Paying attention to unit economics

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Omidyar Network, IIFL Seed Ventures, Khosla Ventures and Aspada Investment Company funded NeoGrowth facilitates digital lending to consumer facing small businesses and aims to build a sustainable competitive advantage around achieving scale, favourable unit economics and superior customer experience.

“According to the BCG Google report – Digital Payments 2020, the digital payments transaction in India is expected to touch US $500 billion by 2020. This rapid evolution seen in digital consumer payments on the back of digital and technology revolution has opened a great opportunity for digital lending,” states Piyush Khaitan. Driven by the optimistic outlook for the sector, Dhruv Khaitan and Piyush Khaitan entered the digital lending sector by setting up NeoGrowth Credit Pvt Ltd in the year 2013. The company was built on an important insight that traditional underwriting methods in India exclude more than 50 per cent of creditworthy small and medium enterprises. Hence, NeoGrowth does digital lending to consumer facing small business enterprises by providing unsecured loans repaid by card receivables, e-commerce sales and other non-cash payments.  “More than half of the loans by NeoGrowth are less than Rs. 1 million and greater than 80 per cent of loans have been given to proprietorship and partnership firms,” says Piyush, the managing director of the company.

The company raised three rounds of funds to aid its growth. In 2013-2014, it raised Rs. 450 million from promoters, Omidyar Network and Aspada Investment Company. In Series A funding in 2015, NeoGrowth raised again Rs. 450 million from Khosla Impact Fund, Accion Frontier Inclusion Fund and existing investors. In 2016’s Series B round of funding, it raised Rs. 1,073 million from IIFL Seed Ventures Fund and existing investors.

Unique solutions

While the company offers credit to the small business enterprises, it has its own filters to assess their credit worthiness. Some methods it uses are its unique customer acquisition channels (direct agents, referral Agents and telesales), new payment datasets for credit assessment, non-traditional scoring, dynamic repayment  and automated collections to identify and serve these potential credit-worthy merchants. In fact, it has enabled improvement in credit history, financial inclusion, encouraged entrepreneurship and business growth for many of its customers.

Some of its unique solutions include NeoCash Online, designed exclusively for online sellers on e-commerce marketplaces and retailers selling online through independent portals. It has AdvanceSuite, an in-house technology platform, which covers the work flow management, entire loan engine and complete risk management. It has a “30-minute loan” mobile application for quick loan sanction and disbursal, dynamic repayment model depending on sales and automated collections and daily settlements

Piyush Khaitan, managing director, NeoGrowth Credit Pvt Ltd

The company’s non-traditional business model identifies and serves credit-worthy merchants, who otherwise get excluded by traditional underwriting methods


Filling the gaps

The NeoGrowth team believes that there is inadequate credit footprint and financial history for a customer and, hence, banks face a tough time in credit assessment. Therefore, the company uses alternative data for credit assessment. There is also a lack of collateral in the sector. Indian market has limited to no option for unsecured loans which is why NeoGrowth ventured into unsecured short term lending.

This apart, there is limited working capital fund with strict repayment schedule and to counter this, the company came out with automated collections based on business performance. Finally, traditional banks have lengthy processes with stringent documentation. Daunted by this lengthy and cumbersome process, NeoGrowth came up minimal documentation with doorstep service and quick funds.

Big opportunities

“The digital payment space is bigger than what we imagined,” says Piyush. The current environment has so many data sources (online media, offline datasets) and interfaces in place. India is going digital through initiatives like India Stack, Unified Payments Interface and there are Government policies for Digital India, Cashless Society, make in India, Start Up India etc. “All this means a very large market opportunity. NeoGrowth is looking at leading this market in India,” adds the founder.

But all these come with its own set of challenges. The biggest is getting your customer onboarded with the idea of digital lending. Since, the concept is new in India, the first onboarding stage is the most crucial stage. “Hence the cost of customer acquisition must be kept minimal to scale the business,” says Piyush.

Another important challenge is maintaining the unit economics. “Since, we are in small ticket short tenure loans, we need to limit the cost of each unit thereby improving our per unit margin,” adds he.

A peek into the future

The company’s marketing strategy revolves around digital marketing initiatives to reach its consumer segment. It does campaigns integrated with its traditional channel to have a broader but relevant visibility. “We engage with channel partners at different levels to promote NeoGrowth as an innovator in SME digital lending space. We do SEO, SEM and responsive website to maximise our reach,” adds Piyush.

With its marketing strategies in place, the company aims to be a niche player in the digital lending space over the next few years. “We want to be the leader in terms of market share in digital lending. To achieve this, we are building a sustainable competitive advantage around achieving scale, favourable unit economics, superior customer experience and eliminating balance sheet friction,” says Piyush on a concluding note.


Snapshot

Founders: Dhruv Khaitan and. Piyush Khaitan,

Year: 2013

Concept: NeoGrowth does digital lending to consumer facing small business enterprises by providing unsecured loans repaid by card receivables, e-commerce sales and other non-cash payments. 


Investors:
Raised had three rounds of funding to aid its growth. At the Seed Stage in 2013-2014, company raised Rs. 450 million from promoters, Omidyar Network and Aspada Investment Company. In Series A funding in 2015, company raised again Rs. 450 million from Khosla Impact Fund, Accion Frontier Inclusion Fund and existing investors.In Series B
round of funding in 2016, company raised Rs. 1,073 Million from IIFL Seed Ventures Fund and existing investors.

Poornima Kavlekar has been associated with The Smart CEO since the time of launch and is the Consulting Editor of the magazine. She has been writing for almost 20 years on a cross section of topics including stocks and personal finance and now, on entrepreneurship and growth enterprises. She is a trained Yoga Teacher, an avid endurance Cyclist and a Veena player.

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