Paysense: Marrying tech, data to offer loans on tap

Aaron Lewis from Mumbai wanted to take his parents on a vacation to Europe but was falling short by Rs 1 lakh. Lewis came across an online advertisement of PaySense, a Mumbai-based fintech start-up that runs a digital credit platform. Without wasting any time, he downloaded its app and applied for a loan. ‘‘I received Rs 1 lakh loan from them in seven days and the interest rate is lower than what banks charge on credit cards,” Lewis says. He is one among the 15,000 customers who have availed Rs 40 crore in loans from PaySense. It claims 300,000 customers who have been sanctioned loans of Rs 480 crore but have not drawn them.

These are numbers that show early scale, which encouraged investors to pump in $5.3 million in Series-A funding into the firm. These included Jungle Ventures, Naspers Group and Nexus Venture Partners. Nexus had also invested $2.3 million in 2015 with prominent global angel investors.

‘‘This is a quickly evolving space and there will be a few mega companies that will be formed. The early traction gives us confidence that PaySense will emerge as a category leader here,” says Amit Anand, founding partner, Jungle Ventures, which recently invested in it.

The start-up was co-founded by Prashanth Ranganathan, a serial entrepreneur, and PayPal’s head of product for the APAC region, Sayali Karanjkar, who had spent more than 14 years in the US and Singapore working in operational and strategic consultative roles in large corporations like AT&T and AT Kearney. ‘‘We backed Prashanth, Sayali and the PaySense team at a pre-product stage based on their vision.  Their ideas of enabling credit using data sciences is very relevant for India, where a large proportion of the market is underserved and has sparse information required by conventional models,” says Anup Gupta, managing director, Nexus Venture Partners.

Opportunity

Large-ticket loans are well served by banks and non-bank financial companies (NBFCs). When it comes to loans larger than Rs 5 lakh, creditworthy customers have plenty of choice.  ‘‘Consumers often need these loans for tuition, home improvement, medical emergencies, family care and consumer durables,” says Prashanth Ranganathan, founder and chief executive officer, PaySense.

PaySense in partnership with IndiaInfoline offers customers loans between Rs 15,000 and Rs 1 lakh. This will increase to Rs 5 lakh for customers who have built a relationship with PaySense and have maintained a good credit history. PaySense charges interest rates of 1.5-2.5 per cent a month in line with personal loans offered by banks and NBFCs. Credit cards and unorganised money lenders charge up to 5 per cent per month. These are not lifetime loans but loans that one can avail of two or three times in a year for purchasing laptops, sending children to sports camps or coaching classes, travel and medical reasons without disturbing monthly cash flow or investments. 

“We serve both underserved and well-served customers. Our service is also extended to people new to credit,” says Karanjkar, the company’s chief operating officer.  

When it comes to small, short-tenure loans two things are critically important: Speed and experience. Customers want access to these funds in their bank accounts within hours. Customers do not want paperwork, so digital proxies play a vital role in presenting a slick experience. This appeals to customers who are “new to credit” and do not have a credit history. 

If this is a large and largely untapped opportunity, why have banks not been able to profitably serve this market? Ranganathan says this is for two reasons. One, it requires a re-think of loan book deployment — a large number of small loans versus a small number of large loans. Two, it needs significant technology investment upfront in sourcing, underwriting, payments and collections. Technology-powered loans have minimal staff, which is key in keeping loan costs low. 

“Our competition is traditional behaviour and processes, unorganised casual lending where the borrowing ranges from parents to friends to loan sharks,” says Karanjkar. Most people in India do not have many credit cards and not many roll over their balances on them, but they have been borrowing from friends, family and the unorganised sector.

IIFL Finance says the partnership with PaySense helps it increase its footprint in underserved segments through the use of technology and data. ‘‘The partnership with PaySense enables us to create a unique value proposition for low-mid income salaried individuals – complete with the ability to appraise using alternate data and disburse digitally within minutes,” says Rajashree Nambiar, CEO, IIFL Finance.

PaySense is available in nine cities, including Mumbai, Delhi, Bengaluru and Chennai, and plans to go pan-India soon. 

The funding will be used to strengthen the product, technology and team. Despite the early traction, PaySense is still in “Day 0” of addressing the opportunity and the key is to continuously refine its approach to keep delinquencies low and offer the right products.

Fact box

Founded:  May 2015

Commercial launch: May 2016

Area of business: Small-ticket personal loans

USP: Faster, better credit experience

Funding: $7.6 million in two rounds

Investors: Nexus,  Jungle Ventures, Naspers

Disbursed: Rs 40 crore, 15,000 customers

Sanctioned: Rs 480 crore, 300,000 customers

Average size of loans: Rs 45,000-Rs 50,000

Expert take

Arvind Sankaran, Senior Advisor, McKinsey & Company

Focus on consumer education about borrowing

PaySense has a singular approach. They call themselves a “tech and data science” start-up, yet their mission is to find “the human in the data”. Their full-stack model can continuously serve the customer and the underwriting engine is their “moat”. 

They have uniquely combined social connections, transaction and repayment behaviour, and capacity into a “PaySense graph” that learns continuously.  Banks talk about life-stage marketing, but it is only theoretical because they often participate only in limited segments. Whereas PaySense can reach first-time borrowers — find them, educate them, make them customers early in their income-generating years and serve them well through their life stages.  Lending to new segments in India is fraught with risk. 

PaySense started with the “end” in mind and have built unique collection capabilities, leveraging technology and consumer insight. A word of caution. Those who have navigated this terrain before provide valuable and painful lessons in credit. PaySense needs to anchor data and algorithms with terrain insight and demonstrate credit resilience, capturing learning from market dislocations. 

Also, consumer education about borrowing responsibly should always remain in focus. Finally, a critical factor to turbo-charge growth is finding the right partners in the marketplace. The IIFL partnership is already a true enabler.