How SmartCoin is using deep tech models to improve credit access for India’s lower income groups

SmartCoin was started by IIT/IIM alumnus Rohit Garg, Amit Chandel, Vinay Kumar Singh, and Jayant Upadhyay in early 2016 when India’s SME lending sector wasn’t as happening as it is today. The fintech revolution had just begun, with mobile payments taking off later that year after demonetisation.

Slowly, of course, the action moved to consumer lending startups like SmartCoin and others, which catered to India’s vastly underserved lower-and-middle income segments. Last year saw lending startups secure maximum equity funding in the domestic fintech sector. SmartCoin, an app-based instant loan platform for the financially underserved, too, raised $2 million in a pre-Series A round in March 2018.

The Bengaluru-based startup helps assess the risk profiles of prospective borrowers in real time by using data science, AI, and ML algorithms. Its proprietary credit underwriting engine aggregates thousands of data points on customers’ smartphones, including their financial transactions, device usage, app behaviour, and more to build a customised credit score.

Growth and penetration so far

In 18 months, SmartCoin claims to have disbursed over 300,000 loans amounting to Rs 150 crore. The loan ticket size varies from Rs 5,000 to Rs 2 lakh. The startup took 12 months to hit its first 100,000 users. Since then, its user base has jumped 12X to 1.2 million. Its current ARR is north of $2 million, which is a 4X growth since inception.

SmartCoin says nearly 50 percent of its customers come from India’s Tier 3 and Tier 4 towns. The startup claims to have touched over 90 percent of India’s zip codes. About 60 percent of its lending is for micro-enterprises; the remaining are personal loans.

Founder-CEO Rohit Garg tells YourStory,

“More than 80 percent of our customers are in the 23-33 age bracket; they are new to credit and do not have a Credit Bureau score. These are people who do not have monthly savings. They are mostly blue-grey collar workers and micro entrepreneurs like cab drivers, beauty parlour owners, or kirana shopkeepers.

"A working capital of Rs 5,000-10,000 is enough for them to pay suppliers or handle seasonal family expenses like children’s education fees or a medical emergency," he adds.

Also Read: These 5 fintech platforms provide smooth finance resource for MSMEs

Next phase of growth via Google Launchpad

SmartCoin’s effective use of “advanced AI/ML models” to provide an alternative credit assessment to millions of cash-strapped users in India’s remotest corners has earned it a place in the second batch of Google’s Launchpad Accelerator Programme. It is one of the 10 Indian startups that will undergo a week-long mentorship bootcamp this year, and will get commercial engagement opportunities later. It will also receive mentorship from industry experts, free technological support, cloud credits, and more from Google.

Rohit says, “So far, we have relied on our own experience. Google gives us direct access to AI and ML experts. Their unprecedented technical knowhow will help us make our platform more advanced and allow us to reach milestones in half the time we would have otherwise taken.”

SmartCoin plans to quadruple its customer base and double the number of loans disbursed to 600,000 in the next one year. With Google’s support, it expects more “targeted user acquisition” and a deeper presence in vernacular segments. Rohit says, “We are building products for the next billion users. We have to be more vernacular, and expect a lot of synergies with Google on that front.”

The startup is also gearing up for a Series A funding later in 2019. It has raised about $2.5 million so far, from a clutch of investors including Unicorn India Ventures, ISME Ace, Accion Venture Lab, and an undisclosed Chinese VC fund.

Also Read: 10 trends that will shape the future of Indian fintech in 2019

What makes SmartCoin effective?

In a country where more loans are rejected than granted, SmartCoin has been able to provide credit access to those who find it most difficult to secure it. Most lending in India is informal and lower and middle-income groups are often left to the mercy of loan sharks or unreliable friends and family.

“The problem is the lack of standardised data. More data points have to be generated. More data means more transparency and increased creditworthiness,” Rohit shares.

And this data deficiency is what SmartCoin has managed to resolve. Instead of being rigid about bank statements to arrive at a borrower’s credit score, SmartCoin says it is “flexible” and looks at “alternate data points” like utility bills, financial SMSs, app history, mobile usage patterns, etc.

Rohit explains,

“We catch micro-signals like has the borrower paid his bills before or after the due date? Does he use his smartphone for better money management or is he gambling? We try to judge his moral compass, then collect the data, and use ML models on top of that.”

So, SmartCoin’s systems do not rely on just financial data, but capture behavioural data as well. “Our engines can eventually predict the user’s credit behaviour,” Rohit adds.

This has allowed SmartCoin to open up formal channels of credit to swathes of the financially underserved population. It also helps that loans are digitally credited within two hours for new customers and 30 minutes for repeat borrowers, as opposed to a 45-60 day window in the case of formal loans from banks or NBFCs.

“SmartCoin illustrates how innovative lenders are leveraging data, mobile access, and India’s digital infrastructure to extend loan access to the financially underserved,” says investor and Accion Venture Lab President-CEO Michael Schlein.

Also Read: India world's second biggest fintech hub, with Mumbai and Bengaluru leading the charge: study

Challenges, peers, and industry landscape

While SmartCoin acknowledges that the mobile internet revolution triggered by Reliance Jio has enabled it to build a business “that was unimaginable five years ago”, there have been a few challenges. Creating a fully smartphone-driven, data-led lending model has not been easy. Also, educating people about the importance of good credit was an initial challenge.

“Close to 95 percent of the people in India don’t get credit for some or the other reason, Rohit says, adding “Also, you invite a lot of fraudsters. Strong tech is required to identify these defaulters and weed them out of the system.”

SmartCoin is not the only one riding the micro-lending wave in India. It competes with players like Lendingkart, CapitalFloat, LoanTap, Quicklo,Cash Suvidha, and others. But, overall sector growth is positive, with lending being dubbed the current “investor favourite” in desi fintech.

According to YourStory Research, lending startups raised $1.21 billion in 2018, marking a 269 percent jump from 2016, when the sector had raised only about $330 million. The total number of deals too doubled during this time.

Rohit sums it up well. “Indian fintech offers a lot of opportunity in every vertical. We wanted to pick a mass market segment and create real impact.”

Also Read: Indian fintech raised $5.4B in equity funding over the last three years, but where is it headed?

(This story has been updated to remove Finomina as a competitor for SmartCoin. The startup had shut down in 2017. We regret the error.)