12 Months of Consumer Lending at a Fintech Start-up: Part #1 - Understanding our Target Customer

As we complete 12 months of running our Lending Operations at Qbera in January 2018, I look back and see tremendous learning from a Data, Credit Risk, Customer Segmentation and Operations Perspective. The evolution of our Strategy across the different stages of Customer Life Cycle from a pure business intuition and experience-driven to a more data-driven/model-driven approach is exciting.

I have broken down my learnings into multiple parts since each of these is in itself a critical building block for a start-up. I believe one of the critical pieces in the journey of a start-up is the Product Market fit, which comes from defining the customer, reaching out to the customer, ensuring the customer comes on board and uses the product and finally/potentially recommends the product to similar people. So, this post will focus on how we at Qbera achieved the Product Market fit in terms of our Understanding of our typical customer

Typical Customer - When we started the Unsecured Personal Loan product in 2017, we had a clear idea about our target customer - the underserved Salaried Individual looking for a Personal Loan to meet an urgent requirement for credit with the end use being for Debt Refinancing/Consolidation, Asset/Vehicle Purchase, Medical, Wedding or Travel. Today, with 150,000+ customer applications, we have a clear understanding of who to target. While the broad definition of "our typical customer" has not changed a bit, since this is mostly driven by the fact that Banks/NBFCs today have preferential policy for certain profiles of customers while the remaining find it tougher to get loans because of longer TAT, higher rates and stringent documentation (requirement of co-applicant etc.), we can now clearly pen-down what "our typical customer" looks like:

a. People with Monthly Income 20K-40K

b. People working for an Uncategorised and Small/Medium Scale Company (roughly 700,000 Private Limited companies in India are not recognised/categorised by Indian Banks/NBFCs and employees of these companies find it tougher to get an unsecured loan)

c. People staying in a Shared/Bachelor-like Accommodation (this is a segment not served by most Banks/NBFCs)

d. People with Bureau Score (CIBIL) below 700 (and above 600 - essentially the Near Prime population) or not having any Credit History on the Bureau (New to Credit population)

We always wanted to focus on the above segment and within few months of lending, we looked at our data and it did not surprise us. We could see that most of our loan disbursals came in the segments we wanted to be in. The below slide from our Pitch Deck summarises our findings

This slide provides us the much needed comfort from the Credit Risk perspective as well since a good 40%+ of my portfolio is still Prime/Super Prime with CIBIL>700 or Income>40K per month. While most of these customers have multiple inquiries for Personal Loans in their CIBIL reports, they do find it tough to get a loan elsewhere. So by providing the loan to them within 3-4 days from the time of application helps us meet our objective of "Serving the Underserved". A quick validation of the same is how the customers feel about us - reading the customer reviews gives me immense comfort to go and have a good sleep at the end of the day:

While most reviews we get do mention our hassle free documentation and fast turn around time, the last review above is also another step towards Product Market fit - "repeat customer"

In a nutshell, today, with 12 months of lending operations behind us and rich repository of data about our customers, we have clearly identified a customer segment which is underserved and can be lent to in a profitable and risk-controlled manner. However, this is only the first step towards building positive economics for a lending start-up. Cost of Acquisitions, Risk Strategy and Efficient Operations are equally critical for the longer term success. More about that in my next post!