In 2015, three colleagues at a UK-based fintech company were sent to India to build a technology-enabled lending product for the country’s 1.2 billion people. But, a few months into the work, they were told to scrap it all. Lizzie Chapman, Priya Sharma, and Ashish Anantharaman had a better idea: Quit their jobs, settle in India, and complete the platform on their own. That’s how ZestMoney came into existence.
“We had put in a lot of time and energy to work on it, and we learned a lot of interesting insights while carving out the tools for this project. So, we thought to start our own company to pursue this further,” Anantharaman said.
The trio had learned that there is a chasm that exists between the millions of people who take out loans from financial institutions and the population that is denied of the same opportunities—students, people who started their first jobs, and folks with low income. “We want to bridge that gap using technology,” Anantharaman said. ZestMoney would offer micro-credit to people who had been rejected by banks when seeking capital.
The co-founders realized they can include everyone—even users with no credit score or credit card—within the ambit of lending and borrowing. “We strongly believe that anybody who is able to pay in equal monthly installments (EMIs) should be lent money, not only the ones who hold a credit card or have a credit score,” he said.
ZestMoney issues loans for any needs, including healthcare, education, travel, destination weddings, or even e-commerce purchases. Users need to register on ZestMoney’s mobile app and complete the verification process by uploading scans of their photo ID, bank documents, PAN card (issued by the Indian Income Tax Department), and headshot. There is a downside: Anantharaman said that signing up through an app can be challenging as “India is so diverse that not every user has a smartphone, and not every smartphone is a powerful phone.”
To ensure that potential users aren’t put off by those hitches, the company has taken steps to make the process as smooth as possible. In 2018, ZestMoney acquired Bengaluru-based startup PhotographAI, which has developed tools to recognize objects in images. Its platform uses artificial intelligence and optical character recognition software to produce prompts for users, ensuring that their photographs have sufficient lighting so the images can be used for verification. The software can also determine if a user’s name in the uploaded document scans is clearly visible and ask for new uploads if needed. These steps establish a baseline in the quality of the data that is gathered by the company.
Anantharaman believes that financial institutions have to keep up with digital changes and compete with the speedy service and user interface experience offered by new platforms. He pointed out that consumers, especially millennials, don’t want to spend days navigating the process of getting a loan. “They just want to make four or five entries on the mobile and be done with it. The requirements and demands of millennials continue to grow. How we do it using technology is what fintech is all about.”
The company does a strict background check to uncover every applicant’s digital footprint, such as past online transactions, the time they take to pay their phone and utility bills, as well as records of credit. They use this data to assess whether the applicant might pay the EMIs on time.
Once a user is cleared by ZestMoney, the company provides a credit limit to the user for purchases from online platforms across sectors like edtech, e-commerce, and travel.
To lend or not to lend
Currently, there are many companies in India that offer micro-credit to users. The common challenge that they face is in the collection of debt. Anantharaman, however, swears by the power of technology to retrieve payments.
“Lending money is the easiest part of this business. The most difficult part is to get the money back,” he said. “This is a big challenge for the majority of lending companies in the world. We put a lot of science and technology into our collection process.”
To begin with, the company has put in place a broad set of criteria to ensure that the person receiving the loan is not going to default. From the users’ past payment behavior, ZestMoney can gauge whether he or she will pay the EMIs on time, or project the pattern of repayment if some transfers are late. In some cases, the company can also ascertain the reason behind delays. ZestMoney sends out reminders to users based on their payment behavior, as well as a link to their usual payment channel to make the process as simple and fast as possible.
Late last year, in December, ZestMoney raised USD 20 million in its ongoing Series B round led by Goldman Sachs, with participation from its existing investors such as Naspers Fintech, Quona Capital, and Flourish (Omidyar Network’s fintech investment arm). The company will use the money for research and development, and to create more partnerships. It also raised USD 14 million in debt from Northern Arc Capital as part of the loan pool for its users.
Expanding footprint
After working with online channels for three years, ZestMoney started pilot projects with offline merchants last year, and has partnered with a few big retail chains. Anantharaman said it’s a natural progression to partner with brick-and-mortar retailers. The company now collaborates with companies operating point-of-sale machines that are already utilized by retail chains and has integrated ZestMoney as a payment mode.
“We want to be users’ first choice to purchase products on an EMI, not only on online channels but offline channels as well. This is in line with our vision of getting everyone in the financial inclusion plan,” he said. The company’s only challenge is to ensure that phone-based credit redemption in a physical store is as swift as it is on an online platform.
The company claims to have seven million registered customers. It has already disbursed “thousands of crores” (more than USD 140 million).
Apart from loaning money to individuals, the company has also been running a pilot with small and medium businesses for three months. Anantharaman said the company is still gathering the results, and will decide whether it can be a service to roll out in the near future.
“All the experiments are in line with our overall vision of enabling everyone to get a loan without having to spend a lot of time on it,” he said.
This article is part of KrASIA’s “Startup Stories” series, where the writers of KrASIA speak with founders of tech companies in South and Southeast Asia.