Digital penetration has increased at a swift pace over the past few years in India. The decrease in average data cost and drop in price of smartphones has resulted in higher internet activity. This has promoted digital transaction and online purchases. PayTM, MobiKwik, etc. started the digital payment revolution and these platforms have expanded vertically. UPI has increased at a sharp pace in India. New entrants like PhonePe, Google Pay, etc. have increased digital payment adoption in the past two years.
ZestMoney‘s co-founders were inspired by the scope of digital lending in India while working in London. Urbanization and rising aspirations of Indian consumers, alongside the discount model of the online e-commerce industry, has fueled the swift pace of growth in online purchases. E-commerce is expected to grow ~3X over the next three years.
~300 mn of households in India earn $250-1,500 per month. ZestMoney targets these customers for EMI-based loans (Indian financial market is estimates at US$1.2 tn market but >70% of the demand is met by the informal sector) as the customers are mostly not served by financial institutions. ZestMoney focuses on transactional credit/point-of-sale credit. The primary thesis of the company is that credit should be contextual.
ZestMoney & Customers – Company works with retailers to provide credit to under-served customers. Customer retention rate is high at 70% (varies across channels). Average ticket size is low at Rs20,000 (tenor of 12 months) and on an average a customer transacts 1-2 timer per year. The company uses a mix of data sources (apart from CIBIL score) to gauge customer repayment prospects.
Reliability of online transactions was questionable in India. This inspired the creation of a seamless digital payment platform to increase customer satisfaction and Citrus Pay was born. Prior to selling the company to PayU in FY2016, the company managed ~US$3 bn transaction per year for <1,000 merchants. The success of online transactions has increased to ~90% currently (compared to ~98-99% for European countries). PayU India started LazyPay to increase the convenience of digital payments for customers. Customers may pay the entire amount to LazyPay after a pre-defined period. The average ticket size is low at US$15. LazyPay is a primary acquisition engine for the company. The low cost structure of the business model makes it effective against other players/financiers. The company has also started merchant EMI schemes whereby customers opt for an EMI option prior to paying at a merchant terminal. This model is similar to ZestMoney. Being at a nascent stage, growth is relatively modest in this segment.
PayU & Customers – The customer acquisition cost is lower than US$0.5.The average customer acquisition cost in branch banking model is ~US$30-40. This gives flexibility to the business model to manage elevated credit costs (if necessary). Strong social media presence and high word-of-mouth advertising reduces overall customer acquisition cost. The advantage of the digital model is the high proportion of variable cost which offers flexibility.
BigData for Decisions – Fintech companies leverages customer data to understand trends in purchases, transportation, etc. and map various needs in the customer lifecycle. This enables PayU to target the customer at the appropriate time. Additionally, information about customers is leveraged to predict the scope of default.