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.
- Identifying what customers want.
- Automation is the key to success.
- Learning from experimentation.
- Vision 2030.
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.
Why didn’t you take sports as your occupation?
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.
What is your parents’ background like?
So my parents are teachers. Both of them are primary teachers.
So obviously education was important.
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.
What did you take up in +2?
So I took up science. I wanted to get into chip designing.
Chip designing, at such a young age how did you have such a specific goal?
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.
What did you do after 12th?
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.
So, you did an MBA straight out of engineering?
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.
Okay. And MBA, what specialization did you take up and what was the goal at that time?
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.
After that, where did you get placed from campus?
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.
And what was the product that you were selling? Yeah, what was the service?
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.
Okay. Was it like high-value sales? I imagine it must be a pretty high price kind of thing.
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.
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?
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.
Okay. After that, I think you then started your own thing?
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.
So like, eventually, you had to shut it down. Like what happened?
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.
Okay, then you joined Electronica and after that?
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…
What is his background?
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
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?
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.
Okay. And were there other companies doing this, as an alternative to peer to peer lending?
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.
What was the other company? Are they still around?
Yeah, it’s Faircent. So they are still around.
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?
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.
And peer to peer lending would be how much on average ticket size?
So, for us the average ticket size to businesses is around 50,000 rupees and salaried is around 15,000 rupees.
Okay. And is it largely business owners who take loans? Who is the bigger chunk of loan takers in this?
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.
Yeah, inventories and working capital.
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.
So, why would a business go for a peer to peer lending platform instead of a bank?
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.
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?
You tell me. If you are investing your money somewhere, what will be your primary reason?
Return on investment.
Perfect. And so people get a sizable return on the platform. And that’s what makes it an interesting instrument for them.
How much return will they be getting? Compared to let’s say an FD gives 4-6%, how much is it here?
Historically, at LenDenClub, we have been delivering anywhere between 12-15%. Now also, we target to have anywhere between 11-13% returns.
Who underwrites the loans?
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.
So what is your risk control like? How do you ensure that only genuine loans are being approved?
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.
Okay, so what all data do you ask lenders to provide to do the risk assessment?
You mean to say borrower, right?
Sorry, borrowers, I meant borrower.
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.
Like what? Facebook profile or like what does that mean?
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.
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?
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.
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?
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.
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.
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.
How do you fetch data from bank accounts? Is there an API integration?
It is an API based system.
They can authorize you?
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.
And does this happen with public sector banks too or only with private sector banks?
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.
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.
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.
So every time there’s a defaulter, you study that defaulter’s behaviour and that adds to your algorithm?
Okay, so how is your NPA, how has it evolved like how much is the defaulting percentage?
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%.
Okay, and how does this compare to other NBFCs?
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.
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.
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
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.
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
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?
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.
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?
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.
It’s on autopilot. If someone wants to remove it, then? He loses some money if he drops out?
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.
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.
Then how do you handle it? If I remove the money, the one who has been lent that, they won’t give it, right?
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.
I understand. Okay. And what is the flow for a borrower?
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.
The result will be like how much loan is maximum and in what percentage? That should be the result. Correct?
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?
You can take out money to your bank account anytime because we have already verified your bank account. So we have all this information.
Got it. And if there is a default, what do you do for collections?
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.
Okay. The lender doesn’t bear the cost for that, like collection costs.
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.
But there’s no extra charge for collection, like, again, that is part of the platform cost only basically.
Correct, correct, right.
Okay. Okay, and what is the platform cost? Like, how do you earn?
So we generally charge 2-2.5% of fees from the lender. So that’s the fee. On the investment.
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?
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.
Like what kind of partnership?
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
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?
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.
Wow, that’s huge.
Yeah, so that has been exponential growth across all these years.
Okay, so how did this jump happen? Like this is a pretty big jump 21x?
Yeah. Now also you will see some big jumps.
How much are you expecting roughly this year?
We are targeting to disburse around 1200 crore worth of loans.
Okay. Okay. This year meaning ending 31st March 2022.
Okay. So how does that compare to other players in the P2P lending segment? How well do they disburse?
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.
Well, who would be as large as you or larger than you? Like, where do you rank?
I think with monthly numbers, we would be number one.
Okay, and who is like number two, three? Like who are the close competitors?
So some of our competitors are Faircent or Finzi.
And do you have separate segments of customers that you target or it’s the same segment only like? Is there a specialized segmentation?
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
In what way are they different?
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.
And this would be short term like one to three months.
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.
The other players have bigger ticket sizes.
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.
So how do you keep your collection cost low? You said it’s all tech-based. What is your collection process like?
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.
Give me an example like pre-recorded voice calls go or reminders?
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.
It’s like bots, it’s not human calling.
Yes. Language is the way any human speaks.
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.
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.
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?
Almost 70-80% through bots.
Okay. Well, if multiple calls don’t get a result then a human will call, right?
Okay. And what else besides calling? Are there also WhatsApp reminders and all of that?
I mean, that’s part of the journey. So other channels…
They are relatively easy to automate.
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.
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?
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.
So as of now, you don’t need external funding. Well, if you are generating enough cash.
Yeah, so we are profitable and we don’t need cash to run the operations.
Amazing okay. Any plans to raise more money now?
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.
And what is your customer acquisition cost like how much does it cost you for each customer you acquire?
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.
Tell me about this, how did you bring down the customer acquisition costs?
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.
So what are the best channels that you have found?
All channels are good. So at different points in time different things work. So during festival seasons, some channels work.
Do you have any tips for other startup founders in terms of customer acquisition?
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.
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?
See, we want to be one of the top 10 lenders by 2030. So we are on track to that and we believe.
Top 10 lenders across all segments or in P2P?
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.
So top 10 means what like 10,000 crore plus?
It’ll be way more. Every year we will have to disperse at least 15000 to 20000 crore worth of loans.
Okay. Amazing. And how has the regulatory landscape evolved like when you started there were no regulations, how is it today?
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.
What are the regulations as of date like a broad summary as to what requirements?
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.
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?
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…
Can you explain it to our listeners who don’t have any about the controversy?
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…
Call your employer and…
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.
Right. So how big is your team now like LenDenClub as an organization?
We are now 75 people.
And how many are in tech, what is the split?
So around more than ⅓, around 40% is in tech at productive and remaining across different teams. Operations, credit, risk, marketing, alliances, customer support.
Customer support for lenders?
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.