when it started.

Akshay 55:19

This was again in-bound? The VCs were already aware of you?

Sambhav 55:23

Yeah. We were always connected from the start after YC so we kept on chatting over the last couple of years. When we needed help, we would ping them. Even if those investors were not on our cap table, I think some talk or the other kept happening. They were aware of the progress and everything and it just naturally happened. That is what triggered our Series A. We just closed it about one and a half months back or a couple of months back.

Akshay 56:07

And which I think is the third-largest Series A ever done in India, right? 39 million dollars?

Sambhav 56:14

Yes, it’s 38 million dollars.

Akshay 56:18

It is such a massive achievement for someone so young.

Sambhav 56:25

We did not know that it is one of the largest Series A. We were also reading an article and it said probably the largest Series A by first-time entrepreneurs. Definitely, it is a great milestone.

Akshay 56:50

What made it happen? What contributed to such a massive Series A?

Sambhav 56:58

Everything. I would say the product, the growth, the team, the energy, how we have executed everything, marketing, brand, etc.

Akshay 57:11

What was your team by the end of last year? 2020 December or January 2021?

Sambhav 57:18

It was small, 30-35.

Akshay 57:23

These were all tech or marketing?

Sambhav 57:26

Correct. So the kind of growth and things we pulled off with such a small team, expenses and P&L we had, everything contributed to this. It was a new market. As I mentioned, nobody else is building for teenagers. If we see the products in the market, everyone is building for adults. If you have to build for teenagers, I think the approach has to be different. If there’s any product for teenagers, they mostly end up targeting parents. That wouldn’t work because the kids’ generation has changed a lot. In our times, probably we used to ask for remote control cars and be happy but now they ask for greenscreens. They want to start podcasts of their own. And it’s the next big market because every year millions of kids will get their first smartphones, it is basically tapping the future adults.

Akshay 58:40

Okay. I want to understand the business model when you were doing the discussion with VCs for Series A, when you had to show them how you will make money. So what is that?

Sambhav 59:01

Currently, we earn in two ways. The card is not given for free anymore, and the second is…

Akshay 59:12

How much do you charge per card?

Sambhav 59:14

So we just launched our new set of cards, we again launched something very new. India’s first doodle numberless card with visa. It’s called FamCardMe. We have two segments of cards. The second is FamCard. FamCardMe is a highly premium version and can be personalized. Kids can add their own choice of doodles to it. So that card is charged at 1000 for a one-time fee and the FamCard is charged at 500. Secondly, for every card transaction, we earn interchange. Those are the two ways we are earning right now.

Akshay 1:00:03

Okay. Your current offerings are essentially like a bank account substitute for teenagers. So what is in your product roadmap now? What do you plan to add? Because teenagers grow and become adults and take up their first jobs. Obviously, you’d want to be with them throughout the journey, right?

Sambhav 1:00:29

That’s the exact thing even our investors were asking: what’s our roadmap. This is the most exciting part. We are not looking at losing the customers once they turn 18 and the idea is to grow as our users grow. And so there will be really interesting things we’ll be launching in the next 12-18 months for that cohort of users who graduate into becoming adults. So let’s keep it a surprise, there’s a lot in the works and in the plan.

Akshay 1:01:00

So long-term view, say by 2030, where do you see FamPay? By that time? We don’t need to go into detailed stuff but a more broad picture view of where you think FamPay will be by 2030?

Sambhav 1:01:30

The big picture is we want to be that whole financial ecosystem for GenZ.

Akshay 1:01:40

Like a bank replacement? For example, instead of an ICICI account, I have an account with FamPay which has everything that I need over there?

Sambhav 1:01:49

Yeah, we would want to be the one-stop solution for them and that all their demands are met through us. But of course, that is very far. In ten years, we will be more focused on our mission that how we take GenZ one step closer to financial independence and financial literacy. A lot of our decisions would be driven by that.

Akshay 1:02:20

What do you plan to use these funds for? Headcount increase or marketing spend or what?

Sambhav 1:02:28

So, definitely, investing in growth from here to our next milestones. Hiring and expanding the team quite extensively in the next 3-4 months. We have already started hiring. So, we are investing some money in launching new products. But the majority of the costs are going to be definitely into growth, marketing and hiring.

Akshay 1:03:08

Okay. How big is your team now?

Sambhav 1:03:11

We are close to 50-53 full-time members and close to 20 interns.

Akshay 1:03:19

Where do you see it by the end of the year?

Sambhav 1:03:24

That depends. I think we are looking at 25-30 more hires in the next 3-4 months across different functions.

Akshay 1:03:35

So how are you building up the organisation? Are you building it up as a remote company or as one with an office-based culture? I want to understand your thinking on building FamPay’s organisation structure.

Sambhav 1:03:58

We are still fighting or arguing on whether we want to be a remote-first or office-first company. There are two perspectives to it. There’s always a healthy debate about this. We are figuring out a middle way wherein a year, we would do a 3-month workation at a location where the whole team will work together and the rest of the year you work remotely. We’ll always have the office open, but it is not mandatory for at least the next 6 months. It is subject to change and we are still deciding on how to go about it.

Akshay 1:04:58

And in terms of your people strategy, what kind of people are you looking to hire? Are you looking at a flat organisation? How will you manage when you hit a headcount of 100 people?

Sambhav 1:05:17

We have had this discussion internally, both me and Kush. We feel that we’ll let it evolve for the time being. Every startup has a different org structure and unique way of operating and we feel that it is not about titles that define but more about how you operate. We are giving it time, it depends on hires and how functions evolve. It’s not just about creating a culture. We are focusing on creating a healthy culture where everyone has a certain freedom, ownership, accountability. It’s more about that creating that healthy work environment and less about org structure, we are letting that evolve on its own. We have spoken to a lot of founders and every company to some extent has a unique org structure.

Akshay 1:06:24

Right. My last question to you, by when do you think you’ll become a unicorn? Or is that something you don’t think about?

Sambhav 1:06:35

Honestly, we don’t look at a time frame for that. We have other milestones in our heads. Being a unicorn is more of a byproduct or outcome of our growth, so we are chasing the milestones that we have set like we want X number of active users or Y volume. But it’s never for the purpose of becoming a unicorn soon. It’s more about chasing our growth and mission. Very few conversations between Kush and me or within the team about that. It comes up as a joke, recently during the fundraise, the team brings it up. It always comes up as a joke, but we don’t discuss it.

S02 EP04. Sandy Mallik, PTC

In this episode, we venture into the world of AR/VR with Sandy Mallik, who heads Marketing for PTC in the UK and Nordic region. Here, he busts typical myths about AR/VR technology, how it can be implemented in the post-covid world and why one must opt for technology marketing as a career.

S03 EP03. Tanveer Khan, BIC Cello

In this episode, we talk with Tanveer Khan, Director (Marketing), BIC Cello, where he shares interesting anecdotes from his professional journey – from a fresh marketing graduate to leading a marketing function. He also guides young graduates and marketing professionals to focus more on learning and skill development rather than chasing designations.

S02 EP02. Anupam Gurani, Lead

In this episode, we talk with Anupam Gurani, CMO, Lead.

In his 17 years of extensive professional experience, he has worked with companies from FMCG to tech to the education industry. He talks about the importance of brand and how rebranding Lead School has led to expanding its impact in transforming Indian schools.

S02 EP01. Rohit Kaul, HCL

In the first episode of this new season of Marketing Connect, we have Rohit Kaul, General Manager (Marketing), HCL Corporation.

He is also an avid blogger and his blog ‘Seeking North’ delves deeper into the subjects of behavioural science and product management. He raved about the importance behavioural sciences hold in the marketing domain and not to miss – he gives excellent suggestions about how one can venture into this discipline.

India’s Pioneering FinTech Company | Kunal Varma @ Freo (Part 2)

Innovation and disruption are the hallmarks of the technology world. Amidst the fintech revolution and the subsequent rise of digital banks in India, going to a bank branch is no longer in vogue.

And with neobanking, this metamorphosis has reached a new level with state-of-the-art technologies and providing customers with easy, quick, and efficient financial services.

The Founder Thesis podcast presents to you a two-part series where Akshay Datt speaks with Kunal Varma, Co-Founder, Freo. He is a serial entrepreneur who started his entrepreneurial journey back in 2008, while pursuing his MBA from the Indian School of Business, Hyderabad.

Kunal, a self-proclaimed dreamer, fondly recalls his earlier days and shares how he always wanted to start his venture. After successfully building two ventures, he collaborated with Bala Parthasarthy and Anuj Kackar and started MoneyTap, which in five years has become an RBI registered NBFC and is now transitioning to credit led neobank, Freo, which is the first of its kind in the country.

Tune in to this episode to hear Kunal speak about how Freo is disrupting the traditional banking system with its innovative digital banking experience.

What you must not miss!

  • If you like something in your academics, you’re not going to do it for the rest of your life.
  • How interacting with people from different walks of life can help in developing your vision as an entrepreneur.
  • The transition from HR and EdTech to FinTech
  • The concept of neobanking
  • Relation between consumer research and building a product
  • Fundraising journey

EPISODE TRANSCRIPT

Kunal 00:00:43

That’s when I got my co-founder on board. And we created a product company, which was an analytics platform in this talent assessment and skill development place. And that became a slightly bigger play. And that was maybe my first step towards much more structured entrepreneurship, kind of going into becoming an actual entrepreneur and a business owner, kind of moving away from a very small operator to somebody more structured.

Akshay 00:01:14

So, this SkillWiz was what? Like an online assessment thing?

Kunal 00:01:20

Yeah. So, the way we envisioned it when my co-founder and I got together, we realized that look there is a need for skill development and India was going through this huge metamorphosis of skill development through different government programs (National Skill Development Corporation). The timing was right for us to do a lot of upskilling across professional levels. So, we decided to create a platform that would do two things. One is that it would allow people to look at different professional areas that they were working in and get very pointed skill development, for example, somebody working in digital marketing, somebody working in equity research, somebody working in trading, stockbroking, somebody working in, let’s say performance marketing, somebody working in operations research. So we picked all of these professional areas, which went away from the usual softer side of things, and slightly more functional domains. And we then spent a lot of energy and collated high-quality content for skill development. And this is all online. So people could come online. And the way they would assume this content is that they would have two parts of it. One is that they would go through a huge question-answer kind of content format, where they would quickly assess themselves.

Akshay 00:02:48

Like a psychometric assessment.

Kunal 00:02:50

Not psychometric because psychometric is more towards personality, I would say in a larger area, softer skills, but this was very hard skills, functional domains, like for example, I would have an assessment or on equity research or financial analysis, or business valuation or digital marketing, or social media marketing. So you know, very functional domains, hard skills. It is tough to create content. But once we created the content, it allowed people to quickly come on board, and it was an adaptive assessment platform, just like CAT or GMAT kind of a platform where, if you answer a question correctly, then it goes to the next level of complication. So we developed this adaptive assessment platform, and it took off well. Companies started using it because they wanted to evaluate their internal employees for understanding where the employees were on the learning and development scale. They started using it for recruitment purposes when they did lateral hiring for different roles. And individuals started coming to our platform, because they thought that it was a good way to evaluate themselves, and then use the score and then go back to apply for jobs and understand where they are good, where they are bad in terms of skills. So it then became a technology platform, which was eventually a marketplace. So it was free for consumers. And it was paid for by recruiters and corporates and the Government of India. We were enrolled by the Government of India (National Skill Development Corporation), and they started using a platform for assessing their people across the country. So yeah, so I think that was interesting for us and that was the first time when we pulled together, we raised angel funding from Mumbai Angels. And that set us on a different path because now you had external stakeholders, you had angel investors who were looking at the business. They were great individuals, they played a pivotal role in our lives as entrepreneurs, but at the same time, they forced us to be much more responsible in terms of how we thought about the company, how we thought about the business? And then I think along the way, we made a lot of decisions, we turned the company profitable, and a lot of good stuff happened.

Akshay 00:05:24

Okay. So like, essentially, was it a pure online play where you would advertise on Facebook and all and get users or was it more of a B2B play, where you would have connections happening and cold calling and so on?

Kunal 00:05:43

So I would say it is mostly if not totally, mostly a B2B play. And then a B2B2C play, wherein I would reach out to institutions, and eventually people who were using our platforms were colleges, institutions, or companies, Government of India. That allowed us to reach out to a large set of individuals. And then it allowed us to parallelly increase the services that we were offering. So while this platform was being used, for example, by colleges who wanted to get their students on to campus placement, and find out what their students were good at, and whatnot, the same college institutions are reaching out to us to figure out if we could deliver, again, high-quality training programs in those specific areas wherein we had done assessments for them. So we then introduced a whole line of training, that was again delivered in person, we developed a network of people who would deliver this. And I think that’s how things evolved. We had like two or three lines of businesses, and most of it, and almost all of it was B2B. But again, I think the focus was on the individual whose lives we’re impacting who would end up using the platform to assess their skills or get a job. So that was the main focus on the channels that ended up being B2B and B2B2C.

Akshay 00:06:58

Okay, so from HR and tech, how did you get into FinTech?

Kunal 00:07:04

Yeah, I think that was an interesting transition. So we had turned the company profitable then and we were just in the process of planning for our next fundraiser. And I was about to take a flight and go to one or two cities in India. We were Bangalore based, of course, so just about to fly out and got a whole bunch of meetings lined up for our Series A raise. And we started getting some very good inbound saying, okay, like people are having conversations, looks like you guys are doing something interesting, why don’t you come and talk.

Akshay 00:07:40

What kind of valuation were you seeking at that time? Like, how big were you at that time?

Kunal 00:07:45

I mean, we were not that big at all, we were very small. We were just an angel-funded company, at that time we will just be looking at a company with a valuation of like a few million dollars, very early stages. You know, because we turned the company profitable within 18 months of launch, after raising angel funding. So the whole idea at that time, again, was for us to be as much in control of our destiny as possible. And angel investors supported that. They said, “Look, why don’t you come on top of your entire business model, and then you think about what you want to do.” And those who are not the times when EdTech was as hot as it is today. Right? That was like some 7-8 years ago. So maybe it was a matter of timing.

Akshay 00:08:34

And your top line was like a couple of crores a month or less?

Kunal 00:08:40

Yeah, pretty much. That was the exact range and scale that we were operating in. And we were a small team and lean operations, very nimble, completely tech people in the company, and only the founders were doing all the business development. So it was a very lean and fast operation. And that’s what helped us keep growing faster, right? I mean, our product was getting used across 400 cities, in India and Southeast Asia, and a lot of people. So we grew very fast. But I think right at that time when we were about to raise Series A, we had a couple of conversations with some people. And we knew that look, at that time when we were looking at the business, I was very clear that the way we were building it, and the timing of it all, I did not see that company touching $100 million, as in terms of enterprise value in the next few years back then. I knew it would grow. And I knew that it would take its time and it could eventually become a good company generating good cash flows. So I was confident about that part. But I did not see this becoming like a major $100 million company and then growing from there to probably much bigger than that, right. And something that I would put my entire life behind. And it was not an easy decision. Because once I could grow I mean, we got a Series A done pretty much at that time. And we would have taken the next step, but had to kind of think three steps ahead and say, Okay, what if, what if I do this? Like, am I gonna go deeper and deeper into this? Or do I need to look at the larger picture and evaluate my own opportunity cost? So anyway that happened.

Akshay 00:10:28

What made you feel that it’s not going to be big, were there any external signs or triggers?

Kunal 00:10:34

Yes, I think at that time, in the 2013-14 timeframe, the market was not very receptive to a completely technology-driven education system, or whether it is upskilling or assessment, right? There were a lot of products out there. And they were doing their job. But we didn’t see that as like, probably really catching fire.

Akshay 00:11:02

I think around this time, Mettl, Aspiring Minds, these would have been your peer group.

Kunal 00:11:06

Yes, that’s correct. Absolutely. And I think when we were looking at those companies, I mean, kudos to them for building the companies in their own right. But you know, as an entrepreneur, I had to evaluate my opportunity cost, and it is not easy to do because whether you pick a small problem to solve, or you pick a big problem to solve, the pain that you will go through is the same. So if you’re going to go through the same amount of pain and sleepless nights, then you’d rather pick a bigger problem. And this is something that I did not know on day one of starting my journey as an entrepreneur, but I knew a few years into my journey. So it’s also a discovery process, right? So, more than anything else I realized that what had changed for me is that I started making better decisions, my judgment improved significantly in terms of evaluating opportunities, evaluating costs of time and capital and evaluating how to take an overall decision on a day to day basis. So with that, and if I saw that India was just about becoming a digital country, but very early days, e-commerce had not taken off through the roof. It was becoming super popular but not as big as it was today, people are still questioning like, will there be a massive digital market? Will the active internet users in the country be there or not? Will smartphones become the thing of the future or not? And how will digital businesses be valued, and some things may not ever become properly digital unprofitable, particularly things like education. So I was looking at all of these signs, and I had to make a judgment call. I don’t know, maybe if I stuck with that time, if I figured it out and navigated my business differently, it was a pandemic, I would have done very differently or not, you never know. Life cannot be lived on what-ifs. So anyway, we had an opportunity, and we decided to let’s see how we can build this out. And right then, we had the opportunity to, one of our clients who we worked for in Singapore, they were interested in buying the product and the IP that we had built. And it happened right about that time, just before using Series A, so we went back and spoke to a couple of our board members, and they were very supportive because we had told them that obviously, the company is profitable. And as investors, none of you will ever need to take a haircut if you exit the company, that’s like our word as entrepreneurs. And they were very supportive. They said, “Yeah, absolutely, why not?” So we ended up selling SkillWiz. And then onward and upwards. The next thing and right about the time when we were thinking about doing that is when the seeds were being sown for jumping into FinTech, which is what we’re doing today.

Akshay 00:14:13  

So when you sold it, the acquirer didn’t want you to stick around, like sometimes the acquiring company wants that? But it was more of a product?

Kunal 00:14:25  

Yeah, that’s true. Yes, product acquisition, they bought the product. So that is how it was. And we were very clear that we wanted to move out of the space. Because you know, investing two-three years more in this space will be a high opportunity cost. So we did that. And honestly, it’s one of the toughest decisions you make as an entrepreneur because you build something, and even though it’s doing well, and you have a great outcome, great learning, but still, letting go of something is not easy. As an entrepreneur, you know, even when you want to sell it, you’re always thinking should I, should I not? But yeah, we made that decision. And in 2015, I think we were, again, putting our heads together like me and my co-founder. And today, who is a third co-founder at Freo, so we had all known each other from the past as well, but it’s all serendipitous that we are thinking about how things are evolving. And we are talking about consumer problems.

Akshay 00:15:21

Did you have enough money in the bank after the buyout to fund your next startup?

Kunal 00:15:27

Well, I think not as a long way down in terms of funding. But I think the whole…

Akshay 00:15:35

Enough to not need the Angel round.

Kunal 00:15:38

Yeah, I mean, that is there. But I think the path ended up being very different. Because we started the company with a large seed fund itself, right? Right from day one, we had raised, a $3 million seed fund in MoneyTap and Freo. So this journey was on a completely different scale. But, I think the biggest thing that we all brought to the table was our entire thinking about what problem to go after, and what space to go after and how to approach this.

Akshay 00:16:09

And tell me about those discussions, like how that idea became from a vague idea to a clear vision.

Kunal 00:16:19

Yeah. So, a lot of conversation around what was happening on the ground in the country and what we were interested in and what I was interested in a lot was the consumer space, consumer and technology, right? So what is happening in the consumer space out there? Or how is technology changing things and what are some of the biggest factors which are affecting people’s lives? Money is the way people live their lives by spending money, borrowing money, and technology. The confluence of these two appealed to me the most like one of the most exciting things for me as an entrepreneur and as an engineer at heart. Technology and money then a confluence of these two, I mean, it doesn’t get more exciting than this for me. So, we were talking a lot about what is happening on the ground, and we saw a lot of trends. We saw how people were looking at banking, looking at financial services, Aadhaar had just come up. And it was getting popular. We were talking about India stack and a whole bunch of new changes happening, a new breed of technology stack getting created in the country, completely new trends in terms of how we thought people would do transactions in the future. And at the same time, we were looking at what the banks were doing, which was trying to operate in their ways but not embracing the change the way consumers wanted it to back then. The bank was not thinking outside, they were very inside out thinking like, “I have a capability. So I will give consumers whatever I have as a capability rather than what the consumers need and can I build that?” So we spent a lot of time thinking about this. And there was a clear opportunity to build something. And at some level, we knew that if we go down this path of creating a company or creating a business, which builds products, or delivers services for customers in the financial services space using technology, we will become a consumer FinTech company. And if we do this right, and build this right, this could be a very, very big play eventually, in the future with the potential to morph itself into some form or some avatar of a digital bank small or big, or in some way, but it was very vague back then. And terms like neobanks and or did not exist at that time, right? It was all about specific products and services. And today, we have this term called neobanks, but back then we thought that we will start by doing something and eventually build this into a larger business, which could start looking very similar to maybe a digital bank of the future because that’s eventually the climax of any big play in financial services. You need to resemble maybe something or some form of a bank, it could be technology-driven or not. So we put our heads together and spent a good amount of time on the ground talking to customers, individuals. And that was an interesting phase. I remember my time when I was living in Bangalore, standing outside the State Bank of India branch, HDFC branch and, standing outside a mall randomly in the middle of the day, people are walking by and I’m like, “Excuse me, ma’am, can I ask you a question?” And people saying “No, no, I don’t want anything.” They assumed you want to give them a free card or fulfil some loyalty program and some things, holiday packages? Totally. So there were incidents where I spoke to people, and some of them would entertain me because they looked like, “Okay, looks like a decent chap, nerdy guy, maybe like talk to him, say something.” One, so I remember I was standing outside an HDFC branch, it was near Sarjapur Road if I remember correctly. And I was talking to people and I think there was some junior guy from the bank branch or security guard who came out and said, “Hey, why are you talking to my customers?” So I was like, “No, I’m just doing research based on some academic work.” I cooked up a story.

Akshay 00:20:35

You can’t even say this is my summer project. You probably didn’t look young enough.

Kunal 00:20:41

I looked too old to be in school by then. But, I had to come up with some reasons that they don’t throw you out. And I was not going to say that “I’m going to build a product, which will beat your product. So that’s why I want to talk to your customers,” that wouldn’t have flown either.

Akshay 00:20:57

What was it that you were asking, what kind of information were you trying to get?

Kunal 00:21:03

Well, just trying to ask people a lot about how you find the experience of taking credit from a bank? If you need money, which is one of the biggest reasons why people interact with banks and financial institutions because they need money. They need to park their money and make their money do well in terms of investment, and the other is they need money, and by far in Indian society, the need for money is way larger than the need for investing your own money because we are a saving society right. So, credit was obviously at the heart of what we were thinking of the problem and our questions, and customer and consumer research was all centred on credit. So, we spent a lot of time talking to people. I would ask people questions like “Hey, you know, have you taken a personal loan from this bank? And If yes, then now, how has your experience been? How much time did it take? What are your interest rates? Would you go back to the same bank and get another personal loan? Is your need like a three-lakh personal loan or do you need 25,000 rupees like what do you need? And what are your choices if you did not go to a bank, what would you have done otherwise?” So, people gave very interesting answers. Right from telling us that they have no choice but to go to a bank and take this because it’s too embarrassing for them to talk to their family or their family doesn’t have money in the first place. And giving us proper answers right down to saying that, look, this is what I don’t like in the process and the service. And this is bad. And that is where people give us very good or interesting feedback. And at the same time, I also got feedback like when they don’t talk to me, and I remember one woman customer standing outside a Big Bazaar. And she was like, “No, don’t talk to me, I don’t share my personal financial information, my husband is coming, so just go away.” I’m like, Okay, fine. So she probably felt a little offended that I was asking financial questions. But I think a lot of people engaged and we would have ended up through our way of reaching out to consumers, both in-person and online, all put together, we would have touched almost 1000 customers or potential individuals. And we got a lot of information. And that was the genesis of us starting our business. And we launched our first product back then, which was with the whole objective of providing unsecured credit to individuals in the country, but completely digital on a smartphone, and not offer it as a traditional loan, but a line of credit. So we became India’s first app-based credit line product. This product did not exist in the country then. Now, overdraft facilities were there. Banks would offer overdraft facilities and credit lines to businesses, but individuals like you and I were not going to banks and asking for a line of credit, right? We were just taking loans and stuff. So we created this category back then. A lot of people that we spoke to told us that, well, not sure this will work, because nobody’s asking for this. So it was not very obvious, it was quite counterintuitive for us to come up with this approach and say this is exactly what we will build. And we had spoken to the CXOs, the CEOs of a lot of banks in the country, top private sector banks, top public sector banks, we sat in the offices of their CXO teams, CEOs, COOs, and we spoke to them about this product. And a lot of them said, you’re just smoking something, this is not gonna fly. This is not how banking is done in India, this is not what people want. People want what I’m offering and this won’t work. So almost everybody, maybe barring one or two people, almost everybody told us that this is a bad idea, this will not work, this will fail absolutely. But by that time, all three of us were serial entrepreneurs. And we had our conviction in terms of how we looked at the world. And we were approaching it from first principles, saying that, look, this is what I think is missing. And this is what I think I can build. And this is how I will make money. And it has not been done before. But that is exactly the opportunity. And that’s what makes it stand out. And that’s how we launched the product. And we call the product MoneyTap.

Akshay 00:25:29 

So this was an alternative for people seeking personal loans.

Kunal 00:25:33  

Absolutely. So anybody who was going to go to a bank and borrow money or going to go and talk to their uncles and aunts, and cousins, and friends to borrow money, could download the MoneyTap app. And they could apply for a line of credit. And once they got access to the line of credit, they could borrow small or big amounts as per their needs whenever they wanted. And they could then decide their EMI saying, “Okay, I have a four lakh line of credit. But, I just need to pay a rental deposit for this new flat that I have moved into, and I’m running short of cash by 40,000 rupees. Let me just take out 40,000 from this line of credit, but I’m comfortable in paying it back in six months. So I will choose my EMI tenure to be six months.” And then maybe 20 days, 25 days, six months, one year down the line, I decided that I need some more money because I have a medical emergency in the family, I suddenly need let’s say 27,000 rupees. And I cannot go to a bank and ask for a loan for 27,000 rupees. And even if I did, and even if they were to entertain me, it would take me two weeks to get it. And yeah, but the bank would give me a personal loan of four lakh rupees, and then I would have to pay interest on the entire amount on day one. So instead of that, I mean people realized that this flexible product where they could just keep the line of trade with themselves but start borrowing from it only when they needed the cash. So that proposition stuck with customers. So I think one step at a time is how we approached it, focused obsessively on customer experience and focused a lot on what the customer wanted and the economics behind the business. And then that’s how we created the company. I think one thing led to the other today, we are the largest credit line product in the country. I mean, by far, like a lot of people have tried to do it is probably a fraction of our size, but this product continues to be one of our flagship products today. And it’s part of the larger Freo neobank that we have made today.

Akshay 00:27:45

Okay, so essentially, your consumer research told you that people need speed and flexibility and which is how the product got built up.

Kunal 00:27:54 

Yeah, the Indian consumer is very demanding, right. They’re like hard bargain seekers. So people wanted speed and flexibility, as you said, but they also wanted it to be convenient and affordable at the same time. So convenient, because I don’t want to leave my house.

Akshay 00:28:12  

Right. Okay, convenience, I understand but how could you be affordable compared to banks?

Kunal 00:28:17

Yeah. So I think that that was one of the other tough problems, right. So it’s like a Rubik’s Cube because you move one piece here, and then suddenly, some other side is broken, because you are solving for red colour and now the yellow colour is disturbed because you solve for red colour. So you’re right it is not easy, but when we architected the product, we worked closely with one or two banking partners, because we are going to use their balance sheet at the back end. But the product construct will be complete as the platform the technology, the entire end to end process will be ours. So when we are putting it together, when we architected it, we cut out a lot of, I would say, flab from the entire credit product.

Akshay 00:29:01

Okay. Like, typically what a bank pays to the DSAs for sourcing the loans, so that part you cut.

Kunal 00:29:10

Not just that, I mean, think about it like this. So, for a traditional bank with a traditional operating model to be able to service a home loan, you need to be paying for the branch office where the customer walks in. So the retail cost of a brick and mortar cost, a fat operating cost is not something that justifies a 25,000 rupee loan, unless you have a clear path to making a lot more from that same customer. But when you take the entire bloated cost structure out of the picture, and you introduce a slick technology platform that the customer finds intuitive to use, it changes the game in terms of how much money and manpower is thrown at that process. And, the speed in which case, the customer touchpoints go down, the time you spend internally goes down and then you can scale it right here. Your same team can now process 100,000 customers instead of processing only 1000 customers because it’s a technology process. So that allowed us to create a very fast and scalable system. And when we did that, we realized that the credit line product was something that customers loved, and they caught it and they started borrowing a lot. So the unit economics started working out well. And that’s how the product at a customer level started getting very profitable. And then one step in front of another, like I said, eventually we started with one partner and then you know, the word spread very quickly, a couple of years, people knew us that look, these guys are probably the best credit line product in the country, the only guys who have been able to pull it off with that sophistication. And thanks to our team and mostly to our customers. We had a really, I would say a smooth product, a completely chat-based experience as if it’s like chatting through a WhatsApp with your friend, ported in seven vernacular Indian languages from Marathi to Bengali to Tamil to Telugu to Hindi or English. And that changed the game for us.

Akshay 00:31:21 

And did you need an NBFC license for this? Or because you had a bank partner that was not needed because the loan is not on your book?

Kunal 00:31:30

Yeah, that’s correct. So initially, we did not need it. We did not need an NBFC license. But we needed to create a structure wherein because we wanted to control the entire product journey and the customer journey. We had to make sure that we control pricing, we control experience. And we created more bank partnerships wherein we didn’t need to bring in our own NBFC model. But we still had a large say in how the revenue would be structured. So we started creating business and commercial models with our banking partner, which is all about revenue sharing and risk-sharing. And along the way, so when we then thought about what next like what’s the larger vision for this business, where will it go? We knew that getting our own NBFC license in the mix was going to be an important piece of the larger puzzle. So we applied to the RBI and we got our own NBFC license, I think sometime in 2019. And today, although it’s a smaller portion, our NBFC is operational, and we lend on our books, in addition to lending overall as a platform in partnership with a large number of bank players.

Akshay 00:33:10

What was your customer acquisition strategy? Like the people who were taking loans or taking the line of credit? How did you get them on?

Kunal 00:33:21 

Yeah, two things. One is the story that you tell. And the second, obviously, the channel that you use to put the story out. The story was not too complex. The story is very simple. And if you have a product that is superior to what anybody else is offering, then it comes down to your ability to explain that product in a very simple form. And thanks to the team that we have, the entire marketing and product team and thinking that the team was able to put together a clear explanation that this is how your money problems in life can get addressed. And as this message started going out to consumers, the channels that we used were initially mostly digital, which is I would say a combination of search engine optimization, search engine marketing, I would say, performance marketing, inbound content-based organic inflows, social media presence, and then a whole bunch of online partnerships. And then I think, eventually expanded a lot into different formats of partnership with other companies, affiliates, offline partnerships, and so on. But largely, I would say, almost completely digital in the early days, and then expanded into other formats of partnerships.

Akshay 00:34:33

How would partnerships give you customers like, say, with an e-commerce company that when the customer is paying for the product, then you offer him a way to take a loan?

Kunal 00:34:44

Yes. So no, it’s not exactly like that. Because that would be financing it at the point of checkout to become more like ‘buy now pay later’, or like a purchase check out financing, but mostly in terms of companies. Other companies had customers of their own that were offering some other products, and reached out to those customers and said, “Hey, are you interested? By the way, we believe that because of your profile, you might be eligible for, let’s say, a financial product, like a line of credit? Are you interested in it?” And the customer said, “Yes, we are interested.” And that’s how we forged a partnership. And then we partnered with a whole bunch of people with different formats with such arrangements.

Akshay 00:35:25

Got it. Okay, like a special offer thing.

Kunal 00:35:28

Yeah. That or in some cases, companies themselves wanted to expand into financial services. Companies were doing other things, they wanted to expand the financial services, but they didn’t want to build everything on their own. So they partnered with us, and the credit line will be offered from our side. So we were very clear that we are, we are going to be good at only a few things. But we should be the best in those few things. And for everything else, we should just collaborate and partner and eventually over some time decide whether we want to build out more capabilities or not. And that created a complete business strategy for us, which is predicated on a lot of partnerships. So collaboration with other players in the ecosystem, whether it is banks or NBFCs or other players or consumer companies is a big part of how we think about our business strategy.

Akshay 00:36:20

Okay. And tell me about the founding team, like who are your two co-founders here? 

Kunal 00:36:27

Sure. So two co-founders, Bala and Anuj, both of them again, serial entrepreneurs. Anuj and I were co-founders in my previous company SkillWiz, the analytics platform that we created. And he and I have known each other for a while. We both went to the Indian School of Business about a year apart. So we’ve known each other since those days. And Bala, we knew because at that time he was wearing a different hat as an investor before he turned back to being an entrepreneur. But he was in Bangalore as well and we used to meet in different contexts. And I think it was just serendipitous that we stayed in touch about a lot of things and you know, paths crossed again with Bala and he was thinking about this and we were also thinking about starting something and I think that’s how it came together. But both of them have phenomenal backgrounds and they bring so much strength to the table. Anuj being a mathematics graduate, spent the early days of his career in the advertising industry and post his time in Business School, he spent a lot of time in telecom and has built retail businesses and looked at retail businesses at scale. He brings a unique perspective from that standpoint. And Bala himself has been an entrepreneur, engineer from IIT Chennai and went to the valley and spent about 17 years there. And done a whole bunch of startups, including Snapfish, which is one of the largest Digital Photo companies, which was sold to Hewlett Packard and he spent a lot of time with the Aadhaar ecosystem where he was one of the volunteers with Aadhaar on day zero working with Mr Nandan Nilekani. So he was quite involved in the entire ecosystem. And then he went back to being, he wore the VC hat for some time. He started Prime Ventures as one of the founding partners, and then eventually he realized that the entrepreneurship calling was very strong. So he went back, he exited his whole position as an investor and went back to being an entrepreneur. And I think we all got together and we all knew each other. So that’s how we all got together and started.

Akshay 00:38:52

Okay. Yeah. And Prime Ventures is also the one who gave you the seed fund initially.

Kunal 00:38:57

Yes, that’s right. So Bala was not a part of Prime Ventures at that time and had already quit his position. But yes, they were strong believers in us. Prime did come in very early on and they are still very strong believers in our business today.

Akshay 00:39:15

How much have you raised after that initial seed round?

Kunal 00:39:20

So totally. So we went through a bunch of fundraisers, we did seed and then we did a Series A during which Sequoia came in. And that was Series A led by Sequoia Capital. And was about close to a $9 million check at the Series A stage. And then we again did a Series B, which is close to a $26 billion check in Series B itself. So that’s how we’ve done so far. And now I think as Freo, we are kind of growing, coming out of COVID and growing fast again.

Akshay 00:40:03

So from MoneyTap to Freo, when did that movement happen? You initially started as a line of credit app. Then how did that expand?

Kunal 00:40:16

Yeah. So that’s an interesting part because we always had it in the back of our mind that the eventual play has to be much larger. And it has to go obviously, beyond a single product company. So we launched a line of credit. And then we launched other credit products, and we had our co-branded credit cards in the market, co-brand with another bank. Today, as far as having your credit cards go today, we are the largest credit card consumer FinTech in the country. And our credit cards portfolio is maybe around 10% of the size of IndusInd bank’s credit card portfolio, broadly speaking. But as we introduced more products, we knew that the larger brand that the customers relate to, has to be one where they don’t just associate a line of credit, but they associate other products as well. And the one thing that we realized is that the future, which is a multi-product entity, which would eventually morph into some form of the digital bank, has to have its own brand identity. And that is the brand, that is the umbrella, the mother brand that our customers should associate with the customers, the brand that customers should believe in and the brand that customers should want to come to. So we had to think of it from a larger consumer-brand, consumer-association standpoint. And we knew that while credit would be one of the most important pieces in our larger banking play, the brand associated with only credit has its limitations. Because then if people know you for that particular product, their associations sometimes are too strong. Your strength can also be a weakness from a branding standpoint. So we decided to keep the MoneyTap brand intact, focused on the current credit line product. And then think of creating a much larger brand as a digital bank of the future or as a neobank today and have multiple products kind of coming under that brand. With the whole vision that eventually in, the future people should see it as a multi-product brand And that’s how we made the transition. So it was in the works, thinking about it a lot, a lot of background work and research went into when what timing. But eventually, it all came together. And that’s when we announced the brand. 

Akshay 00:42:58

When did you make the move, in terms of creating a separate brand?

Kunal 00:43:04

Yeah, so this happened during the pandemic year. So we spent a lot of time and energy putting it all together and towards the second half of 2020, this is when this went live. And then a lot of it is like an iceberg, right? You only see, like, maybe top 1% and 99% is below water, you don’t see. So a lot of background work went from the team members and eventually came together towards the end of last year.

Akshay 00:43:37

Okay, so why the name Freo? 

Kunal 00:43:42

Yeah, we announced the brand and all very recently in 2021, even though the products and everything had gone live much earlier as I said. But obviously, there’s a branding strategy, I think the name represents. It’s a coined word, but it represents freedom, it represents the whole idea that we should be able to provide a window to our customers which open doors for them. And it provides them with a lot of financial freedom and the way they want to choose how to build their lives. So I think with a mix of ideas around freedom and opening doors for our customers, we created this brand name, which we wanted to be simple, easy to remember. And something which kind of is very easy to go with, short and simple. And that’s how the name came about. I’m giving you a very simplified version, but the number of late nights that the entire marketing and branding team would have spent, particularly my co-founder Anuj and his entire team, was just phenomenal. I’m giving you the nice, cool version of putting this together. There was a lot of work in putting this together.

Akshay 00:45:03

Okay, so what is Freo? Is it like a bank? For a layperson, what is Freo?

Kunal 00:45:11

Yeah. So obviously, the business version of it is that Freo is a neobank. But for a customer, Freo is going to be the banking platform of choice where customers can come and get access to intuitive, simple, convenient products around credit, around pay later, around savings and a whole bunch of products. So we have disclosed a few products and a few more products are in the pipeline. And because of media reasons, I can’t disclose the names right now except exactly what and when. But the idea is that these should allow the customer to then see that, “Hey, I, as a customer, have one window, or one login, which is Freo. And through which I’m able to access a whole bunch of intuitive products and services, which are important for me to build my financial life. How do I build my financial life in terms of how I get access to money? How do I save, let’s say, spend my money intelligently? And how does that help me build my credit profile, so that in the future when I need to borrow more money or do something bigger, then I should be able to do it with Freo.” So for customers, Freo is a destination where they can come and meet the needs of their financial lives in one place by accessing very simple, intuitive, flexible products all to the convenience of their smartphone. And if they liked the product, then they should be able to build a complete journey with us, not just for one product, but if they use one of our products, we should then be able to help them get access to other products. So it’s going to be a long, long journey, wherein customers can actually build a lot of things in their financial life with us, not just come and buy a product or a service and then just walk away. But we want to be able to engage with our customers and help them through their journey in different aspects of their financial life. But our focus is on helping people improve their financial lives and make them simple and intuitive and affordable. And that’s how we’re thinking about Freo

Akshay 00:47:20

So essentially, it’s a replacement for an ICICI bank like I start with a savings account? Oversimplification but.

Kunal 00:47:34

No, I think look, I mean, I would love for a customer to think of us like that eventually that we should be able to play a key role in being one of the choices. One of the choices and probably a digital bank of sorts. If I were to be, an entrepreneur, I also have to be humble about things like ICICI or any other existing bank, like an HDFC. These are great institutions for what they do in the way they do it. So I don’t think that these larger institutions are going away anywhere, anytime soon. But we do believe very strongly that, you know, first of all, financial services is not a winner take all market in any country, in the world, you name it, and that’s how it is. That’s the structure of the economy. But more importantly, what we believe in is that five years from now, 10 years from now, the way a consumer, like you or I will consume a financial service is not going to be the way it has been consumed today. And that is what we believe we will become. Now then, if the incumbents can reinvent themselves and change into larger and different organizations and put customers first, then great, but if not, then I don’t know where they will stand in the overall pecking order as far as the customer is concerned. But we will believe that 10 years from now, when a customer wakes up in the morning and says, “Hey, look, money is a big part of my life, finances a big part of my life, obviously, where is my loan? Where am I saving my money? What happened? And I did this for the past six months, what is the advantage that I got? And can I just do it all while sipping coffee on my smartphone itself?” So it’s not just about having a digital app. for existing services, right, every bank provides a banking app. So it’s not about providing this or about taking an existing way of banking, an existing way of financing, and just slapping it onto a smartphone application. It’s about thinking that if I can understand the customer’s credit and financial needs if I can understand the customer’s payment needs if I can understand a customer’s saving needs. And I can tie it together by saying that because I save in a particular way, I should spend it like that. And because I spend it like that this is the best format of credit that I should be using. If I can connect these dots for that customer, and I can do it using technology so that the customer can consume it on a smartphone, then I think I will appeal to the customer. So I’m not sure about replacing the so-called ICICI banks of the world, but I think I would be a choice destination for customers in the future.

Akshay 00:50:33

So do you have a savings account? That’s where the journey starts, right? Like, the first thing is you want to open a savings account. And whichever entity you open the account with also ends up getting a lot of your other business or taking care of your other needs.

Kunal 00:50:49

So at Freo, I think the savings product is going to be a key part of our larger offerings. And the way we look at our savings product is not just about a savings account that a customer should take and just replace all of the savings accounts. Because a savings account in isolation is not the biggest thing that a customer wants, right? Today we are a country where we have close to 700-800 million debit accounts. So it’s not that most customers that we will go after, which is the individual consumers, the middle class, aspirational Indians living in the cities. These are not individuals who are lacking a bank account, per se. So we don’t think that just by providing a greatly intuitive, customer-friendly savings experience, we will become the primary bank account. I don’t think anybody should think about it like that, because all of us have enough savings accounts and all of us have multiple savings accounts. So the Freo savings account is going to be an account that will tie very closely into building the credit journey of a customer. So while we will offer very competitive interest rates, we are offering competitive interest rates on the savings account product, it will be at par with the most competitive rates in the industry, it will be a very smooth, intuitive smartphone experience. But what is going to be exciting about this is that this is going to tie in very smoothly with how a customer can access credit in the future. 

Akshay 00:52:22

In the sense that the data of your transactions would help in creating a credit limit and things like that?

Kunal 00:52:32

We would engage with our customers and help them get access to the right kind of products that we have, whether it is our pay later product, or whether it is our credit line product or whether it is our cards product. But customers take one step at a time and go from helping them save conveniently. Maybe by being their secondary account of choice not trying to replace that primary account at all.

Akshay 00:53:00 

Why not? Like why not replace the primary account?

Kunal 00:53:05

Well, because I think from the get-go as a step one, that’s not the battle we want to pick. Maybe in the future.

Akshay 00:53:14

If you’re looking at younger people getting their first paycheck, wouldn’t it? Like if they were to?

Kunal 00:53:24

I think it can and that’s why I said that what you need to do is when customers are putting their money you need to first earn their trust, right? Just because you have an intuitive and experienced product, the customers are not going to trust you with that. And I believe in that. Because if you need to win the trust of a customer, you need to be able to provide great value for the customer. So we believe we will attract the right set of customers, but will I replace their primary account, which is driven largely by how their family thinks a bank account should be out? Traditionally, how has the family banked What location they are living in, and which is the closest branch that they can go to a lot of cultural factors have decided how we know our primary bank account operates.

Akshay 00:54:05

I do think that’s changing. I mean with the pandemic.

Kunal 00:54:09

No, absolutely. It is changing. Absolutely. And I think the way to change it is again, you have to approach it from first principles. I would love to claim that yes, of course, we will disrupt all bank accounts and we’ll become the bank account of choice. But I don’t think it is going to happen overnight. And I don’t think that’s the battle I want to pick because we also need to focus on where we can be different and better for our customers. So also on day one, I don’t want to claim that, replace your State Bank account with our account. I don’t want to claim that. But I first want to earn the trust of my customers by saying that when you open another savings account with us, and we believe based on the initial response, this is going to happen on a large scale. So we are pretty optimistic about the success of this. But we should show the customers the way forward in terms of what’s going to be the other benefits that they’re going to get with us. And when we merge it, which we will disclose in terms of, you know, how the customer’s journey unravelled, and how they build their credit and financial profile, that is what is going to allow us to then become the account of choice for our customers. So it will happen, I think it’s going to be like an organic journey for us.

Akshay 00:55:25 

Okay, although I genuinely think opening a bank account is one of those painful experiences, which is like a certain demographic. Tech-savvy people who are always working on apps. I mean, you know, if you can get food delivered, why can’t you get a bank account through your app? You know that is like a major pain point.

Kunal 00:55:48

Yeah, absolutely. And I believe that a lot of people are trying to solve this problem for sure. So the problem that opening an account is painful is a well-known problem. So it is going to be a point of parity for us in the sense that we have to provide the best in class experience. But that alone is not a winning proposition in the long term. I would say in the short term, yes, but not in the long term. So you need to marry that with other advantages as a company. So at Freo, we have some very unique advantages, because we are a very successful suite of products that are operating at scale today, across our cards, now our pay later or our credit products. When we tie that value together and identify valuable cross-sell to our customers, that’s when it really becomes interesting for them and not just the intuitive experience of opening the savings account.

Akshay 00:56:40

Okay. And this account would not be like you would have a bank partner right because you’re you don’t have a banking license?

Kunal 00:56:50

Yes, that’s right. We are already working live with our banking partners at the backend. And when we publicly disclose a lot of things, we should be able to also share the names and details of those. But yes, the short answer is we will have multiple bank partners at the backend with whom we will collaborate to bring this value to our customers.

Akshay 00:57:08 

And so this would be like regular savings account with a debit card and features like fixed deposit and stuff like that.

Kunal 00:57:16

Yeah, I mean, it would come like we have different offerings over there. But, very lucrative, savings interest rate on the account, flexibility in terms of operating the minimum balances, frequency operation, digital access, and the ability to quickly access other products beyond the savings account through Freo, which is going to be much easier for them rather than going and standing in a queue and applying for a loan in an office in a branch. So those advantages as well, along with the advantages of a unique intuitive savings account. 

Akshay 00:57:47

So this product is a B2C product only right? Not for businesses?

Kunal 00:57:55

Completely B2C, we are a B2C company, it’s a complete B2C product. Absolutely, yeah, the idea is to go out to individuals, customers who are anywhere, let’s say aged anywhere from 23-24 years going up to as high as 45, the late 40s. Aspirational middle-class, mid to high income, varied income range, people who are comfortable using a smartphone, who like using the convenience of apps, and who are living in the usual locations, the cities and towns in the country. And they want to move up in life in terms of a better financial situation, a better quality of life, better access to money, those are the customers that we are going after.

Akshay 00:58:41

So it would be like a similar base as what Cred is also targeting.

Kunal 00:58:48 

I think Cred does a great job in how they appeal to their customers. And my understanding is that Cred appeals to mostly the credit card holders today, currently. And they constitute the slightly more premium segment in the country, which is like the upper-end because 30-35 million unique credit cardholders in this country are slightly sitting on the upper end of the income spectrum. So there will be some overlap for sure. But there will be a vast disjoint set as well in the mix.

Akshay 00:59:28

Like the people who don’t yet have a credit card or a credit line, that would be a bigger…

Kunal 00:59:34

Yeah, I mean, a lot of people who have loans, but those who have active credit cards, but even a lot of people who have credit cards, so a lot of people who are using our products today, they already have credit cards from other companies. So definitely a lot of those plus people who don’t have credit cards or who don’t like using credit cards will be. It’s just amazing right in a country of 1.3 billion people the total number of credit cards in the country is less than 50 million. So, that tells you that obviously, credit cards have not been like the primary product so far in the country. So we are looking at a larger population and some of them will have credit cards some of them may not.

Akshay 01:00:13

Got it, okay. And you also have a ‘buy now, pay later’ product.

Kunal 01:00:18

We do have a plan ‘buy now, pay later. And we have a ‘pay later’ product for sure. So we are looking at our product spin, our own experience in terms of how to pilot a product out there, which is offering a much better experience than the very traditional offline buy now pay later.

Akshay 01:00:36

Okay, as in you’re not planning like the digital e-commerce tie-ups for buy now pay later? You’re looking at more of a card-based approach or something?

Kunal 01:00:46

Yeah, I think. We don’t believe that the traditional approach, the way the buy now, pay later is done in the country, is something that we also want to do. So we don’t want to be the 50th player and there are already 49 players doing the same thing. There is no point in doing the same thing. And some large incumbents are doing buy now, pay later right, the great organizations like Bajaj, Tata, Home Credit, they’re doing great. It’s just another name for purchase financing in some ways. And I think some institutions are doing it at scale in their way. So we don’t think that we want to enter that space and play that game by those rules. We will have our spin in terms of how we facilitate a complete digital experience for customers for maybe a different type of transaction, not using the typical merchant types, but maybe having our approach. So being able to provide a completely app-based experience for customers who can just make a transaction right now for a service or product but pay later but completely to the smartphone.

Akshay 01:01:53

Okay, like scan the UPI QR code and like a UPI based approach?

Kunal 01:01:59

Yeah, something like that. But a combination of those collaborating with other banks or NPC and others, and then creating a product, which can operate at the mainstream. But again, doing it our way rather than doing it the way the incumbents have been doing it for several years.

Akshay 01:02:16

And do you plan to apply for a banking license also to become a full-stack bank?

Kunal 01:02:22

Well, I mean, that is the billion-dollar question. Well, I think we will eventually do that. We do have a lending license of our own. You know, our regulator, the RBI is a progressive regulatory body as such, and they have been talking a lot about different formats of bank licenses, right. So you have small finance bank licenses, and you have the payments bank licenses, and the regulator has been talking a lot about ideas around, license on tap as far as a digital license is concerned. So we think that a few years down the line, we will get into that as well. But how that happens, when that happens. I guess it’s too early for me to exactly state with confidence. But that’s a dream for us to be able to take a company to that scale. Let’s see how that pans out. But yeah.

Akshay 01:03:17

How big is MoneyTap/Freo today? Like? What is the number of people, like, some numbers, if you can tell, like how many people have active credit lines? Or what is the total amount of money lent out? That would be interesting. 

Kunal 01:03:36

Sure, sure. I mean, I can share the numbers that are there in the public domain, or we are allowed to put them out there in the public domain. So I think overall as a company at Freo to date, we have now dispersed, close to almost a billion dollars of credit. And the number of users that we have overall attracted to our platform has exceeded well more than 10 million in terms of overall users who have come to our platform. The number of active transacting customers is smaller than that. I think the other thing is we see a large geographical penetration today, we see the presence of our products, where customers from more than 80 cities in the country are using our products. And I think the pre-pandemic time we were growing 3x a year on year and I think the COVID year we also grew significantly, we added a large number of registered users, we added a large number of credit transactions to our platform. And now we are back to a very strong growth trajectory, where we believe the next 12-15 months are going to be interesting, where we will probably see a 3x jump in the size of our company.

Akshay 01:05:01

How much did you grow during COVID? Like was it more than 3x? Or like in the last financial year?

Kunal 01:05:08

Yeah, so I think during COVID, we grew the user base from almost 10 million registered users to well over 13 million registered users. So that was huge growth. And I think the credit by itself, just within the pandemic time was, I would say, close to around well over 2000 crores of credit, just as it was in the middle of the pandemic.

Akshay 01:05:40

Wow, okay. And what is the business economics like, what percentage of the interest do you get to keep? How much goes to the bank partners, like broad numbers, not exact numbers.

Kunal 01:05:53

So we have a revenue sharing and a risk-sharing arrangement wherever we take any risk in the financial partnerships that we have. And otherwise, the products that we run, whether it is credit or cards, range varies. Obviously, in some of our credit products, the interest earnings that we get from the customer, we keep the lion’s share of the interest earnings with us, which is well over 50%.

Akshay 01:06:16

But why would the bank agree to that? Like, I mean, I would assume that banks have a better bargaining position now.

Kunal 01:06:26

Yeah, of course, but they get their revenue earnings as well because we give them a certain thing. So they get their cost of capital and they get their profit. And then the rest of the margin is pretty much ours. So which creates like a lion’s share of the spread on that front but they make a lot of money and then. And then on the cards business, we take a share of the interchange. The other thing is, I think on the other products, which are like the cards on the saving side and the pay later there’s going to be a share of any fee or transactions on a per customer per transaction basis as well. And on the credit business, wherever there is any credit risk involved because we like to control the credit decision-making to the extent possible. And there we provide a partial risk cover on the credit portfolio that we are building. And so the banks like the relationship because the structure is one of the incentives being fully aligned. Right. So I have a revenue sharing and risk-sharing arrangement. So I’m incentivized to build a high-quality business. And the banks love it because the banking partners look at us as a revenue centre. After all, we are growing the pie for them. We are getting new customers into the ecosystem, we are helping them cross-sell, upsell, increase the revenue pie. And we are also participating in the risk. So if something goes wrong, I also participate as much so that’s what helps these banking partnerships flourish. And we are very good at collaborating at least, like I was saying partnerships have been a key part of our overall business strategy. And that’s the reason why banking partners agree to this.

Akshay 01:08:13

How does risk-sharing happen? Do you take on a percentage of the NPS? Like the total? Whatever, let’s say someone borrowed 5000 and didn’t pay it back? Then how would you share the risk?

Kunal 01:08:25

Yeah, that’s correct. So it’s basically if the losses are X, or let’s say the loss is 100 rupees, and I agree, my commercial agreements say that I pay X and the 100 minus X is shouldered by my banking partner. And that value of X varies from partner to partner depending on a whole bunch of things in terms of details of segments, risk profile, portfolio, revenue, and so on. But it’s a partial risk-sharing arrangement, where we do not take 100% liability or risk on any of the portfolios.

Akshay 01:09:00

And who is responsible for collections, like in case there is a default?

Kunal 01:09:05

Yeah. So on the credit side, mostly, for all partnerships, we do the collections barring a couple of partners where the banks, because of their internal mandates, want to keep the corrections themselves. But barring maybe one or two cases, everywhere else, the collection is completely designed and executed by us.

Akshay 01:09:28

So that’s another cost centre for you. Is it a big cost centre?

Kunal 01:09:33

It is not, surprisingly, one would think that it will be a big cost centre, but it’s a very efficient structure. Because we use technology heavily in terms of how we process collection based on how we use technology before using human intervention to collect money.

Akshay 01:09:48

How do you do it?

Kunal 01:09:50

There’s a whole bunch of standard processes being used by the industry today, auto-debit snatches, e-mandates. In addition to that, making sure that there is a strong engagement with our customers such that we provide them convenient ways of making repayments on an ongoing basis to their smartphone itself, they can just get online, and then we follow up using very different chat digital channels. And then in certain cases, we obviously can interact with our customers through phone and in person, if it is required to help them make payments if they’re not able to make it by themselves. So a combination, but a heavily digital approach. But a combination of digital and human touch-based approaches is what’s helping us create a very lean collection infrastructure, which is performing well. We have some of the best collection efficiencies now in the industry. So like really higher than 95% efficiency. So that puts the business on the right side of the credit risk equation.

Akshay 01:10:53

What is the percentage of defaults that you see, like, how many customers don’t pay?

Kunal 01:11:01

Well, I think overall at a business at a company level our defaults generally vary, I would say at an aggregate around 2 to 3%.

Akshay 01:11:13

Okay, and what is the industry standard? How does this compare?

we’re

Kunal 01:11:19

Similar, I think the larger banks have maybe around 1-2%. And some of the smaller banks or the NBFCs would have anywhere between 2% to 5%, depending on the portfolio, the segment of the market that they go after. So I think as far as consumer FinTech companies go, we probably are the best in class at an aggregate level. And I think across the board, I would say it would be pegged equally for a company of our size. But I think some of the larger banks who do an amazing job in terms of the collection infrastructure, would be looking at a different segment of customers, right, their pricing is lower, their interest rates might be lowered and accordingly the losses are also slightly lower.

Akshay 01:12:04

Okay, got it. Between the three of you, the co-founding team, how are your roles split up? What are you looking after?

Kunal 01:12:14

Well, as a founder, of course, one has to be responsible for everything. So we obviously juggle many hats, and also fill in for each other, rotate roles wherever is required. But currently, a lot of my energy goes into thinking about and working on the entire capital strategy for the company. Thinking about the entire business strategy, finance, risk, data science, I spend a lot of time on machine learning and data science initiatives around our products and risks. And then associated areas around our own NBFC. So, but a lot of business side of things. And earlier, I used to wear the product hat when I used to be heading products in the early days when we started the business. But today, I don’t wear the product hat as such, so a lot of things on the business side, capital, business strategy going forward, data science initiatives going forward. And then the risk side of things. That’s where a lot of my energies go.

Akshay 01:13:20

And what about the other two, like Bala and Anuj?

Kunal 01:13:24

Yeah, so I think they would divide the roles across, Anuj looks at a lot of things around product and marketing and acquisition and some of the projects just like also, each of us has enough allocation to special projects. And the customer-facing roles. The team also worked with him closely. And some of the other areas in terms of special projects. So working with data and some of the initiatives on that front. Some of the international initiatives that Bala looks at, and then we have a bunch of roles that we divide amongst each other. And we also end up doing a lot of role rotation, depending on the bandwidth of each person. So sometimes I’ll be wearing a hat that I was not normally wearing. But because of the way things are going and the bandwidth for each of the partners, we decide to share the load. But I think that equation works well. I think there’s a great synergy in the way the three founders work together.

Akshay 01:14:26 

Okay. So what is advice that you would like to give to young founders in terms of what to do, or what not to do? 

Kunal 01:14:38

Wow. I can tell you what advice I would have given to my younger self if I ever had the chance to. I’m not sure about other founders, I think the people nowadays are very smart, much smarter than, 25-year-old today is much smarter than I was when I was 25 years old. But I can say a few things. One is I would have started much earlier in my life if I wanted to be an entrepreneur, but I would have been I would have. But pick the right reasons for starting, I see a lot of young, talented individuals starting up businesses, which do not make sense. The product ideas are not powerful enough, which warrant the time of such smart people. So picking the space and the idea that you want to work on is supercritical. So starting just because you’re kind of bored in your job, or starting because you think there’s a great opportunity and all your friends are talking about it and you know that domain so well. So just to start, those are probably not the smartest reasons to start. So be very clear about why you want to start your journey as an entrepreneur. Because no matter what path you choose, it is going to get tough, they’re going to be tough and bad days. And on those days the ‘why’ behind, the reason behind why you started is going to be the main thing which will help you get through the day. So if your reasons are wrong, then you will give up very easily. So you have to get your reasons right in terms of why you want to start and end if you don’t, if you’re not clear in your head, then either don’t start or be prepared to let the journey take you in all possible directions without feeling too bad about it.

Akshay 01:16:42 

Can making money be a valid reason like I want to make a lot of money?

Kunal 01:16:47

I think yeah, sure. I think only making money may not be the wisest choice because there are too many factors at play that decide whether you will make money in a business or not. There are too many factors in play and your determination is just one part, there’s just a lot of serendipity, there’s real chance involved in terms of your timing, your exposure, your location, the people that you work with, the way the world is turning there, and those factors you do not control. So the element of chance cannot be ignored. And that adds elements in the mix, which you do not control. So yeah, sure, I think making money should count as one of the top reasons but if that is the only primary reason, then I’m not sure. 

Akshay 01:17:35

It will be tough when you see bad days, like if that is the only reason.

Kunal 01:17:40

Yeah, because it takes several years to create a business that will pay off well. The costs, the taxation, the ups and downs, wipe out a lot of value if you’re not smart about it, and it takes a lot of time to get good at it. So I would say yeah, making money for sure. I love the idea of making money. I’m a true capitalist at heart. So definitely, I would encourage that, yes, that should be at least at the heart of how you’re doing your business planning and your economics if not everything else. So I am a big believer in businesses that are supposed to make money, because that’s one of the sole purposes of a business, right, to create value and make money. So yeah, that should be there. But yeah, that may not be the sole motivator, because then you might end up picking up the wrong kind of business also, who knows? So I think, yeah, that’s how I think about it.

Akshay 01:18:33

So my last question to you, what makes one business succeed? And the other one fails? What sets apart the businesses that take off from the ones that don’t?

Kunal 01:18:50

Yeah, I think that’s probably one of the most important questions that everybody wants an answer to. I would have loved to know the answer to this on day zero of my entrepreneurship journey. And, then I would have wished for the wisdom to be able to follow through on it. So there are a few things, I think, through our experience and it’s been a lot of experience and learning. So the market or the space that the business operates in, that’s number one. The team, I would say at least the core founding team, or the core team, that’s number two, third, the timing of when you’re doing it, and fourth is the location. So I would say these are four key ingredients. And then everything else kind of always is there, like how much capital you get, and then whether you’ve got capital on time or not. But if I were to summarize, like, you know, the space or the sector that you choose in, right, which goes back to the whole saying that, it’s not so important how hard you roll in a boat. But what’s important is which boat you are in. So I think that’s what I would say that the boat that you choose to row in is way more important. So the sector and the space is super important. Then the team matters a lot like what kind of maturity, do you have adults in the room? Who can make tough decisions or not? Then I would say that the whole point of are you thinking about building a business, which is probably 10 years ahead of its time because you have an idea that is a big one, even though there might be a theoretical and academic market for it. But can you build a thriving business? Where are the real customers today, who will pay for it today? So the timing of it matters a lot. I think the location, super important, like maybe it’s a very similar idea from a founder of a similar calibre, might succeed tremendously in one part of the world, and it might fail miserably in the other part of the world, it’s just based on how people perceive the ecosystem, and what investors see as the risk appetite to be in and in a world where that society and culture values that product or service or not. So I would say these are the four key ingredients. And you know, beyond this, they would be a long list of things, but they are the four most important things that come to my mind.

Akshay 01:21:26 

That’s true. Wouldn’t two of these be hard to change? I mean, you can’t change the timing, right? I mean, you’re doing exactly as you are. And same for location.

Kunal 01:21:37

Yeah. But that’s the reason why the mortality rate in startups is so high, right? Because you are driven by a lot of irrational optimism. Because you see a business model succeed in let’s say, England or the US or Australia, and theoretically you believe that they have similar needs but the regulatory makeup of that, the margin in that ecosystem, the way customers perceive the value, the trust in the product, it changes from society to society. So if you can just take a model that worked somewhere else and there’s one copy-paste, that’s a voluntary mistake that you’re making. So a lot of it cannot be changed but if you know a lot of these things, then you should also not be blindly going about it. So I think that is not an easy choice to make because you’re driven, you have these dreams and you have a starry-eyed vision, kind of get a little carried away. So while it is the most obvious it is sometimes also the toughest ones to follow.

India’s Pioneering FinTech Company | Kunal Varma @ Freo (Part 1)

Innovation and disruption are the hallmarks of the technology world. Amidst the fintech revolution and the subsequent rise of digital banks in India, going to a bank branch is no longer in vogue.

And with neobanking, this metamorphosis has reached a new level with state-of-the-art technologies and providing customers with easy, quick, and efficient financial services.

The Founder Thesis podcast presents to you a two-part series where Akshay Datt speaks with Kunal Varma, Co-Founder, Freo. He is a serial entrepreneur who started his entrepreneurial journey back in 2008, while pursuing his MBA from the Indian School of Business, Hyderabad.

Kunal, a self-proclaimed dreamer, fondly recalls his earlier days and shares how he always wanted to start his venture. After successfully building two ventures, he collaborated with Bala Parthasarthy and Anuj Kackar and started MoneyTap, which in five years has become an RBI registered NBFC and is now transitioning to credit led neobank, Freo, which is the first of its kind in the country.

Tune in to this episode to hear Kunal speak about how Freo is disrupting the traditional banking system with its innovative digital banking experience.

What you must not miss!

  • If you like something in your academics, you’re not going to do it for the rest of your life.
  • How interacting with people from different walks of life can help in developing your vision as an entrepreneur.
  • The transition from HR and EdTech to FinTech
  • The concept of neobanking
  • Relation between consumer research and building a product
  • Fundraising journey

EPISODE TRANSCRIPT

Skip to 00:01:25

Akshay: So Kunal, what’s home for you? Where did you grow up and in what kind of family?

Kunal 00:01:34  

I was born and brought up in a small town called Jamshedpur. My dad spent his career at the Tata Group and hence Jamshedpur being the hub for the Tata Group back then. All born and brought up over there. So my early years in life were fairly influenced and conditioned by the culture in that part of the country. And I think then, somewhere in my teens, I moved out from there and moved to a larger town, a larger city, and that was my first exposure ever. So that was Delhi. For me, it was a huge difference from coming from a small town to a metropolitan city.

Akshay 00:02:22  

Which school in Delhi did you join and which class were you in?

Kunal 00:02:24  

So I joined the 11th standard in Delhi Public School in RK Puram.

Akshay 00:02:32  

Wow, that’s like such a major change. RK Puram DPS was all like, you know, fairly well to do families, kids come there, and a highly urban kind of a setup.

Kunal 00:02:47  

That’s true. I think, in some ways, it was a cultural melting pot to experience higher education, at least from a school standpoint in RK Puram. So the friends that I made at that stage of my life, are still very close. And we all had something in common. And then we all were in that school, and we were looking at and working hard and making something good out of ourselves. And at least all of us were all, you know, looking at engineering, and that was the dream that we had as cliche as it may sound, but to become successful, getting an engineering degree from one of the top niche engineering schools in the country was the dream back then.

Akshay 00:03:36  

I can see you passed out in ‘97, which is also the year I passed out from DPS RK Puram. We were in school at the same time I guess.

Kunal 00:03:45  

Wow, that is a small world. But having said that, I mean, the funny thing is that the DPS is such a big world, right? It’s like almost 900 students in one class, it’s almost impossible to know other people. 

Akshay 00:04:06

Yeah, I was in commerce. You must have been in science, I guess. So there would have been very little possibility of interaction.

Kunal 00:04:12

Yeah. I was in Section G with computer science. So yeah, I think probably a bunch of geeks. And all living in our world back then. So yeah, that’s how Delhi was home for some time. And then and then I went to Roorkee for my undergrad. So and you know, eventually passed out with a B Tech with Honors in computer science. So in some ways, I think you know, did my family proud by getting a certificate from IIT. But, I think it was an interesting four years of undergrad living in the Ganges belt of the country, some amazing life experiences, some long-life bonds forged at that time. And then that paved the path for my adult life really, after that.

Akshay 00:05:13  

When you passed out of it, did you like, have an ambition in mind that this is what you want to do, or like, you know, what was it like?

Kunal 00:05:24  

Yeah, I’ve always been like a dreamer since I was a kid. That’s probably part of how I am as a person, I would love to just sit and dream about what I could become. It started when I was probably in middle school. I would be thinking about becoming a football player because I’ve always loved sports. And then I dreamt of actually going into the armed forces because I was always an outdoorsy kid, martial arts, sports, everything. I was shot down by my diligent Indian mother, who decided that no I shall not go. And those were the days when I used to listen to my family. So obviously, as an obedient child, I had no other option but to comply. But yeah, I think at every stage of my life, I had some dreams. And I think it’s important. I feel that it’s important to have a dream and your dreams may change. But going through life, no matter how small you are, and without having a dream at any moment is pretty boring. It’s like living life in monochrome. So I think so for me, when I graduated, to answer your question, my dream was to eventually one day, build a large company and leave a huge footprint of some legacy where I built a huge empire where something has changed. Or, you know, my company is changing people’s lives in a big way. So I had this large blue sky definition in my head which was very vague, but that is how it was.

Akshay 00:07:08  

Like, where did you join from campus? Did you get placed through campus?

Kunal 00:07:12  

Yeah. So it was very interesting because the year I graduated was 2001, in engineering, and just in 2000, you know, the entire Y2K happened, the whole episode under the dot com bubble had burst globally, the dot com crash. And that was an interesting time because I had got a job offer on campus on day one, from Nortel Networks. That’s when you’re in the fourth semester of engineering. And then just before graduating and passing out of IIT, we got a letter from Nortel Networks saying we are shutting down our India operations. So yeah, I think just like after celebrating your last final semester, as an engineer, and I’m pretty much coasting through life, for those six months, suddenly there was a wake-up call that hey, I don’t have a job. Because the offer letter was rescinded. It happened across the board for a whole bunch of people companies are shutting down their operations left, right and centre. So I was one of the folks on the receiving end, as well. So it was a wake-up call, I suddenly realized that nothing is going to be served on a platter. So I need to immediately pull up my socks and get into hard work. So eventually, I ended up joining a startup right out of campus itself. I got placed in another New Jersey-based startup, but they had the R&D operations in Delhi itself. And so, it was pretty nerdy with a job back then coding device drivers, all that kind of stuff, and then I was pretty excited. A computer science geek myself, so I was pretty excited, I joined that company. And that was just six months because, within six months, I figured out that I’m getting rather bored at the job. And you know, it was not exciting for me, I was not solving problems which would push my thinking. So I switched gears and I had a chance for some reason, it was serendipitous, and I ended up joining Texas Instruments in India out of their R&D unit in Bangalore. And that’s where I spent the next seven years working with Texas Instruments, a lot of exposure, travelling to their units in the US, France, Japan, working with people globally. And some amazing life experiences as well along the way. But yeah, I think seven years at Texas Instruments and that is the only corporate job that I’ve ever had in my life. So that’s the only one time I’ve prepared for an interview myself or given an interview. So yeah, so pretty good fond memories, but that was it in terms of where I started,

Akshay 00:10:11 

What made you stay with them so long? I’m trying to understand what was it about whether it was the role or the culture? 

Kunal 00:10:19

I think it was a combination of a few things. One is that I think back then, I was not exposed to concepts of work-life balance, what is work stress? What is personal life? I think these concepts were pretty foreign to me at that time. The culture was one of very high commitment ethics, hard work, high sense of ownership. One of my initial bosses at Texas Instruments was a phenomenal gentleman. And I learned so much. I mean, there was a time when I used to think that he’s quite the taskmaster. But I loved working in that environment. So the combination of those things, and honestly, it was a huge discovery process for me. And surprisingly, in my engineering, I was a computer science major. And I did not pay much attention to my hardware and electronics courses in IIT. Well, that’s putting it mildly, and the not so sugar-coated version is that I sucked at those courses. And the professors made it a point to call it out loud in the class. So, all my friends and I were very clear that you know, if there’s one thing that you should not be doing in life, is going into electronics and hardware. And that is exactly what I ended up doing, which is going into Texas Instruments, which is all about hardware design. But I realized that as much as I was uninterested in the theory of it, I loved the actual work. And I did pretty well, I think the amount of learning we had from the contribution that we made. And particularly the people, I think that’s what made me stick around. So the challenge of doing things which had not been done before building out products, which were the first of its kind back then, you know, our department teams used to file patents a lot. So that experience along with the managers, and the seniors that I’ve worked with, I think that’s what made me stick around. And like I said, I was not one of those people who had the spirit of giving up easily. So there were tough days. I used to have a small pillow and a toothbrush in my cubicle. And there were days where we used to just not go home, I used to go home after 48 hours. So but what is phenomenal is that and something like that doesn’t happen unless you are passionate about something, right? Because then there are so many options available. So you can just get up and quit one day and say it’s not for me. But I think the culture and the people are what allowed me to stick around. And I don’t know, time just flew and you know, I just looked back and said, “Hey it’s been like, almost seven years,” but it was phenomenal. I mean, you know, the experience of working across global teams and projects.

Akshay 00:13:34  

So then why did you move out? Like, what was the trigger to do an MBA?

Kunal 00:13:41

Yeah, it was one of those things where, as I said, I always part of me has been a lot about dreaming about like, what should I be doing in the future? What would my path look like? Like, why am I doing this? I always keep questioning, you know, I keep having these existential thoughts about myself and my life, every once in a while. I’m not sure it’s a great thing to do, but that is who I am. So I always knew that I had this vision of starting something of my own and doing something and I mean, I do not come from a family where everybody is in entrepreneurship, right. So on my father’s side of the family, there were no entrepreneurs, no family businesses, and on my mother’s side of the family, almost everybody was in business. But the one thing which is common across both sides of the family is like a lot of lawyers in the family. So I honestly thought that I would eventually grow up to become a lawyer, if not anything else, and I just go into the family profession. So but I think what happened is that along the way, I realized that look, I’m doing well in technology. But there are a couple of things that were coming out to me as a pattern. One, I was somehow missing the big picture somewhere, in terms of what is the impact that I’m making through my daily slogging of 18 hours a day, seven days a week. So I’m sitting there, I’m working at like 3 am on a Sunday in the office coding my way away on hardware design, and I’m thinking like, “Hey, you know, I’m doing this work. And I know that it’s going to make an impact, maybe second or third-order down the line, but I’m not sure if it’s going to move the needle for one actual human being’s life.” So I had started thinking a lot about how I need to kind of find my path, I need to figure out how I can start something of my own and realize my dream. And the sooner I do that, the better it is, because you know, let’s just make mistakes, while you’re young, you know, and so that you still have time to correct those mistakes and have the energy to find your new path. So I think a lot of this introspection and looking at what I was doing, and the impact that it was making really pushed me, to the extent that I realized that look, I just cannot continue to do this. And obviously, money and finances were not the motivators at all, because I think financially I was doing pretty well at TI. So if I had continued on a corporate growth path, I would be very comfortable in that sense in life, more than what I would have imagined. But I knew that now’s the time. So that whole push of not seeing the impact that my work was created, daily. And knowing that, look, I had this vision, and it looks like after seven to eight years of working, I still have that vision. So that probably that itch has not been scratched. Or that dream has not been fulfilled. So I said, you know, let’s just jump and make the jump and do it. But I needed a conduit, right? Being in R&D, being a very geeky person and having a very narrow worldview in technology does not prepare you for life entirely. And unfortunately, we all grew up. I mean, I grew up in a culture where I was not prepared for the challenges of life, you know, how do you think about money? What do you think about financial planning? What do you think about the future? What do you think about risk-taking? The conduit for me was to take a year or maybe two years off and find a middle ground. That seemed like a business school because that would allow me to get some exposure to people who are completely from different walks of life. And that’s what made me take the jump against just an amazing amount of opposition that I got from a lot of people. But yeah, that is the start of all the opposition I started facing for the next couple of years in life.

Akshay 00:18:07

What made you want to create an impact? Was it inspired by the Tata philosophy, considering your dad worked there?

Kunal 00:18:16

So I mean, at some level, how you look at things around you daily do impact you. Growing up, I was a lot in awe of JRD Tata, as a legendary person. And in some of the other, I would say, iconic figures at the Tata Group. But I think it is that plus a combination of reading a lot about what other people had done for themselves. Those the times when we were looking at others, 

Akshay 00:18:48

Who were the people who inspired you? 

Kunal 00:18:51

So I think the one thing obviously, was not growing up in an environment and looking at Tata. The second thing was I started to hear a lot about how some of the big, large scale entrepreneurs globally are making a difference, right. So these are the days when I just started hearing about what Hewlett Packard was doing globally, in terms of building the business out, I just started hearing about what Nike was doing, Phil Knight was doing. I just started hearing a lot about what the Birla group in India was doing. And of course, I wouldn’t miss the whole news about how Dhirubhai Ambani was shaping the future of the Ambani group or what he had done. So I think some of these figures made us take a step back and think that if that’s the scale of what people can do with the 24 hours of their time, and if I have a vision, then why not at least have the determination to figure it out. So I think those are the days and that along with my thing that I have to create an impact. I have to create something big. But I wouldn’t say there was anyone major person which was completely life-transforming as far as an impact is concerned, which forced me to jump in that direction. But it was more about getting more exposure or seeing more things around me and probably just being a person who is more, I would say internally driven, in terms of who I want to be and what I want to do. And I think a combination of these is what just made me take the plunge

Akshay 00:20:29  

Okay. Did you get more clarity in that one year at ISB? In terms of what you want to do? 

Kunal 00:20:36

I got clarity because I started my journey as an entrepreneur while I was a student in business school. And, yeah, so I think that for me was another seminal year in my life. And particularly because of a couple of reasons. One is that again, I was in ISB doing my MBA, Indian School of Business in Hyderabad, in the year 2008. And that is the year the financial crisis happened, the entire Lehman Brothers, the entire market collapse happened. So well, we were all in business school, and I had started interacting with a lot of people who came from different walks of life, chartered accountants, engineers, or doctors, people from other commercial domains. And today, I think some of my closest friends are the people that I spent time with within the business school. But that opened up my eyes, it just gave me so many different dimensions and mental models to look at things. And on how to frame a problem, how do I evaluate what choices lie ahead of me, I think all of this was heavily influenced by mostly my friends, I would say. So the biggest influence for me at business school was, was my friends, the peer group. And I’m so thankful for the peer group that I had access to and that gave me some of my closest friends who I can today, you know, who are like family to me. So I think that was my biggest lesson.

Akshay 00:22:25

I think that’s the thing about online learning, you lose out on the peer group.

Kunal 00:22:30

Yeah, absolutely. And I think the joke is that my friends and family tell me that, you know, I should never go back to any more education. Because of the two years during which I graduated, the markets crashed both the years 2001 and 2008. So I’ve been forbidden to go back for any further higher education, not that I’m yearning to mature. But yeah, that happened. And honestly, the time at the school helped me forge some ideas around how I should look at my life in the next few years? Should I take the plunge of becoming an entrepreneur, and whatnot? So I think that year and the influence of peer groups and friends is what changed my life in a big way.

Akshay 00:23:19

What was the business you started while on campus? And tell me about that, like, like that launch journey from idea coming to your mind to taking it off?

Kunal 00:23:32 

Sure. I mean, now that I look back, and if I narrate it to you, it’s so funny in my head, because it was all driven by passion. And the unconditional support of my friends, and not so much driven by how I operate today having gone through the journey. But yeah, I think back then so I started my first venture, which was mostly focused on providing marketing and branding services to other institutions. Marketing was my major in the MBA. I did not pay any attention to courses and streams like finance. And there is another inside joke, and I’ll probably tell you later.

Akshay 00:24:24

You can tell me now. 

Kunal 00:24:30

Yeah, I think when I look back, I compare with what I did in my education in my life, and it’s 180 degrees opposite, right. So in my undergraduate, I detested electronics and hardware and I loved computer science. And I spent my job or my career at TI completely doing electronics and hardware, which was the exact opposite of what I liked. In my MBA, I slept through most of my finance classes. And today, I’m running Freo, which is in the world of finance and FinTech. And I’m loving it. I realized that then I’m just thinking, like, why did I not do this earlier? I love this business. So I think that’s the joke. I mean, everybody’s like, you know, we know that if you like something in your studies and academics, you’re not going to do it for the rest of your life. So, I think somehow it just worked out like that for me. But yeah, so that was my first venture in terms of providing marketing and branding services to corporates. So, for example, ISB used to have its annual alumni meet, so I decided to become the entire branding partner for all their branding. 

Akshay 00:25:43  

So, ISB was your first client? 

Kunal 00:25:45 

Yes, they were. But I had to bid for the project because it was not easy. Just because I was a student, they were not willing to just give it away. So I had to kind of outbid some other people and get my foot through the door. But obviously, they were very encouraging, ISB as a school, and that was my first client. And then from there on, I think I grew my client base to other institutions and corporates and companies. Companies like Cisco, Johnson and Johnson.

Akshay 00:26:19 

What was the service offering?

Kunal 00:26:24  

No, so the service offering was that these institutions were looking at creating a whole full-fledged branding program for future joiners or employees, and creating a complete branding team in terms of how should they make sure that their brand and their culture translates into products or merchandise that their employees and their partners and clients would consume. For example, things like a branding message around some event, things like products like merchandising, like, it could be branded souvenirs, t-shirts, it could be any major marketing collateral or just the strategy around how should they translate their culture and thinking into a branding strategy for their employees and partners on the ground. And then eventually make sure that that gets translated into some actual product, which is either worn by people or used by people on a day to day basis. So in short, if there was a scope for some new design of souvenirs and t-shirts and other products to be created, I would be advising them on how to go about it. And then I expanded my offering from not just providing the services, but I said, I will also actually get the product for you. And then I tied up with the manufacturer, I said, why not just increase my value chain penetration over there. So I did that. And I tied up with manufacturers at the back end, these are wholesale manufacturers of different types of merchandise, and I would source the product, I would create the whole strategy, source the product and provide the end finished product. And I would make my margins on the value that I was providing. So that was my initial journey. So obviously, in the first two or three months itself, I started generating cash flows, because of the services business, and I had a very minimal capital requirement from my side. So I started making money very quickly. I realized that you know, the amount of money that I was making, when I was working at Texas Instruments, I had already started making that kind of money in about five-six months of becoming an entrepreneur for myself. So immediately, I thought that look,  this is okay from a money standpoint, but as far as the problem that I’m solving on a day to day basis, I’m not sure if I’m going to love solving the same problem two-three years down the line. So, after having done this for about a couple of years, and having made whatever money I could make, I then moved on to doing something else, which was, again, as a kind of a lateral transition. And in all of these companies, my clients used to keep asking me that, you know, while you’ve done this branding, and merchandising and marketing strategy for things, but we also need to engage our employees. And then there are training programs, a whole bunch of activities. So do you know somebody who can help us engage our employees and offer a training program for a whole bunch of things? And that is what allowed me to transition and realize that that was probably a much larger problem, which was all-around training and skill development and skill assessments. And that’s what allowed me to take all the cash that I’d made over there and morph myself into a skills assessment and skill development company. And that was my second major switch.

Akshay 00:29:57

This was something like Mettl, like an online thing?

Kunal 00:30:02 

Yeah, it was like Mettl in some ways. And incidentally, you mentioned Mettl. Ketan, the founder, was my classmate at IIT. Different streams, Ketan was in metallurgical, I was in computer science but friends from IIT days. But they were doing something which was more technologically savvy then and my initial focus started on a more human-driven initially and then I think that evolved and pivoted into I would say a larger platform and a product play eventually. But my first step was a slightly more services-oriented model. And I think it was also driven by my desire to always keep making money. So I kind of had made a promise to myself that as much as possible, I will always try to be an entrepreneur who does not lose money. And I think till date, I can see that like, at least I have not lost money. But my starting point in services back then was driven by that focus that I should make money. And then eventually, it kind of evolved into a much larger technology-driven platform play, I got a co-founder on board. As I changed my whole idea and thought process, we worked together to create something big. And then that’s what led me to the next leg of my journey.

Akshay 00:31:36

What were the kinds of engagements you were getting?

Kunal 00:31:45  

Yeah, mostly it was about training and skill development for most of the professional staff, which was mid-manager and manager level staff. So this would be about different areas of professional development, initially started by a huge demand for areas of training and assessment around organizational behaviour, organizational development, I would say negotiation, conflict management, those are the areas that I used to get a lot of queries for. And that then kept growing and I kept adding areas to it. And I expanded the repertoire of services that were being offered, I built a network of other professional individuals who could deliver the same outcome under my brand and create a revenue-sharing model, because I had to figure out how to scale this. I have only so many hours in their day, so even if I learned how to deliver it by myself, that wouldn’t be the smartest thing to do as an entrepreneur. So then I built a network of people who could create high-quality content and deliver it. And I also started doing a lot of it myself, because I enjoyed it. And that then evolved into my next product play which we call SkillWiz.


We have now come to the end of part 1 of our conversation with Kunal Varma, Co-Founder, Freo. In part 2 of this conversation, we find out how Freo plans to make a strong mark of its own within the Neobanking category and what the future looks like for them. Click here to listen.