Freo is an Indian credit-led neobank and its head of marketing, Hitarth Saini, speaks to WARC India Editor Biprorshee Das about why the future is bright for neobanking in India.
This article is part of a Spotlight series on the Fintech Revolution in India. Read more
- Freo has apps in vernacular languages and offers everything from savings accounts, credit lines, credit cards, gold loans to financial utility and pay later services.
- One recent challenge is fraud but Freo’s risk team intentionally puts more brakes and checkpoints to catch fraudsters.
- While a bank branch serves only a small geographic area, neobanks can serve 80% of use cases for consumers digitally and save them a visit to the banks.
WARC: What was the idea behind the launch of Freo? What were the opportunities you identified then?Hitarth Saini: The team established MoneyTap, which is one of our products under the larger umbrella brand called Freo. We started this almost seven years back and around then, from a consumer perspective, no flexible options were available for an unsecured loan.
It was not as easy to apply for a loan quickly, get it approved and get the money in your account in a few minutes. It would take almost 15 to 20 days for a fast application to be processed even though seven years back, banks would claim that there was a digital channel. But the reality was not so for the large part of the country.
We did extensive research. We created a dummy product to test the waters and then scrapped it completely. We met different kinds of consumers, people who could not speak English. We tried to converse with them and got some insights that were unique. You wouldn't imagine how much time matters for consumers. If they have to go to a bank, many might have to take a leave from work that day. For a daily wage earner or for a grey collar worker, a working professional or a businessman, this means loss of pay or business. To them, the fancy features didn't matter. We then came up with India's first personal credit line for consumers – MoneyTap. These days, many call themselves a credit line but this was the only super flexible, personal lending app that was available back then. In a few minutes, anybody could apply and get authenticated for a credit product. A lot of them also got rejected; in India, not many have a credit footprint.
Unfortunately, it's also a chicken and egg problem – if you don't have a credit score, you can't get a credit product; to get a credit score, you first must get a credit product. But that is where we started experimenting and we started scaling up the business. Within a few months of our launch, we converted the product into seven Indian languages. We started with only a handful of cities serving consumers digitally and later expanded to over 80 cities. And then COVID happened.
Thankfully, we were well-placed. We had time because the whole industry was resetting itself. So we went back to the drawing board to our original vision that was to become a digital bank in India.
One good thing that has happened in the last few years is that everybody has smartphones with cheap data. This is when we realised that we are probably running out of products to serve the large untapped market and needed to launch more products so we can cover more ground. That's when we scaled from being just an 80 to 100-city player to becoming a 1,200-city player. Today, Freo products are used in 16,000 pin codes in India and this is almost 85% of serviceable pin codes in the country. This was all done in the last three years.
Last year around April, we had around one million consumers across our platform. We are very close to achieving the two million consumers mark. Our apps have been downloaded more than 20 million times and are available in multiple vernacular languages and we are India’s first full-stack consumer neobank with live products across credit lines, personal loans, co-branded credit cards, gold loans, savings account, pay later services and financial utilities.
How are you different from the other players in the market?
One of the benefits we enjoyed is the headstart we had. We started our journey with disbursing credit and it is one of the most difficult things to do in the finance industry.
A lot of other new players in the market are now getting into the credit business. They are far behind simply because this business takes time to establish. It takes learning and a nuance that you need to have before you can be successful. We started with the hardest part and now that we have all our other products, it's far more synchronised for us.
What happened in the last three years that you could scale up at such a massive rate?
The whole consumer behaviour shifted. Around 2016 when demonetisation happened, using e-wallets became a craze. Today, consumer behaviour has further evolved. There are reports that state UPI (Unified Payments Interface) transactions have far surpassed credit and debit card transactions combined. The dependency on you evaluating a consumer in the physical space has gone away. You might still require documentation for verification purposes when trying to mitigate risks or fraud. But the ability of the system to serve a large part of the population without using any physical intervention has gone up. It is one of the major reasons why the whole industry is growing.
When such rapid growth is witnessed, there is regulatory intervention. There have been many checkpoints that the Reserve Bank of India has been putting on the lending framework. There were a lot of bad apples in the market not following best practices. With the digital lending guidelines coming into the picture, a lot of them were weeded out. Now, consumer rights are protected, the processes are safe and it looks like the whole system is ready to go to the next level.
This is also important because I think consumer spending will also rise now. Although these are recessionary times, people have disposable income. For example, post-COVID, the travel sector saw a boom; the hospitality sector does not seem to have a demand problem now. And when that growth needs to happen, you need credit.
Aren't you worried by the financial conditions right now? Do you think India is well-insulated against what is happening globally?
Unfortunately, I can't comment on that, that's where the economists come in, but I am being hopeful of India’s growth story. As a neobank, there are different segments of consumers – some who are massively impacted and some who have money they want to spend. It’s not black and white; there is a full spectrum of consumers out there who need money to uplift their life and those who need it for dire situations.
There still are risks involved. Credit scores and background checks exist for a reason. How are you mitigating risks?
It's a risk and reward situation wherein we have to evaluate how confident we are if we had to provide a certain amount of unsecured lending to a consumer. We have developed robust systems internally. There is a lot of data that we have worked on in the past few years with the help of our partners, tech and product teams. We know to a certain extent the risk level of a certain candidate we are evaluating.
Obviously, it's not foolproof. One major challenge that the industry today as a whole is facing is fraud.
Although Aadhaar is very strongly built, there are a lot of leakages throughout the larger system, where identity theft happens when some kind of KYC (know your customer) check is not done properly. Then there are fraudsters. This is where our company’s anti-fraud team comes into picture.
This is also where the risk team gets involved. We have intentionally put friction before one can get the money. So there is one part to the business where you are trying to ease the processes. And then there is another where you intentionally put more brakes and checkpoints so that fraudsters can be caught. That is what even the industry is working towards.
A lot of companies sprang up in the last few years that were doing predatory pricing and unregulated practices. They weren’t following the standard practices of the lending industry. The government and the regulatory bodies then intervened and have been able to wipe out many of them.
How are you using data ethically to better serve your consumers?
We have multiple mobile applications. Google Play has been quite active in the last two to three years. They let the consumers know that this particular data is being collected for a particular reason. This wasn’t the case before. Google Play flags non-compliant apps and de-lists them proactively. Rest are compliant as per Google’s policy and the existing regulatory policies.
There could be cases where consumers are not comfortable sharing data. In such a situation, from a risk perspective, if I am not too confident, I humbly deny a loan request. It's more of a very interdependent and symbiotic relationship. If you're looking for money that I can give you without any collateral, then I need some additional data so I can be confident that you're the right person.
Where are most of your consumers coming from? Is it the metros or the Tier 2 and 3 cities?
It is almost a one-third split between Tier 1, 2 and 3 cities.
Within these cities, you have different strata of consumers who are using our products. Some are aspirants who probably earn a little more, while some could be struggling to make ends meet; the split over there is around 40-60.
What about the age group?
The age group is somewhere around 29 to 45 years. We do have consumers who are using our products, even from 25 years going up to 55 years. But the majority is typically the millennial audience.
What are some of the typical reasons people approach Freo for credit?
Firstly, there is a segment looking for a large loan; it could be somewhere in the range of around INR 50,000-100,000. Typically, these are used for medical bills, school and education fees, travel expenses etc. This is when a family either dips into savings or use their assets as collateral, or they can go for a personal loan. Usually, our products are used in a large amount for these cases. This kind of a use case happens once or twice, or rarely, in a consumer’s life.
Otherwise, when people think they have overspent a little in a month, perhaps because of a family function, or maybe there was a good deal on a TV set, or when the consumer faces a cash flow challenge with bills being higher than the income, that is when they're looking to borrow small ticket size loans, which will be in the range of around INR 5,000 rupees to 20,000.
And then comes the third part where consumers are using the products daily for, say, grocery spends, public transport, shopping, medicines, fuel etc. These are your daily spends.
These are the three different kinds of use cases we cater to and we have a mixed bag of consumers across different cases. Some use it across all three as well. That's the power of the credit line.
What is one thing that is common throughout your consumer sets across cities and one that is different?
One thing that is common across all the three sets of consumers in Tier 1, 2 and 3 cities is that there is a huge segment that is not served by the existing banking infrastructure. Even in urban areas. I am not saying that they are unbanked – they are underbanked. This is one thing common where not all have access to a relationship manager, for example, who advises and provides insights into personal finance, educates and helps them take control in life.
This is where technology plays an important role. You have an app that speaks to you in your language. It is the kind of personal experience a lot of these consumers have been missing.
Digital has already delivered that revolution now with people sitting at their home and carrying out transactions. Obviously, a lot of this has been enabled by banks, via fintech partnerships, sales innovations etc.
We are not against banks. We are an extension of them. What I meant to say is that there's a huge market that is yet to be served. There is a big world out there in Tier 1, 2 and 3 cities that don't have a great experience with banking. And this is where the opportunity lies both for banks as well as for fintechs and neobanks like us.
When it comes to unique features of our consumer sets, the patterns and choices are very different across cities. People in Tier 2 and 3 cities have not seen personalisation and great experience at scale. Tier 1 has and it is hence a far more difficult segment to crack. There are good players serving more advanced and tech-savvy consumers who have higher expectations. That is one of the differences.
In Tier 2 and 3, you don't need to be very fancy; you only have to serve the consumer with a basic need. A person who we were researching in the beginning told us that he doesn’t care about the fancy features we were building into the app. He only wanted to save a day of leave from work by not going to the bank. A Tier 1 consumer might not relate to this.
How are you investing in financial awareness and education?
We have been in touch with consumers from day one even before we had a product. Financial awareness in this country is poor. We have dedicated charters being led by talented people. Not just us, there are other players also invested in the cause. On Instagram today, you will see many content creators telling you how you can save tax, the kind of insurance policy you should buy, how you could manage your EMIs etc. There is suddenly an upsurge in this kind of content that is being created by financial experts.
From a brand perspective, we try to optimise for this experience right at the moment (of transaction). If somebody has just made a payment and he is waiting for payment confirmation, for three to five seconds, if I can display a small nugget of financial wisdom there, I have won at that point in time for that particular customer. Similarly, if we have to remind a consumer about repayment, our email that goes out explains why he should not be late. There is a lot of different content we create and send as newsletters in our weekly updates through our social as well as email channels.
Apart from this, we also realise that financial jargon is difficult to understand so we create content to help our consumers. We have also been collaborating with influencers creating a series of content to raise awareness about good financial practices. We have only scratched the surface and want to do a lot more.
What is the future you see for neobanks in India?
Neobanking is very nascent in India and I’ll explain why neobanks are poised to grow and banks will also start looking to collaborate with them a lot more. Banks invest a lot in setting up just a single branch and even after setting it up, a branch can only serve three to five kilometres of a region. But if you look at neobanks, we can serve 80% of use cases for which consumers are required to visit banks. We can do that digitally and we don’t need any kind of branch infrastructure to be set up. We use technology to serve the expanse of the country. This is the primary premise and difference between a neobank and a regular bank.
There are examples of neobanks globally that have met with grand success just by this concept. I wouldn’t say India is lagging. It is just that we are starting right now.