What's Finance-Commerce, and who is OTO Capital?

In the latest round of funding for Fintech is OTO capital, which just raised $6 Million or ?44crore in series A led by Matrix partners. That brings their total amount raised through Funding to $156.5 M or ?1,145 Crore.

Photo Credit: ET

Now why did this news item pique my interest. After all there is no dearth of fintechs getting funded, or reaching unicorn status is there ? So what’s so interesting about a vehicle financing company?

Its interesting because of what OTO plans to do with that money!

Remember the famous statement “All companies will be a Fintech”? And here we have a fintech that wants to expand into commerce ! What a turn in the tale.

But really should we be that surprised ? After all we know how vertical integration helps companies cut costs and increase their margins. Not to mention the two way data flow can lead them to offering better products in the process.

?

But hold on. Lets rewind a bit. What is it that OTO does exactly. Two Wheeler Financing.

How is their product different from existing loan products for two wheelers ? Like all other loans, they do require the user to fund 20% of the vehicle’s cost as down-payment, and take the rest out as a loan from OTO. But their loans are 30-35% cheaper than most other options, with NPAs under 1%. The icing on the cake? They have made it easy for consumers to retain, return or upgrade their vehicle at the end of their tenure. However, I do not believe they operate on great margins. For the simple reason because they tie up with NBFCs and other financial institutions to fund the loans. In essence they are acting as an intermediary for the financial institutions asset books. ?

The plan OTO has for expanding beyond the four cities they currently serve is to set up a commerce site. This will help them source for new leads, and have lesser feet on the ground. But, for a startup that promises test drive within 24 hours, logistics will be a nightmare.

Here is where building a platform makes absolute sense. On one side of the platform you have you OEMs and their distributors. But how do you convince them to get on the paltofrm. This is where the other side, your consumers, and the rising demand for two wheelers in the country comes into play. In fact OTO has been dealt a strong hand, since they grew four times in the last 12 months, covid not withstanding. And 30% of their loans were sourced and completed online! Enough proof for OEM that this model can work at scale.

So, how do I see all of this working? If you’re a new customer looking to buy a two wheeler, and you go online to check out the various options available at your budget. If you land up at a comparison website, I wouldn’t be surprised if there is an ad directing you to OTO’s website, with the banner “book your test ride and zoom away now”. Once you land on their page, you’d be able to chose your vehicle, and book a test drive. Based on your pin code, a dealer nearest to you will deliver your test drive vehicle within the next 24 hours.

Once you’ve made your choice, OTO will offer “Top-ups” and “Feature Upgrades”. But fear not about the cost, because their financial partner has that covered. Packaging a very attractive looking vehicle with the latest upgrades at an affordable price.

OTO takes a cut from the distributor for enabling that sale, as well as their commission from their financing partner! And in order to get end consumers to also pay, they’d probably also set up a subscription model, where they’d offer upgrades, gears and what not for the riders ! Win-Win-Win all around !

?So, are you ready to go vroom-vroom ?