Three years ago, Lizzie Chapman was faced with a chicken-and-egg problem. “You needed a loan to get a score, and you needed a score to get a loan,” she says. Chapman, along with Priya Sharma and Ashish Anantharaman, cofounded digital consumer-lending fintech startup ZestMoney in 2015. They saw a big opportunity in tapping over 300 million households who don't have access to credit cards or any other formal financing options because of insufficient credit history. But there was one issue: Lack of credit score.
“It's just not true that people without scores are not credit worthy,” she says, claiming that ZestMoney has an annual disbursal run rate of Rs 1,500 crores. Backed by biggies such as Xiaomi, PayU, Ribbit Capital and Omidyar Network, the fintech startup is likely to hit an annual run rate of Rs 4,000 crores by the end of this year, claims Chapman, in an interview with Forbes India. Excerpts:
Q. What is it like to work with those who are availing credit for the first time?
Most of them are new to the system, so when you’re granting loans to them, by definition, this will be slightly riskier than prime—the ones with credit score, or borrowers where credit behaviour is more predictable. Interestingly, new-to-credit customers are not riskier than prime ones. In fact, our success has been in working out which of these customers are safer to take a bet on. It's just not true that people without scores are not credit worthy. We also consider it our responsibility to educate and communicate with our customers around what is good credit behaviour and how to get a good credit score. This means we’ve not only helped our consumers upgrade their lifestyles, but also significantly increased the number of ‘credit-worthy’ people in the country by introducing them to the market, using an alternative credit scoring system that we’ve built.
Q. How do you go about building a credit profile?
We have a completely automated and highly sophisticated decision engine that we’ve built over the past three years. We rely on technology and make use of machine learning and artificial intelligence to create a risk profile for a potential borrower. We have seen millions of applications, and many of our loans have been fully or partially paid off, which means we have been able to build proxy models for characteristics of good and bad borrowers. Importantly, we are able to consume different data sets for various types of borrowers. For example, for new-to-credit customers, where there is no formal credit bureau data, we may ask them to submit additional data points for our engine to analyse. Affordability is very important to us and we are very diligent about perpetually assessing the affordability of a borrower so that a lending product does not ever cause financial stress.
Q. The online credit-lending space has become cluttered. How do you differentiate yourself?
We don't see any competition in terms of companies having built completely automated digital lending platforms. They may have nice apps or websites but their loan processing and underwriting is still heavily human-led and paper-based. We are genuinely end-to-end digital. We believe this leads to the best UX, 24/7 service and also the lowest operating costs, which means lower fees for customers. Also, we have our own proprietary decision and risk engine, which has been trained over three years of using a lot of alternative data. This means we can approve more customers than lenders who rely heavily on CIBIL score. Our loan ticket size varies with categories. For electronics, our average ticket size would be about Rs 20,000, but for ed-tech or healthcare categories, that number would go up to about Rs 50,000.
Q. What has been the default rate?
Our default rates are a lot lower than those of most banks currently. And better than the industry average. Technology has been a great enabler for us and we have been able to control default rates with a very sophisticated decision and risk engine. Furthermore, we’ve built the widest network of redemption points and deep partnerships with merchants such as Flipkart and Amazon to give special offers to our customers. So, once a user gets his credit limit, by completing the sign-up process only once, he gets to make payments in EMI across all ZestMoney partners, both online and offline. What we’ve built is a complete ecosystem and an EMI solution that’s universally accepted.
Q. From consumer durable and education to health and now weddings—what are the other segments you plan to enter?
ZestMoney is about making life affordable. Everything we do is led by the needs of our customers. When we ask our customers, “Where do you need help making life more affordable?”, they tell us it's across the board—buying a used car, new furniture, a skills course, IVF procedures, knee operation for mother, sisters' wedding and so on. The list is almost endless. Entire categories such as baby care, auto services, insurance or solar are barely touched by financing today. So, we’ll soon start service them. We’re already present in the healthcare space and we’ll continue to expand to wellness and personal care.
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