Founded in 2018, Credit Fair has quickly gained recognition as a dependable financial partner, catering to the specific needs of Indian consumers in sectors such as electric vehicles, education, healthcare, and home improvement. Through a technology-driven approach, the company has disrupted the traditional lending models, surpassing the capabilities of mainstream lenders in the underserved sectors.
In an exclusive interview with Aditya Damani, the visionary CEO of Credit Fair, we into the inspiration behind the company’s inception, its user-centric research, the value they bring to underserved sectors, the utilization of technology for credit assessment, and the metrics that define its success.
Join us as we explore the journey of Credit Fair and the transformative power of digital lending in financial inclusion.
This interview has been edited for clarity and length.
1. What motivated you to start a digital lending platform in India?
Before joining Credit Fair, I had stints at large financial players such as Credit Suisse and PIMCO in the US. Later, I moved to my family’s equity broking company, KM Global Financial Services, where I had a tryst with microfinance companies. I was fascinated by their impact on the ground, and I became inclined to bring a qualitative change in the lives of millions of underserved people instead of solving the problems of a few wealthy clients. So, I decided to build a career around financial inclusion.
The idea behind the digital lending platform was that there are still half-a-billion underserved people in this country with no access to the right amount of credit at the right cost and time. I felt only digital lending could solve this problem at scale, especially since India’s credit card penetration is less than 4%. The other problem I identified was that though millions of Indians are becoming richer every year, they don’t have the right investment options. Building secure portfolios of retail borrowers (P2P lending) would be the right asset class to help the average investor diversify their portfolios – from mutual funds and FDs – to beat inflation consistently.
2. How did you zero in on your target customers and sectors?
I narrowed the focus on a B2B2C model similar to Bajaj Finance to ensure we have a positive selection of borrowers by offering ‘No Cost EMIs’ besides strong unit economics due to minimal customer acquisition cost. I roamed around shops like mobile phone stores and electronics showrooms and noticed that these ‘Points of Sale’ were well served.
But when I visited clinics, furniture shops, education providers etc., I found most of the transactions were large, running in lakhs, and were settled by cash or bank transfer. Here I sensed a big opportunity for EMI adoption to grow and validated the need by testing a pitch on target merchants. Once I received a positive response, I built the product and started lending operations.
3. What value-add ons does a fintech platform like Credit Fair bring to sectors like green energy, education, healthcare and home improvement?
The key value-add is to help our merchant partners grow their business by ensuring higher lead conversions with our ability to provide the right amount of credit at the right cost and time. Primarily, we add value by improving ‘lead to sale’ conversion with our 50% higher approval rates compared to traditional lenders.
Secondly, our faster turnaround time (TaT) with instant decisions and simple user journey is the best in the industry. It only needs minutes for approval and a few hours for disbursement, while most lenders take 1-2 days for a decision and 5-7 days to disburse money.
Thirdly, our products have low-interest costs as we have an advantage in sourcing funds compared to other fintechs. We have received loans from banks trusted by SBI and IDFC First Bank and retail investors (P2P/NCD). More importantly, we also help grow our partner’s business with our lead generation programs that help them acquire high-quality leads at a lower cost.
4. Can you tell us your strategies to scale credit penetration into the underserved segments?
We follow alternative underwriting methods. Most lenders accept only prime borrowers (those with a credit score of 750 or higher). But, we welcome ‘new to credit’ and those with credit scores as low as 625. Interestingly, we see minimal change in our default rates despite having a higher acceptance rate since we are able to underwrite borrowers better.
5. How does a tech-enabled platform help in your mission?
We developed our credit rule engine in-house, which ensures instant decisions and can customise the credit policy for each merchant partner. This wouldn’t be possible to deliver consistently unless we were a digital lender. To ensure the sourcing of capital at the lowest cost, we have built a wealth tech platform called Credit Fair Capital, which offers alternative fixed-income products suitable for retail investors. This helps us deliver a win-win solution for both borrowers as well as underserved savers.
6. Can you tell more about the tech used in Credit Fair and the analytics mechanisms used to assess creditworthiness and streamline the loan approval processes?
Our proprietary Loan Origination and Management systems cater to the consumer loans asset class and handle workflows for our merchant partners. API integration with payment gateways and the CRM systems of merchants reduces the cost of operations and improves the customer experience. Also, we provide a best-in-class user experience, replacing cumbersome processes of physical submission and verification of residence as well as identification documents or bank statements with digital methods such as Account Aggregator.
In rooftop solar projects, we track the electricity generation by each solar unit and monitor if the customer gets the promised benefits. We use analytics on our portfolio performance to identify early warning signals and manage our delinquencies. It has helped us maintain our non-performing assets (NPA) below 1% over the last five years.
7. How do you measure Credit Fair’s success as a digital lending platform? What metrics do you track?
Our primary north star metric is the borrower NPS (net promoter score) – we strive for an NPS of 7+, currently around 6+, while the industry average would be around 3-4. Usually, we follow two parameters. The first is stickiness with our merchant partners. We track the consistency of the application flow and check if we are the preferred lender for the merchant partner.
The second parameter is the delinquency rate. It is an assessment based on a query – Are we approving the right folks and collecting from them without letting them slip into defaults? This is important for us to maintain the quality of our portfolio and to ensure that our customers are improving their credit scores.
8. India is witnessing a fintech boom. In your experience, what are the common challenges for the upcoming fintech platforms, and how does Credit Fair deal with this?
The most significant challenge is regulatory uncertainty. We have dealt with this by abiding by the route of being regulated. We got our own NBFC from day one and wanted to ensure that we built a culture of compliance.
The second is fraud prevention. Fraudsters are usually two steps ahead of others, and it’s a constant struggle for fintech to check this menace. We have less than 0.2% of cases where defaults are occurring due to fraudulent practices. Our point-of-sale-based lending model combined with alternative data underwriting helps us overcome this challenge.
Risk management is the third one. Usually, fintechs are behind the curve on risk management and collections. There has been an excessive focus on customer acquisition and marketing instead of the entire lifecycle. We have ensured that we have our skin in the game with substantial capital investment and shareholding by the founders. Also, we have a team to ensure best-in-class risk management practices.
9. What opportunities do you see in the Fintech sector in India?
When we talk about the opportunities, digital infrastructure laid out by the government, such as UPI, Account Aggregator (AA), Open Credit Enablement Network (OCEN) etc, will help us reach the underserved and design affordable financial products for them. The huge under-banked population comes next. ‘New to credit’ remains a large segment. Further, we have a new world to explore. India has become a leading fintech hub globally. It is a great training ground, and our entrepreneurs will be well-suited to expand globally.
10. As a product leader and entrepreneur yourself, what key lessons have you learned from your experiments with Credit Fair so far?
The entrepreneurial journey is always a roller-coaster ride. The biggest lesson I’ve learnt is to ‘study customers at the ground level’. For example, we had done lending pilots in rural areas of Maharashtra based on their credit scores and income documents. But that was a naïve method as the credit score alone wouldn’t suffice to help us understand all the risk factors. Once we spent time on the ground, we understood the risks better and were able to avoid large NPAs.
Another significant lesson is to ‘be prepared and be agile’. Before Covid hit us, we were focused on financing offline purchases like elective healthcare and home improvements. These categories came to a standstill during the pandemic. So, we quickly pivoted to upskilling education and added a few large partners, which helped us scale 8X in 2 years. Our agility and readiness for many scenarios helped us continue growing despite the macro disruptions.
11. What are the emerging trends and technology that you keep track of or are excited about in the fintech space? Do you have any plans to implement them at Credit Fair?
Faster adoption of technology is the best tool to be ahead of your competitors in the credit business. I am very much excited about the new technologies, especially the emergence of ‘no code platforms’ for our credit decisions. Further, the Internet of Things (IoT) can play a pivotal role in generating early warning signals for the assets we finance. More importantly, Artificial Intelligence (AI) and Machine Learning (ML) can be effectively used for accurate limit assignment. We are implementing all of these technologies at Credit Fair.
To scale up credit penetration into the underserved segments, Credit Fair has raised $25 million from a marquee group of investors which includes LC Nueva Alternative Investment Fund, Capital A, among others.
The company aims to build a credit ladder for 550 million underserved Indians and reach 5,000 active merchant partners and grow disbursements to a $360 million annual rate. The ticket size ranges from Rs 10,000 to Rs 50 lakh, and the tenure from three months to five years.
Credit Fair is now the financial partner for more than 1,000 merchants, including notable brands like upGrad, Nova IVF, Livspace, Asian Paints, Scaler, PristynCare, Hero Electric and Oorjan Solar, to name a few.
