Episode 10 – Fintech –Lending Infrastructure firms are making a mark. Everyone can be a lender with Lending as a Service Model
The race to lending has begun and people providing infra to do the same are raking it in!
Note - Do head out to Global Fintech Fest for next 3 days and listen to all fintech influencers in country. Amazing learning opportunity.
Got one of the most interesting news today – ICICI Bank will offer overdraft facility upto Rs. 25 Lakhs for all sellers on Amazon! Now this is something that a lot of people, including founders in the Fintech infra space has been talking about, in addition to Amazon itself doing the Lending part. That will also happen and is a matter of when, not if.
It’s in this context that I take a deeper look at fintech infra firms which basically enables any company with access to customer data and distribution muscle to become a lender, they don’t necessarily are BFSI or NBFCs, but say someone like an e-commerce company.
Fintech Infrastructure is one of my most loved play in the entire sector. Have always believed in selling shovels while everyone is digging for gold and in this episode, I take a deeper look at Fintech Infra firms enabling Lending – Kudos Finance (last raised $400K in seed round in Mar’21, looking to raise $5mn now) and Apollo Finvest.
So in a nutshell, both of these companies are trying to provide Lending as a Service, a plug and play infrastructure with an NBFC license for any players who has access to a large distribution. Apollo claims to enable any firm to be lending ready in 48 hours. In multiple interviews and podcasts, founder Mikhil has claimed that the firm is AWS for lending. Their LMS tool, Sonic, is super modular and has capabilities to enable all types of loans – Personal, Consumer, SME, Micro Loans – in effect, any type of loan imaginable. What is interesting is that it also enables a firm to write their fully automated credit rules or even connecting it to an external rule engine, making it truly modular.
Imagine that someone like a Swiggy or a Zomato wants to extend credit to their restaurants. They have all the data they need in the form of which restaurant is doing good, which product is doing good in what area and if a top performing restaurant wants to extend their presence geographically, given their intelligence, they could provide credit faster than anyone, including banks. It just opens up amazing possibilities! Same can be said about, say, electricity firms and based on the trend of , say, power usage by a factory, a power grid firm can extend credit even before banks lay a hand on the firm! A lot of leading indicators can be used in collaboration with someone like Apollo Finvest or Kudos Finance.
Now, what is interesting is that these firms are not just providing the Tech Stack for lending and an NBFC license, they are also doing Capital as a Service – practically providing capital at a fixed ROI to firms who want to lend and effectively earning a spread AND earning a platform fees for providing the backend lending capabilities. The model is interesting and reminds me of Cross River Bank – Stripe partnerships. Many possibilities exists around this. Say a Nyaka want to create a BNPL product without getting into the tech side of it – they can do this using one of these stacks!
Apollo Finvest – Solar’s key USPs
Source: Apollo Finvest
Kudos has a tech stack similar to Apollo and apart from incrementally higher focus on increasing own lending book, is pretty much similar.
Broadly, these firms have 3 specific revenue lines from their platform business
· Monthly fee from setting up of the Lending Platform
· One time integration fees (Ranges from Rs.1-Rs.5 Lakhs)
· Volume based fees for using APIs
The fees structure is pretty similar to any SaaS firm and Kudos claims to do Rs. 4 cr of platform fees YTD FY21. Interestingly, loan book based earnings for Kudos is much higher at Rs. 24 Cr in the same period. Apollo’s majority of revenues, ~65% comes from platform fees and they continue to focus on the same.
What’s next for infrastructure firms in the space?
Fintech infra is here to stay. They will play key role in taking credit to the lowest rung of the society and enable micro sized but meaningful loans to people otherwise credit starved.
I do see a lot of M&A in this space where matured banks or larger ecommerce firms will start acquiring lending tech providers. The synergies are too great to be missed here. For e.g. Comviva, another banking API solution providers got acquired by Tech Mahindra in 2012. In fact, I see mergers or acquisitions by larger players a key theme in the overall fintech infra space, not just lending.
These firms are democratizing lending/credit and enabling non banks to lend to customers with lower risk profiles which are otherwise difficult to estimate. Exciting times ahead.
Hirings in Fintech
Apollo Finvest is hiring VP for Credit and Operations. They are also hiring for other roles in operations. Reach out to Mikhil here
Kudos is hiring for a product officer. Reach out to Pavitra here.
Latest happening in Fintech
https://www.indianweb2.com/2021/09/cashfree-payments-wins-excellence-in.html
https://inc42.com/buzz/unlisted-shares-of-fino-payments-parent-decline-from-highs-in-aug-2/