After scaling product and technology at One97 Communications, Jabong, Times Business, and Gaana.com, this entrepreneur duo is trying to rope in technology in consumer fintech.
Last summer, Jabong’s Chief Product Officer Saurabh Goel (40) chucked his job at the fashion e-commerce portal to start his own venture. But the seeds of this had been sown all the way back in November 2015, when Saurabh met his ex-colleague Vivek Madhukar (45) over a personal pain-point—investments.
“People were stuck with insurance policies they had no understanding of, leaving them with little to no knowledge about how investments were growing,” says Saurabh.
That was how the idea to start a consumer finance solution—ProsperX—emerged.
Not only were Saurabh and Vivek already familiar with each other from their time at Times Business Solutions but also brought with them a combined 37 years of experience in building internet marketplaces.
Essentially a bionic wealth management platform, ProsperX is a financial products marketplace where people can invest and get in touch with advisors on how to grow their investments.
While building the product, the founders identified three major problems in the ecosystem—the lack of knowledge about financial products, the inaccessibility of qualified financial advisors, and people’s lack of trust in investment recommendations. Saurabh says,
“While HNIs get access to top-quality advisory services to grow their money, the same quality of service is not available to normal users. Hence they end up either investing in wrong products or not investing at all. We want to change this in favour of the consumer.”
The team decided to solve this problem using technology concepts centred on data science, machine learning, and power of community.
To further build consumer trust the team understood that the service had to be high-quality and low-cost—or almost free—for all users.
ProsperX works at three layers. First is the data layer, which includes data on products such as mutual funds, insurance and the rest, with curated information about their performance and market trends.
This layer also involves ‘people data’ including a person’s personal and financial information, risk profiles, and investment lifecycle events through social data mining.
Second is the recommendation layer, where a financial advisor is matched to a customer, and product recommendation is made based on the data layer.
Finally, there is the customer experience layer which includes the online platform to learn, transact, manage, and grow the customer’s portfolio through experience with quality advisors.
At present, the platform is enabling consumers to invest in mutual funds by connecting them to the various financial advisors available in the market. The founders explain that there are three types of customers currently.
The first are those who are already knowledgeable about investment instruments and just want to use the platform to compare and buy various financial products. Then, there are customers who want their financial portfolio built. Lastly, there are those who are skeptical about investing in financial instruments.
For the latter, ProsperX helps to get in touch with a local financial advisor to provide a customised investment portfolio. “Usually, we collect the data from the investors, asking them to fill it and cite their purpose. Once received, we connect the customer to the right advisor in the city, who makes the portfolio for the client,” says Vivek.
This allows the firm to have a better chance at keeping the audience engaged as compared to platforms that have a DIY approach towards investing.
"A large part of investors (consumers) need handholding and confidence to invest. This value-addition layer is what really sets us apart from the other players,” add the founders.
While the advisory service is free at present, the firm on an average receives less than one percent commission paid by the AMC or mutual fund for the trade executed.
Moreover, the figure largely depends on the type of fund a person invests in and the duration of investment. This is further shared with the independent financial advisors.
ProsperX has a mutual funds distribution licence from SEBI but doesn’t hold a registered investment advisor licence. Although the current focus is only on mutual funds, the founders don’t rule out the possibility of opening up the platform to government bonds, PPF, and insurances.
However, with revenue based on commissions, how does the platform ensure complete ‘transparency’?
The founders claim that financial products are recommended using machine learning algorithms running on top of crowdsourced data from customers. Second, the platform also manually cross-checks these suggestions with the recommendations of the advisors. Third, most of the financial products on the platform are hand-curated to ensure that there is no bias towards the AMC.
Vivek adds, “In the case of mutual funds, the commission is not that high. Therefore, this industry is not as tainted with that perception as opposed to something like an insurance.”
Lastly, the firm also allows the consumer to change the products if he/she isn’t comfortable with the recommendations made by the platform.
According to Saurabh, ProsperX will continue to work on bettering the product experience for customers, while building new automation flows.
On perfecting the mutual funds piece, health insurance will be introduced on the platform this year.
By the end of this fiscal year, the firm plans to have an average of 6,000–8,000 customers transacting on the platform, with a total of $10 million in assets under management by the end of next financial year.
Currently a web-based product, ProsperX is working to launch its Android and iOS applications by December.
So how does this work?
By regulation, SEBI doesn’t vest an advisory licence and a mutual fund distributor licence with the same firm. Usually, they are sister concerns with the two licences.
However, advisory platforms make money in the long run, once the investment reaps, taking a percentage of the capital invested as well as gains on the capital.
But for short-term flow, wealth management businesses turn towards insurance products for faster revenue flow, as the commission is on the yearly premium and not the x number of years till the funds or consumer’s investment is vested.
However, with advisory as an additional service, ProsperX might have an edge over other models who have been engaged in pricing wars rather than focusing on service quality.