When you mention fintech, what comes to mind is digital payments and loans. While Paytm and PhonePe dominate digital payment apps, the likes of IndiaLends and Capital Float have been expanding access to credit for consumers and small businesses. Traditional banks too rely mainly on lending for their business.
So it’s not surprising that alternative credit startups dominate the portfolio of even an impact investor like Omidyar Network India. Lately, the firm, set up by eBay founder Pierre Omidyar, has been broadening its ambit to support innovation in a wider range of financial services. These include emerging domains like neo-banks, sachet-sized insurance and flexible investments more suitable for tier-2+ India.
“Fintech, especially for lower income groups, has to go beyond credit,” says Roopa Kudva, MD of Omidyar Network India. “We’re coming at this with the lens of financial inclusion.”
Toffee Insurance, for example, has bite-sized products like cover for dengue. An annual payment of ₹682 covers hospitalization and medical expenses up to ₹1 lakh. It could serve someone like a vegetable vendor, for whom a bout of dengue might be a financial shock. “They’re catering to different kinds of risks more relevant to the next half billion population,” points out Kudva.
Another Omidyar-backed startup, GramCover, provides insurance to farmers. The rules stipulate that insurance is mandatory for any farmer taking a bank loan, but half the farmers in the country don’t take bank loans. Often overlooked by traditional insurers, they are getting crop, health and other insurance products from GramCover. “They’ve provided 1.2 million policies to farmers, which is quite impressive, given that it’s not an easy segment,” says Kudva.
Another area beyond credit and payments is savings and investments. Here too Omidyar is looking at innovations suitable to the needs of underserved sections. AffordPlan helps its customers use savings, instead of taking loans, for medical expenses, thus avoiding a debt trap. Users can save money for a planned medical procedure such as a cataract surgery or tooth extraction. The Delhi-based startup works out discounts by tying up with hospitals that get business via AffordPlan.
Startups such as these are fine-tuning their products to suit the behaviour and lifestyle of people with lower incomes living in tier-2+ cities. “Unlike the more affluent who have a salary or some predictable income, a person from the next half billion population will have far greater seasonality in income. A small incident can set them back. When you design your financial product, you have to provide for flexible payments instead of EMIs,” says Kudva.
Each of the nine Omidyar-backed startups in the credit space targets a specific segment, using alternative data for credit-worthiness. For example, Indifi gets data on vendors of a large company and provides credit, while Vistaar caters to small businesses in the rural economy. Zest Money has sophisticated algorithms and API integrations with ecommerce platforms to provide consumer finance EMI options.
Kudva grew up in Assam, “surrounded by nature, with no exposure to the corporate world.” Then she got an MBA from IIM, Ahmedabad, and went into a career in finance which took her to the top of the corporate ladder at CRISIL. During her eight-year tenure as CEO, she transformed it from a ratings agency to a diversified analytical company. “It gave me a ringside view of everything happening in the country as well as global exposure.”
From evaluating traditional businesses with a track record for CRISIL, she moved to early-stage tech startup investments at Omidyar in 2015. This was a different ball game where an investor had to assess the potential of a new idea to grow into a scalable, sustainable business. The cost of acquiring and engaging customers were more telling metrics than quarterly growth and earnings.
“Fintech startups use novel business models to bring down the cost of acquisition of customers (CAC) and operational expenses,” says Amol Warange, director of investments for Omidyar Network India. Indifi, for example, would partner with an aggregator like Zomato to get data on restaurants and offer credit. Similarly, an Uber or a Swiggy would have data on drivers and delivery personnel that a credit startup can use.
“Figuring out novel ways to get a lot of customers at one point and underwrite them by sharing data with an aggregator is an important element in lowering CAC. The startup’s access to privileged data also makes its credit risks better than traditional modes of acquisition of customers,” says Warange.
The layer on top of all that is the social imperative that guides Omidyar’s investments.