Mani Parthasarathy

Hi Gorav, and thanks a lot for your valuable time. Can I start by asking you, your take on the traditional way of lending? 

Gorav Gupta

The traditional way of lending that most of us have been witnessing over many years is a manual and time-consuming process that comprises 3 predominant steps – application & KYC, underwriting, and disbursement. Traditional lending also follows the 4 C’s approach – Character, Collateral, Credit, and Capacity – which can get quite cumbersome, subjective, and not driven based on data.

Mani Parthasarathy

What was the reason behind starting Digimoney?

Gorav Gupta

Let me go back to 2008-09 when we started AccSource, our other venture that is into KPO (Knowledge Process Outsourcing) business with an Australian market focus. After the company was set up and settled, we turned our eyes to India to try and take advantage of the millennial demographic, which is 34% of the current workforce. After scoping for sectors to venture into, we zeroed in on Tech Finance, one of the most happening places these days. The main motive behind starting Digimoney is to make financial services more accessible to individuals and SMB’s that have limited access to finance.

Mani Parthasarathy

Gorav, what do you think are the challenges plaguing traditional lending services?

Gorav Gupta

I haven’t been a provider of traditional finance, but I’ve been a user of the service. I’d like to highlight 3 significant challenges here:

• Extensive Paperwork: So you have loan application documents, KYC requirements, etc. For simply opening a bank account, customers need to run through and sign stacks of papers. 
• Prolonged Waiting Time: Since traditional lending relies on data not readily available like credit score, lending history, salaries, bank balance, etc. it takes quite a bit of time. Customers only want to know one thing in lending – whether their application is accepted or rejected.
• Human Bias & Manual Judgement: Traditional finance also relies on the physical presence of the individual at a branch to give judgment. That’s why when you go to one lender, your application (based on paperwork/presence) may be rejected, and when you go to another lender, your application may be approved.

Mani Parthasarathy

These points trigger some curiosity: how can I as a traditional lender – bank or NBFC turn digital?

Gorav Gupta

I’d say the first step towards switching to digital finance is embracing e-KYC technologies which use a digital onboarding process as opposed to a pen-and-paper approach. C-KYC, which uses blockchain technology to centralize all customers’ data, and is managed with no duplication and no repetition.

Mani Parthasarathy

Can you please tell us how a digital onboarding process works?

Gorav Gupta

Digital onboarding has revolutionized the client onboarding process by enabling the 3 A’s – anyone, anywhere, and at any time. Onboarding should be available at the ease of the customer. Gone are the days when you can expect customers to come to a branch between 9 to 5, and make them fill out tonnes of documents to get their loan disbursed. Millennials want everything instantly, no time for filter coffees anymore! People want that convenience, which is why the Swiggies, the Zomatos, and the Ubers have been successful and thriving in this market.

Mani Parthasarathy

What do you think about digital onboarding being cost-effective, Gorav?

Gorav Gupta

These days, digital onboarding is not really an expensive affair anymore. We ourselves use a system that is built with a complete tech process because of which we are able to lend money in such a short period of time. I believe it’s the understanding of the technology that is more important than the cost. 

Mani Parthasarathy

How does digital onboarding help reduce the customer acquisition cost for NBFCs?

Gorav Gupta

Look Mani, technology is a double-edged sword – it’s a brilliant enabler, but it comes with a cost. The only way to reduce the cost of technology adoption is to make it effective. Eg. Let’s assume a tech application in which 100 applications come in. Some applications may get stuck at KYC due to insufficient data and some may not be eligible for credit, and only 5% may actually go through to disbursement. Here we mustn’t look at the absolute cost of processing an application, rather we have to consider the composite cost of completing 5 disbursements. So the ratio of the number of applications to the number of disbursements becomes extremely crucial.

Mani Parthasarathy

Say a person on a digital lending platform applies for a loan and goes straight through to disbursement, what would be the cost of processing the application? Can you throw a number?

Gorav Gupta

The absolute cost of processing just 1 successful application doesn’t cross INR 300.

Mani Parthasarathy

That’s it?! It’s funny that in traditional lending, just the petrol cost to go to the branch and back would be INR 150-200!

Gorav Gupta

Yes, that’s how much digital lending has become cost-effective.

Mani Parthasarathy

The API buzzword is going on in the FinTech circles – can you talk a bit about this?

Gorav Gupta

API (Application Programming Interfaces) simply put, is something that connects 2 different systems, or passes data from one system to another for a certain use. The entire gamut of loan origination can be automated from KYC verification to disbursement using various APIs. For example, take e-KYC. Customers can get their identity and address verified through various government-issued documents like Aadhar ID, Passport copy, etc. APIs, which are part of digital lending software and systems, transfer in real-time the input given from the customer to the respective government database, fetches data from that customer, and use that info to perform e-KYC. There are APIs used for underwriting, execution of loan agreements, disbursement & payment collection.

Mani Parthasarathy

What kind of regulatory challenges do you think NBFCs face?

Gorav Gupta

Smaller NBFCs don’t face many challenges, but systematically important NBFCs have a lot of compliance requirements. If the Loan Management Systems in bigger NBFCs are designed to auto-generate info required for regulatory filing, then that’s a best-case scenario.
There’s a new scale-based regulation from RBI that could bring some challenges since it involves a new asset class called The Special Mention Accounts (SMAs). I don’t think the existing NBFCs are geared to take on and report such accounts, but if their LMS is scalable enough to support the generation of such reports, then it’s okay. For eg., we use the LMS powered by Habile, and it was just a configuration that modified our reporting norms to meet this regulation.

Mani Parthasarathy

Gorav, how can lenders balance the expectations between traditional and millennial borrowers?

Gorav Gupta

Only if lenders minimize the length of the process taken to originate and disburse loans, this can be achieved. I’ve noticed many institutions asking for n-number of data points through their websites or apps prior to the loan application. Are they really using these many data points to check creditworthiness? 
Millennials can easily fill out these forms/fields, but older people and those from rural India can’t be expected to labor through so many questions. People like my father, who are unfamiliar with digital lending processes, will expect to fill out only relevant information to avail of loans. So if lenders are able to minimize this loan origination process, then the opportunities across an older demographic and rural India are bountiful.

Mani Parthasarathy

What is the best turnaround time that you’ve achieved to disburse a loan?

Gorav Gupta

Before diving into that question, let me share with you why we’re able to lend so quickly. We have built our onboarding as a paperless, low-upload, and real-time process. Most of the data used for making a credit decision is pulled using data fetch and cross-verified with government databases. Once the onboarding is done, we use alternate credit scoring and bank statement analyzer to build a data-rich rule engine (which contains several data points) to take a faster-than-normal decision.

Mani Parthasarathy

How many downloads of the app do you have now, Gorav? What’s the secret of its success? 

Gorav Gupta

After launching in Feb 2021 and expanding to other cities in South India from April, we are now present in 8 cities and over 90k downloads, although the number of loan applications through the app is over 120k. We’re looking to touch 100k downloads very soon! I can attribute its success to a bunch of reasons:

• Getting hits through word-of-mouth and some digital media marketing. App user-friendliness has driven many of our clients to refer us.
• The older demographic has also found the app quite easy to navigate through and use.
• Low rates of interest.
• Very low processing fees.
• A rock-solid customer care team that manages the toll-free number and email support. 

Mani Parthasarathy

How much has technology helped Digimoney reach its milestones?

Gorav Gupta

Immensely. It has accelerated our growth multifold. Here are 2 main points:

• Seamless Customer Onboarding: You know, we ask for only the DoB and pan card details in phase 2 of the app. The rest of the data is fetched from government databases.
• Larger Audience Capture: Reaching out to and capturing people from tier-2 and tier-3 cities and older demographics through an easy-to-use app has also contributed. If I need to expand to pan-India, it will take me only 15 minutes.

Mani Parthasarathy

How is credit evaluation done on the app? How have you reduced your NPAs?

Gorav Gupta

Setting the standard (for underwriting, disbursement) is a one-time process. We’ve designed a proprietary rule engine that has helped us keep zero NPAs over the last 9 months. Our credit evaluation process comprises 3 types of data – bureau, alternate, and bank statement analyzer. All data points are generated using AI and ML tools which feed into the rule engine and risk profile of the customers.

Mani Parthasarathy

What kind of alternate data points do you use?

Gorav Gupta

We use many service providers for e-KYC, payments(where we use their e-NACH, e-MANDATE collection APIs), and alternate data. But the most important one is the loan management system, for which of course we use Habile’s CloudBankIN. The best part is that we’re able to customize it to our requirements, be it demographic, regulation, or interest rate change.

Mani Parthasarathy

How do you differentiate from your competition?

Gorav Gupta

We’re a FinTech and an NBFC, which makes us unique, but our focus has always been technology. Other operational aspects where we’d like to differentiate ourselves are faster turnaround time, low interest rates and processing fees, and top-notch customer service.

Mani Parthasarathy

What is your scope with regards to loan aggregators, Gorav?

Gorav Gupta

Mani, we are slightly averse to concepts like co-lending and providing FLDG guarantees. because the associated costs are high. These initiatives come at a cost, and the moment lending costs go up, the intent to repay decreases significantly (higher NPAs). Right now we’re not partnered with any aggregators, but it may happen in the future.

Mani Parthasarathy

How would you describe an efficient user flow

Gorav Gupta

It’s simple: Customer registration → KYC → Credit Underwriting → Offer → e-Mandate → Loan Agreement → Disbursement

Mani Parthasarathy

What about tools to prevent fraud prevention, Gorav? What do you think?

Gorav Gupta

We’re not using any tool that can actually prevent Fraud, Mani. But fraud prevention is in-built into the process itself. Actual tools to prevent fraud can easily be understood and manipulated by fraudsters so what I think could help is if you have a cross-verification check at each step of the loan origination process. I’ve heard of Closed User Groups (CUG) at big banks to help weed out fraudsters, but I think people can easily game the system.