Ketan Patel, CEO, CASHe
New-age FinTech lender CASHe is growing its business despite the on-going liquidity crisis in the Indian market. The NBFC (non-banking financial company), which lends to the young salaried segment with a monthly income of Rs 15,000 and upwards, is already profitable. With a monthly run-rate of 19000 loans, the lender has 30,000 unique customers. Its CEO Ketan Patel, who had spent 18 years in Kotak Mahindra Bank before joining CASHe, told IBS Intelligence that as long as lenders use technology to focus on strong underwriting, they need not worry about collections or NPAs. He also said that the online lending segment is set for significant consolidation in the next 6-8 months. Patel further added that the company, which aspires to be the Bajaj Finserv of underserved, might transform into a digital bank soon. Edited experts:
CASHe started as a payday lender, and now it is into short-term loans for salaried millennials. What triggered the pivot?
We certainly have evolved from that time when we did 15 to 30 day loans to now focusing on 60 days to one year products with a ticket-size of INR 10,000 to INR 3 lakhs for the salaried millennials We have currently become more end-user focused that will help us understand the consumer behaviour as where the money is being spent, which will further help us to curb the frauds. So unlike others, who focus on a channel, we are focusing on a segment and trying to cover the entire ecosystem of that segment.
So, starting from rental deposits (we have tied up with Magicbricks.com) to holidays to two-wheelers, we cater to all the needs of the white-collared salaried class working in for private limited, public limited and public sector companies.
How does this model different from others? And are you making money?
We are doing INR 800 million and about 19,000 loans on a month-on-month basis and about 19,000 credits on a month-on-month basis of individual loans. We have been profitable at PPT level in the first quarter of this fiscal (Indian FY 20) at INR 85 million, and we are hoping to end the full year with a profit of anywhere between INR 350 million to INR 400 million.
At a time, when most of the online lenders are struggling with massive losses, how did you manage to break-even?
We focused on the basics, and we ensured that we do everything right. The lending business is based on four pillars of strength. The fourth is management, which I am discounting completely. The other three components are the cost of acquisition, cost of operation and delinquency. Whoever can manage these three pillars would be able to make profits. We have the lowest cost of acquisition. We are a lean, mean fighting machine with just 130 people. To give you an analogy, when we did INR 30 million of business, we had a team of 125, and now when we are getting close to INR 800 million in revenue, we have a team of 130. So, we have nearly tripled our business, but the operation has not been linear. Delinquency, currently on each loan cycle, is at 1%. So I don’t want to compare with anyone. It is hygiene.
Why are then many online lenders not making money?
The most common problem about FinTechs is that majority are involved in the business of creating an enterprise which will last them. They are in the valuation game. Everybody’s here to create a valuation and get out. Nobody wants to create an organisation which will be there even after they are gone. But, there are a few who want to create an organisation we want to be a ‘Digital Bank’ at some point in time. So as we kept repeating this, I want to be the Bajaj of the underserved population. When Bajaj (Finance) started the business, people were laughing at them because they were competing with the banks. However, they created a niche for themselves and put a balance. Today Bajaj is more significant than most of the banks. So what Bajaj is not serving, we want to be there, and I can ensure that to our AI and algorithm and SLQ we should be able to address this.
Consumers are taking loans for everything these days. Should we be worried about a subprime crisis?
So what is subprime? It was 2004 when the first HSBC report came on the subprime crisis. My definition of subprime is different. 98% of the people take a loan to stay in that house, irrespective of the credit score. Now, does that make it prime or subprime? It’s again an asset. So, in the same way, if we are financing the end-use, which is to add value to that person. We are not going to give money to a party and spend anywhere then the probability of me getting my money back is lower to what is the segment that I am targeting. I am targeting the salaried segment between the age of 24 and 40. For me to get a job might be difficult for Rs Two lakh rupees, but to get a task is effortless. Plus from a credit point of view, we will never ensure that guy is not over-leveraging it. I will never give more than 70% of his net salary, all his loans put together as a loan. So, I also restrict like in my 90-day product I will never give him more than his total eligibility is one-time net salary, including his all other EMI’s.
There is a crisis, but every crisis comes with a lot of opportunities. So, what we have seen is in the current crisis is that better quality of customers coming to us for loans even as most of the banks and NBFCs decided to slow down on unsecured loans.
How do you de-risk?
So we also look at the trends and decide whether to lend to those industries or not. If one sector enters into a crisis and we have exposure in that particular industry, I can’t do anything for the old loans but cant we can stop the new loans immediately. The thing is, for a crisis to happen, you will start getting feelers about 4-12 months in advance.
Why is it easy for companies like you to switch-on and switch-off and not for banks?
Well, it’s similar to describe the movement of a Cheetah to an elephant moving. Lending is not a complicated business. It’s a spread business. At some point in time, you have to start making money. Right. So the problem is most of these guys are in the distribution business, and very few are in the lending business. So when you distribute you don’t want it back.
How many loans have you disbursed so far?
So last year we did INR 5 billion, and the plan is to end FY 20 with INR 17 billion mainly on the back of our acquisition strategy, we have kept a lean mean by acquisition strategy. We have a strong referral base and divide our customers into batches, and depending on how they perform with us and what sort of references they give, they get benefits on interest rates. So, it varies from tenure to tenure.
How do you score the borrowers?
We use alternate data collated in-house. We have a robust underwriting method that is developed in-house with our own AI and proprietary Algorithms, which gives the ultimate score to the person over and above that we also use conventional underwriting methods using tech. We also use KYC with salary slips and bank statements for three months along with PAN card.
Indian economy is already witnessing a slump. Are you seen seeing any slowdown in your lending business?
We have not seen a drop in customer base. On the contrary, the customer base has increased. We are very tight on our disbursement. We want to focus on quality. So if you look at my app downloads in June, we were at 200,000. In July, we were at 240,000. And in August, it’s already begun to 270,000
What is your collection strategy?
We have an in-house tele-calling team that does the collection, and we use technologically smart software to ensure that we get our money back. We do we have a cash mandate, but then the borrower should have money in that account on that given day right. Because otherwise, I will link my payments to the salary date. But everything said and done underwriting norms is the key. When in doubt say no, lenders are not in the business of collecting money. We are not in the collection game we are in the business of underwriting loans. So we will lend only to people where we are sure that this guy will return us the money.
As we enter a slowdown phase, what is critical now well for CASHe and all other online lenders?
Ensure that you don’t make any mistakes. Behave yourself for the next six months. When the situation improves, you will be in a better position. Similar to the 1998 crisis and NBFC crisis when 95% of the NBFCs went burst, only 5% would survive. Those who survived became heroes.
Do we expect significant consolidation in the online lending segment?
There will be a lot of companies coming up, but let me tell you that in the next six, seven months you will see the speed at which people are setting up shops. At the same rate, people will shut shops also in the next six-seven months. Funding is not going to be comfortable, whether it is equity or debt. You know the good companies influential companies will get both things right and from a market point of view, this is not a market where the winner takes it all. The market is vast enough for good players to do it right. So, there will be 8-9 good players we want to be in the top three compartments.
So apart from the current challenges in the economy. How has the regulator added to you?
We are very happy with the regulator. KYC was an issue, but then there are alternate ways to solve it. I don’t think people start blaming the regulator for everything that goes wrong. As long as we don’t be overconfident, I think this is a great business.