SanKash views itself as a “travel enabler”, making travel affordable and fulfilling for the Indian traveller by offering flexible, pay-over-time options, and co-founder Akash Dahiya speaks to WARC India Editor Biprorshee Das about how the company is leveraging the interest-free Buy Now Pay Later (BNPL) model.
This article is part of a Spotlight series on the Fintech Revolution in India. Read more
- SanKash clients are experience-seeking and middle-aged, not Gen Z; they are financially stable and understand credit bureau scores.
- Half of Indians who use BNPL see it as a cash flow management tool because they are not paying anything extra for a loan.
- The biggest challenge is the regulatory framework with old laws that need to change and this causes uncertainty in the ecosystem.
WARC: How did SanKash start? What was the need gap identified?
Akash Dahiya: We have always believed that a purpose-based loan will always do better in India compared to free-flowing cash. With that premise, we were scouting and trying to understand different verticals. We identified travel as one of the verticals that is big in the country. At the same time, we saw how most NBFCs (non-bank financial companies) and banks were a tad reluctant to enter the category or were fence sitters. There were three reasons. One, travel as a product does not have an MRP (maximum retail price). You could buy a ticket from Delhi to Bengaluru for INR 3,000 or 10,000. This means someone might overleverage and use the money for something else. This is one of the main reasons why NBFCs don’t do it.
Secondly, like how Samsung is to mobile phones, there is no OEM (original equipment manufacturer) in travel. This means there is no manufacturer of services here. Typically, most banks and other financial institutions want to piggyback on an OEM and reach out to the market. It isn’t possible in the travel industry.
Thirdly, you will find several travel agents but none of them has a storefront. The distribution and reach are very fragmented. You can’t reach out to a business that does not have an office.
Because of these three reasons, we realised that NBFCs and banks are sensitive to the category. We decided to solve these three problems. We built the product in 2018 and went live in 2019. We became the blue-eyed boys of the industry. We had banks, financial institutions and VCs knocking at our door. That’s when COVID happened.
Those were testing times. We could shut down or stay put because we knew travel would come back with a vengeance. The second option worked well for us. We utilised the time we had, improvised on the product.
We used COVID to do two things – stay relevant in the ecosystem and improvise on the product. So when we saw the light at the end of the tunnel, there was unprecedented demand.
We are now running at 10x the speed of what we used to. There are new partnerships coming in. From an offline ecosystem, we have entered into an online one. Today, we are partnering with top airlines and OTAs are coming to us.
SanKash is operating in a relatively new category. How did you go about understanding the market or customer behaviours?
That’s the challenge of category creation. There will be no historical data to bank on. You need to believe and go on a gut feeling that there is a market. It is after all a huge industry. How are you going to solve it? When you are creating a category, the problem is not competition; it is education.
For example, today when we attach ourselves to a travel merchant, the sales executives are not accustomed to selling a product on EMI (equated monthly instalment) like how one in a typical electronics store would. How do you sell a Maldives holiday on EMI to a couple that arrives in a BMW car with iPhones in their hands? Give them an option! If you don’t, they won’t buy it. Technically, they will never tell you that they are short on budget. Irrespective of what your customer’s financial health is, you cannot assess it just by looking at his or her face.
Our problem, hence, has always been education and that is something we are still working on. We really want competition to come in – it is high time. A lot of them were fence sitters and COVID pushed them back. But now they will come. With more competition, the education will also happen.
Also, we had little idea that many horizontal products would come in with this. For example, we were signing a deal with Radisson Hotels for a Stay Now Pay Later arrangement. Radisson suggested plugging F&B with it because that contributes about 40% of sales in some of the group’s hotels.
We also launched a programme called Marry Now Pay Later. Suddenly, we upticked a segment that is humongous. Marriage loans are unserved in the country and it is a major reason why people take a personal or gold loan.
These are learnings, some of the accidental discoveries as we call them. We kept on improvising.
BNPL has both negative and positive connotations but what do you think it means to Indian consumers?
Buy Now, Pay Later – this means the product comes before and the pay later bit only enables it. The reason why a credit product takes off or doesn’t is also because of the cost associated with it. What the industry has learned is if the cost can be brought down to zero and if there is no difference between buying it on EMI or at full cost, it becomes a cash flow management tool (for the customer).
Irrespective of how you buy an iPhone, it will cost you the same. So why would you pay one lakh rupees when you can pay 10,000 for 10 months? This is how things are changing. A lot of product innovation has happened.
With the interest cost being absorbed by sellers, Buy Now Pay Later took things by storm compared to personal loans.
Some mistakes were made while driving volumes. It is easier to give loans but difficult to collect them. The industry is evolving.
With credit, risk is involved. How is SanKash striking the balance?
We call it two ways of underwriting – one is the Chinese way and the other European. The way the Chinese operate is by giving out loans to everyone at obnoxious interest rates that puts a lot of effort on collections. And that’s the reason why a lot of Chinese apps got banned. Nothing wrong with it; it’s just a modus operandi – I’ll give you whatever loan you ask for and I’ll charge you heavily – the typical moneylender.
And then there is the European way of granting loans to the right person for the right purpose and reason. I will then take time to underwrite and understand. That’s the better model. Indian companies have always taken that approach. We are trying to assess a customer on two fronts – one is intent and the other capability. The moment you can’t strike that balance, that is when defaults happen.
Intent can be seen through credit score, past history of the customer or any other third party data. I can read through your mobile phone, understand your bill payment history, understand your savings habits etc. Bureau score is a good indicator because if you have serviced a loan, it makes a lender comfortable. There are also a lot of third party indicators. For example, if you have a lot of gambling apps on your phone, you are a high-risk customer.
Over a period of time, what has happened is that today, financial services have become the new social media. The number of banking apps on a phone might be more than the social media apps. A customer spends more time if not an equal amount of time looking for deals and offers than on social media. With this, every customer has a digital footprint. This gives an idea of the customer’s intent.
And when it comes to capability, it is sorted for the salaried person in India. Unfortunately, the problem is with self-employed people who might not always declare the right income to evade taxes. However, with the introduction of GST (goods and services tax), TDS (tax deducted at source) and such government initiatives, people have started realising the importance of maintaining accurate records of income. All of these things put together show the capability to an extent.
The segment we operate in is very different. Our ticket size is large, the customer is not in a hurry. The moment you bring in urgency, wrong decisions will be taken. With us, travel bookings happen in advance; the consumption of service happens three months down the line. The customer is at leisure. That gives us, our NBFC and banking partners a lot of comfort. There are a lot of checks and balances we bring into our ecosystem. This is why and how we were able to survive the last five years; we survived COVID.
What have you learned about your customers from the last few years?
When we started, we always thought of travel being a millennial, Gen Z phenomenon. We thought the backpackers would come to us. We were absolutely shocked to find how the average age of a person seeking a loan to travel is about 32 years. There are at least three members on a single PNR (passenger name record), of which at least one is a child. They take two holidays a year – one domestic and one international. These are travellers seeking experiences. They want to experience a five-star hotel for the first time, they want to fly business class. It is a mature traveller. I could travel to Goa every time but what is it that will be different other than staying in a different property.
Experience-seeking, middle-aged people who are much more conscious are coming to us. What turned things around for us is that this traveller who is well-exposed is also financially stable and healthy. This customer knows what a bureau score means, what it takes not to pay the EMI.
One of the largest segments for us is religious travel. Especially after COVID, people wanted to travel for religious purposes. Students going abroad, labourers going to different countries, these changed the entire demography.
For example, we sponsored an all-woman trip to Antarctica. The cost for each person was about INR 15 lakh. All the women were housewives who didn’t want their husbands to bear the cost. But then, shelling out the amount in one go was a big thing for them. Sponsoring them gave us a lot of pride too.
Tell us about the Marry Now Pay Later programme you launched. It is an interesting insight for a category that is huge in India.
As I mentioned, it was an accidental discovery for us. When we were speaking to our customers, we tried to understand why they were seeking loans. Most always said how in life there are two primary objectives for them – education and marriage. Both are obnoxiously priced these days and need a lot of planning in advance.
While education loans are common, unfortunately for marriages, there weren’t enough options. We realised people were seeking loans, liquidating assets, dipping into savings. It is a big-ticket item. We are also struggling to service the volumes today. While we were doing unsecured loans for them, we are now introducing asset-based financing as well, wherein we are encouraging customers to not liquidate but take a loan on their assets, marry and repay later.
People consider this to be an important chapter in life that they don’t want to begin on a negative note. This means the defaults are less. Also, the time between the booking and the marriage is roughly about nine months. This means customers will technically pay three-quarter of the loan even before they consume the service. The capital risk, hence, is less.
Would you agree that the concept of Buy Now Pay Later, besides making credit widely accessible, is also helping people plan their finances better?
Of the people who now take a loan, 50% see it as a cash flow management tool. If you are not paying anything extra for a particular product, why will you not do it? People now realise that they can do a lot more with the money. Yes, the disposable income of the people has increased but the proportion to the pockets to spend has also increased. If one has a lakh of rupees of disposable income, while earlier it would be spent on entertainment and food and travel to an extent, but now within these, there are many silos. People, hence, have started making bite-sized payments for everything. If financially disciplined, no customer will shy away from doing this.
There could be some tough scenarios like COVID or a job loss but those are one-off.
What are the challenges and opportunities you see in this space?
The biggest challenge today is the regulatory framework. While not a challenge per se but as the industry evolves, the regulations will have to as well. This means the laws which were made years ago need to change. The Reserve Bank of India is definitely making those changes.
However, it also brings a lot of uncertainty in the ecosystem. With the number of apps and NBFCs that have been closed down in the last few months, a sense of negativity has set in. This could mean a lot of players would want to wait and watch; investments would slow down. But the government, with time, will come up with a robust framework.
In terms of opportunities, India has a long way to go. UPI (Unified Payments Interface) has only been growing. On the travel front, India only has around 15 crore passport holders. Of these, 50% are students or labourers. So the actual people who travel are only seven crore (70 million) in a country of 1.4 billion people. And we haven’t even started travelling like how, say, the Chinese travel. That is where the opportunity lies. There is a lot of headroom. Innovation will happen.