It’s no secret that fintech companies in India are having a ball of a time.
In the past two years, there has been more than a billion dollars, spread across 93 deals, invested in these ventures. Amongst these different segments is the lending space, shining out amongst the top two categories in fintech, garnering investments worth $197 million over 26 deals in the last two years.
With solid players like NeoGrowth (raising $43.6 million since inception), Capital Float ($42 million since inception) and BankBazaar in this segment, what is 2012-founded Finance Buddha’s real differentiation in the market?
For co-founder Parth Pande, the answer lies in their operations. Unlike other platforms which only work as discovery, comparison, and lead generating, Finance Buddha takes care of the end-to-end fulfilment. According to Parth, these capabilities give the firm more runway in terms of data collected from the consumers, while helping them better their product offerings.
Being a marketplace for credit lending products, Finance Buddha also claims to be an omni-channel acquirer of customers.
The founder tells us that 40 percent of the lending market is owned by agents and small-time entrepreneurs. Instead of disrupting them, the firm works with these agents through an assisted sales model.
Integrated with the Credit Bureau, the system provided to agents alerts them about the best loan options for a particular consumer through a few basic checks. It also lets the agent know whether a customer can avail a certain credit product depending on their credit ratings. This saves the agents from wasting time on collecting documents and later realising the outcome.
As of now, the firm works with more than 600 agents across geographies, generating 50 percent of their leads through them. In return, agents share 60–75 percent of their revenues with the firm.
Finance Buddha also claims to reduce the time period of customer acquisition fee payment from 90–120 days (from banks) to almost 15 days.
Having over 200 employees and operating across 14 cities in the country, Finance Buddha claims to be the third largest loan syndication platform in India. More than 100 of their employees are a part of the sales and customer acquisition team. Further, going at a run rate of dispatching Rs 100–150-crore worth of loans monthly, the firm is looking to dispatch Rs 2,000-crore worth of loans by the end of this year.
Since inception, the credit lending platform claims to have helped almost 1,00,000 consumers get loans. However, not all customers seeking a loan on the platform receive one.
Parth tells us that only 40 percent of the total loans requested get approved. Therefore, the founders thought of setting up an alternate lending platform for customers. According to Parth,
Usually while granting loans, the loan providers or banks check the background of the individual. Out of the 1.3 million companies operating in India, banks have listed only 40,000 of them. Of this, only 2,000 are rated as category A or A+ companies, leaving other consumers with a lesser chance of receiving a loan. Also, 70 percent of loan acquisition which happens, happens within the pool of these 2,000 companies.
Hence, Finance Buddha is building algorithms to identify the credible guys and lend credit to them. The aim is to grow the pie and add more individuals to the alternate lending scheme. Further, if not the banks, the firm is tying up with non-banking financial companies (NBFCs) which are setting up corporate deposits funded by high-net-worth individuals (HNIs).
Finance Buddha’s efforts are also invested in fixing broken processes in the lending segment, making the approval process digitally seamless. To give an example, the firm tracks your location data (like other apps) to verify the addresses filled in the forms.
Claiming to be profitable from day one, the firm got its first institutional round of funding from Chennai Angels. Although not disclosing the amount, the firm claims the round to be worth more than $500,000. It is also looking to pick up Series-A funding by the end of this year.
Parth says that the firm made three million (USD) in topline revenue last year and aims at taking this figure to five million by the end of this financial year.
While the business proposition seems to be in place, what’s unclear is how the co-founders came together. Explaining the same is Parth, who was an ex-Citi Banker for more than 10 years with a strong foundation in the lending and banking space.
While a part of Citi, Parth met Vivek Bhatia, a channel partner with the bank. While they had known each other since 2004, the duo’s paths really crossed when Parth chose to start up in 2011.
On the other hand, Parag Agarwal, the third co-founder, joined the business only a while later, coming from a background of mergers and acquisitions and having worked with a private equity firm (Avigo Capital) for eight years.
Finance Buddha majorly sells four basic credit lending products including personal loans, business loans, home loans, as well as loans against property.
65 percent of the revenue for the firm comes from the personal loan segment, with the firm charging anywhere between one to three percent in commissions for every product sold.
The average ticket size of the loans taken also varies anywhere from five lakh to two crore, depending on the type of credit.
On a monthly basis, Finance Buddha is selling credit products to almost 2,500 customers while receiving 5,000 application requests for loan credit per month.
In the future, the firm will be running pilots to add more lenders to the pool, while making the processes more seamless.
However, looking at the credit conditions in the country, there is enough and more space for players to exist and survive in the unsecured consumer loan segment. Moreover, it is no secret that the penetration of credit in India is low, with only 24 million cards for a billion people.