Eliminating bureaucracy and lending quick credits provides a superior customer experience. However, traditional banking systems have failed to eradicate hindrance in availing loans, thereby leaving a colossal amount of customers unserved. Such ignorance has allowed fintech companies to tap into the leading market by mitigating various barriers by embracing cutting-edge technologies. This has assisted them in expediting the process for evaluating credit requests and disbursing money while enhancing customer experience.
To understand how Capital Foat is using the latest technologies for its strategy to lend customers and SMEs, Analytics India Magazine got in touch with Gaurav Hinduja and Sashank Rishyasringa, co-founders of Capital Float, for our weekly Deep Dive column.
What Is Brewing In The Fintech landscape
“The last 12 months have been decisive for the BFSI space in India. In late 2018, the NBFC crisis due to IL&FS has created a sense of panic in the finance landscape,” begins Hinduja. This has choked liquidity in the market, forcing several lending companies to rethink their strategy. Fintech companies are revamping and adopting best practices for avoiding default while ensuring customer retention.
The challenging circumstances have necessitated innovation, resulting in uptake in co-origination partnerships between fintech companies and traditional banks; companies are now diversifying their product portfolio and entering new customer segments. This indicates that fintech companies are leveraging the opportunities presented by the current market to foster their evolution.
Capital Float’s Evolution
Capital Float started with the aim to scale retail lending in India by using best-in-class technologies. “The first segment we targeted was SME lending with an array of customised working capital finance products,” says Rishyasringa. Over the last six years, the company has entered additional segments that have traditionally been ignored due to high operation costs and inadequate documentation. These segments included the likes of small retailers, franchisees and proprietors.
The founders also explained how the team devised and executed the largest co-lending model in the country, that currently contributes to nearly 40% of Capital Float’s overall lending. “We’ve partnered with over eight large banks and NBFCs to co-lend with us on the platform. In this model, Capital Float participates in a proportion of 10%-30% of every loan and manages end-to-end loan management for the co-lender. This includes functions spanning from sourcing the lead to collections and recovery,” described Hinduja.
In line with Capital Float vision, the firms forayed into consumer financing about two years ago. It acquired Walnut in 2018 as a strategic move to strengthen its consumer lending business. Walnut is the largest personal finance management app (PFM) in the country with over 7mn downloads. Besides, Capital Float’s consumer finance product line comprises online checkout financing in partnership with Amazon and personal credit line via Walnut mobile app.
Capital Float has grown exponentially over the last six years. It has served over 500,000 customers in 300+ cities with a lifetime disbursal of over $1 billion. The company has a loan book of over Rs 1,300 crores and a monthly run rate of over Rs 100 crores.
Technologies Behind The Driving Force Of Capital Float
Capital Float’s solutions, built on a sophisticated API platform, can quickly integrate with its partner systems. This allows the company to harness the power of data from various sources to accelerate processes and reduce wait times for customers.
“Being a pioneer of fintech lending in India, we built our loan management system (LMS), loan origination system(LOS), and decision engine (DE). These systems provide us with a comprehensive, cockpit view of all loan details. Our consumer app, Walnut, is built on a fully algorithm-based digital underwriting process, which enables us to evaluate alternate data for new-to-credit customers,” mentions Rishyasringa.
Capital Float extensively deploys AI and ML models to determine credit risk across all products. Its small-ticket loans are fully automated and are built using AI. In its Walnut Personal Finance Management (PFM), functions are algorithmically designed to generate financial insights of users, which helps the firm to offer customised credit facility to customers proactively. Capital Float also uses ML in sophisticated Collections stack to optimise cost by developing an in-house, industry-first early warning signal system. Besides, the firm’s ML models assist its digital marketing in streamlining the operations by offering customised credit proposals for customers.
Talkin about robust solutions, Hinduja said that Walnut and Checkout Finance have helped Capital Float gain 10k on-boardings daily. While the Checkout Finance allows it to quickly deliver loans for consumers shopping online or at brick and mortar stores, the Walnut Prime can be used by customers to avail funds around the clock. Besides, the Checkout Finance offers loans at the time of checkout, converting the total purchase into simple EMIs for 3, 6 or 9 months while interest is typically subvented and borne by Capital Float’s merchant partner.
Unique Value Proposition Of Capital Float
The lending market in India is gargantuan in size and potential, which makes it virtually impossible to adopt a ‘winner takes all’ mentality. The MSME credit gap alone is estimated to be around Rs 16 lakh crores. The market has room for all participants. However, Capital Float strives to gain a competitive advantage in various ways.
- Wide product portfolio: Many fintech lending companies are vertical specialists. However, Capital Float is among the few digital financiers in the country that specialise in SME & Consumer financing.
- Scalable technology: From the beginning, the firm focuses on building robust tech and infrastructure to help it scale without friction. For instance, today, it can process hundreds of applications for online checkout finance products in milliseconds.
- Unique underwriting and efficient collections: After five years of disbursing loans to SMEs, the company has reached a point wherein it can offer a fully-automated SME loan using advanced algorithmic data and underwriting models. On the consumer side, other information such as e-commerce and SMS data has enabled it to underwrite new to credit customers.
- Innovation in fund sourcing: The firm has a funding model comprising of co-origination with banks, securitisation with HNIs and family offices, on-book lending, which helps it to source funds from multiple channels without creating an over-dependence on a specific channel.
As a result of Capital Float’s efforts over the last few years, the firm is poised to build a diversified business in the two growth engines of the economy: SME Businesses and Consumer Demand. The company is committed to accelerating Walnut App’s evolution into becoming a financial partner for the unbanked and millennials by continuing to design a highly sophisticated credit evaluation engine. Walnut will play a key role in strengthening its consumer finance vertical, as the organisation expands its horizon to tier two and tier three markets. Capital Float will also continue to invest in building its technology for SME lending from an AI and ML perspective, along with continually developing its early-warning-signal systems to monitor risk across loan books. “Overall, our focus will be to continue to build digital solutions that deliver exceptional customer experience using the best in class data-based underwriting models,” concludes Rishyasringa.
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