Powering Superior Risk Intelligence: Investing in Finbox
Why a digital risk intelligence platform for lending is the key
We have all seen the numbers; the large, unpenetrated opportunity in lending
$50B — the size of unsecured lending market in India, growing at 28% CAGR
80% of India’s population — either thin-file customers (ratings by credit bureaus based on very small data) or without credit rating
13% Credit penetration in india compared to 40% in China and 80% in the United States.
100 million new-to-credit borrowers to be added in the next five years alone.
No wonder we have seen an emergence of multiple fintech companies, each with its unique lending model to cater to different sub-prime segments.
However, it has not been, and will not be an easy ride for lenders in the small-ticket lending.
Lending Is Hard. Unsecured Lending - doubly so and digital solutions don’t alleviate the lender’s misery
Small ticket personal loans, largely the bread and butter for NBFC’s, tend to be loss-leaders, used as a hook to get customers through the door and then upsell other offerings
Consider this example— on a zero-interest durable loan of INR 30K, post factoring in subvention, origination & servicing costs and a provision for NPA, there is hardly any margin left for the lender.
It is not only important to identify the right borrower for such a loan. Lenders must also identify potential non-payers early and ensure they have a treatment at an appropriate time to collect. This is because even non-repayment of the last pending installment (INR 2,500) is enough to push their deal into the red.
It is also important for the lender to upsell the next loan to their best customer, else the loan book amount is just GMV, a vanity metric
Why Do Traditional Risk Solutions Not Work in These Cases?
Legacy risk solutions for this space are often clunky and not easily integrated into digital journeys. Whether it is a predictive score using customers' alternative data or insights from parsing customers' bank statements, implementing and managing this digital infrastructure is not easy.
Also, from a credit score perspective, legacy solutions do not support the vast majority of these types of borrowers. In instances when they do, the parameters and methodology used to assess the population are archaic. Oftentimes, behavioural aspects are not considered, which makes the predictability of these solutions suspect.
Secondly, the existing solutions are very rarely used in the customer life-cycle, either for collections or for upsell.
What are the magic bullets available for small-ticket lenders?
When the rubber hits the road, it is all about distribution, digital, and risk…which is where Finbox fits in
Finbox Offers a Proven Digital Risk Intelligence Platform for Lending Companies
The Finbox solution provides real-time risk scoring to lenders on their unsecured loans. It uses two products in the form of data connector APIs, DeviceConnect and BankConnect that bring alternative and mainstream sources of data to a client’s decision process to automate credit decisions.
The platform offers lenders a comprehensive stack, including:
- Data capture of alternative and mainstream variables,
- The ability to run models, and
- Identifying predictors to APIs for real-time scoring.
But that is not all.
Finbox has the ability to positively impact a vendor’s top-line as well by increasing its reach.
Finbox’s Lending-as-a-service solution forms a bridge between large aggregators and its credit hungry participants on one side and NBFC’s on the other.
The solution scores participants for creditworthiness in conjunction with the aggregator, then connects them to partner lenders for evaluation and fulfilment. Just as an example, Finbox is currently working with an FMCG giant to jointly score the creditworthiness of its distributor pool. The profiled distributors will then be offered credit through Finbox’s partner NBFCs, enabling them to stock the FMCG’s products better.
Not Surprisingly, Finbox’s Solutions Have Great Traction in the Market
The Finbox algorithm has been tested and found superior over 1 million loan disbursements with significant reductions in NPA for the NBFC’s.
The product suite is used by a mix of traditional consumer NBFCs and new-age startup NBFCs. Credit risk intelligence provided by Finbox’s products have been proven to improve risk assessment for their clients.
This, along with the potential incremental revenue that it will generate through its lending-as-a-feature solution, makes Finbox a very interesting play.
What Else Attracted Us to Finbox?
What stood out to us was the team.
It is a very well-rounded team with a great blend of tech, product, domain and business development skills. However, more attractive was their deep desire to:
- be foundational blocks in a rapidly digitising industry &
- build a scaleable cash-generating business.
Their focus on helping customers realise their value, through over-investing in account management and constantly evolving newer use-cases convinced us that they could build a valuable enterprise tech play.
We look forward to seeing FinBox bringing change to the face of financial services in India and the world today. To learn more about Finbox, visit https://finbox.in/
Arali Ventures is a pre-seed, seed-stage VC from India, investing in entrepreneurs building enterprise-tech solutions for the world. We help shape their journeys through product-market-fit and beyond and scale the offerings to greater heights.
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