Finomena was born because …
05 Mar, 2016
Any country needs access to Capital to aid and foster growth. And it’s when the country’s middle class gets Credit to be able to learn more, do more and be more, does it have a positive ripple-effect.
The top 20% have access to financial services. And while we believe even their experience can be made drastically better, they are at least financially included. The bottom 20% are financially included thanks to the MicroFinance industry. It is the middle 60% (the missing middle) that gets the short end of the stick. And it is they who need to be supported the most, because they don’t need much support, but the little they get goes a long way, in helping form a virtuous economic growth cycle.
Say someone needs a loan to get a laptop for Rs. 60,000. That is too small an amount to be processed via traditional and manual means. The salaries of the field-verification agent, the loan-evaluator and underwriter and the collections guy will far outweigh any interest revenue from that tiny an amount. And if that someone is a student, then they would be rejected outright because they have no income or credit history. So the entire process has to be re-thought end-to-end from first-principles to be non-traditional and technology-first. Technology has to deeply disrupt every stage, so that disbursing loans at scale for such small amounts becomes viable.
Today Aadhaar is almost at the brink of reaching 1 billion people in India. And NPCI is democratising payments and creating the most advanced fin-tech infrastructure in the world. The number of people who can access the Internet is going to go from roughly 25 crore today to roughly 80 crore in the next 6–8 years. India might have started late, but it has arrived to the party, and has arrived in style. The democratisation of payments leads directly to a democratisation of credit, and true disruption will be enabled to occur.
India is often likened to a mini-Europe. It is more diverse in every sense of the word. And the long tail in India is longer than the long tail in the US that allowed the likes of Amazon and Netflix to prosper. Each person is unique with individual circumstances, and the age of the long-tail in India has officially begun. The long tail of data-sources is where the holy-grail lies. We’re not lending based on “Facebook” signals, (even though I worked there); FB gives you coverage, but a bunch of other data sources which might only cover 10 lac people each and need more imagination do yield higher information value and behavioral signals.
So, fin-tech innovations are all about tapping the long-tail. And only being technology-first and data-first will truly help one do that effectively. You need imagination, trial and perseverance to win this game. You need those traits for thinking of ways of tapping into interesting data sources, for retrieving information from them, for cleaning and reconciling that much data automatically, and for actually analysing it and then making a recommendation. The long tail and big-data go hand in hand. Big-data comes from three characteristics of data — volume, variety and velocity, something the long tail offers in plenty.
It isn’t just about character evaluation though. No person is “good” or “bad”. Anybody who believes in behavior change will say that, and so will I. People are grey and have circumstances that they deal with. The same person spits on the road in India and does not in Singapore. That’s because of the environment, not their inherent character. Environment evaluation is as important as character evaluation. And thankfully, part of the environment is controlled by us — it’s our product! Every visual someone sees, every word they read is important. That’s where product and design are extremely important in fin-tech. They set a tone and a mindset. Other than that of-course, no god ordered fin-tech companies to having boring products :) It’s about having fun, and giving someone the dignity and respect they deserve even while they apply for a loan.
In addition to technology, process and product + design innovation, it is also about legal and regulatory innovation. The best fin-tech companies will emerge when the founding team understands both finance and technology deeply. We’re not just building websites, or marketplaces, where users get more tortured because they’re given hope but are then put through traditional processes all over again, 15 times instead of once. We’re disrupting the entire backend, and how Capital would be collected and disbursed, and that is what will allow us to truly be customer-experience-first. A user who needs a loan does not care about where that money comes from, so much as they care about fast decisions and an approval.
Two years ago would’ve been two years too early, and two years from now would be two years too late. The digital footprint being created by each person today is growing exponentially. And using people’s data to evaluate them more holistically creates a win-win situation for the entire ecosystem. However, fin-tech is not e-commerce. You will not be judged on growth alone. You will need repayments along with growth.
In addition to Credit Scoring, the need to disrupt the way traditional credit scores are communicated is equally important, if not more. This is the Google generation and we refuse to pay Rs. 500 everytime we need to check our own score. There are countless stories of people whose credit scores have gone down either because of unfair credit card practices or because they were not educated on what happens when they don’t pay back or only pay back minimums every month, or max out their credit cards. Finomena is accompanying it’s loans with fun, full of memes, 30 min lectures that educates groups about Credit and how to act responsibly for their own sake.
Finance in our opinion is only either win-win (when the user pays back the money) or lose-lose (user doesn’t pay back so lender suffers and user’s own credit score also goes down). There is no win-lose, which is great. We think it’s obvious which approach is better.
