Building the OS of Digital Lending

February 2020, we completed 2 years of building the Apollo Finvest platform. How did this start, why and what are we building towards?

February 2020, we completed 2 years of building the Apollo Finvest platform. How did this start, why and what are we building towards?

Let’s start at the beginning:

In around December 2017, my entrepreneurial itch was acting up. Hotstar was getting acquired by Disney and I felt my journey there was coming to an end. To be honest, I always wanted to go back to building my own company at some point. Fintech was the talk of the town and the thesis made sense. A huge population without access to financial services and a big tailwind with the government promoting the usage of UPI and digital payments.

Before entering any space, I do like to ask myself the following question: What is the unfair advantage that my company could potentially have in the space. Straight of the bat, we had access to 3 things

  • A public-listed NBFC efficiently managed by my co-founder, Diksha, who had a solid lending background with HDFC

  • My technology background

  • Decent capital base to take this off the ground

The big question was: What role should we play in the ecosystem? Most fintech companies we came across were in the lending space. At this point, we began doing 2 things

1) A pilot of providing unsecured loans. The goal here was to get our hands dirty and learn the nuts and bolts of lending. We did this in 2 spaces

  • Unsecured personal loans

  • Loans for customers buying goods and services at the point of sale. This is what the industry calls subvention loans

2) I started speaking to as many fintech lending founders I could connect with. I was relentless and reached out through LinkedIn messages, emailing their customer support and getting introductions through common connections. The goal was to learn from their experiences and understand what’s working and what’s not

Insights

It took us almost 7 months into doing the above 2 things to have the following insights

1) We had no unfair advantage when it came to doing direct lending

2) At least 20 other fintechs were offering the same products to customers like us. I found no reason why we would be able to do a better job.

3) Financial services as a whole was going to be huge. Every company where any kind of transaction is taking place would, over the next 10 years, build a financial service vertical. The reasons were apparent:

  • They had better access to proprietary data and cash flows of the borrower. Other lenders could not have that

  • It would encourage participants to grow their business on the platform. A win-win scenario made possible by powering their growth through capital

  • It would build another powerful channel of revenue for the company

  • It would inspire loyalty within their existing workforce and attract more folks to build a robust supply-side pool

  • They could provide a user experience which is far more superior than traditional lenders

  • There would be multiple digital lenders in the industry of all shapes and sizes focused on different verticals

4) The demand for credit was insatiable

5) The industries biggest pain point was the infrastructure

5a) Lack of tech-first NBFC’s to partner with

  • Traditional lenders were not interested in partnering with fintechs in a meaningful way. The opportunity was just not enticing enough for them

  • Even if they agreed to partner there was absolutely no flexibility to build innovative products and the technology integration took 6–8 months

5b) The whole industry was building the same tools again and again because there were no solid and affordable white-labelled technology solutions that they could use

The infrastructure point stayed with me. Unless this was solved, it was very difficult for cutting edge and innovative fintechs to be built. At this point, we asked ourselves whether we wanted to be one of the many digital lenders or build a platform that powered the next generation of fintechs. Being a technologist, the answer was clear to me. Many people could do lending better than us but when it came to building a highly scalable world-class technology platform, I backed myself to do a great job at it. We immediately stopped any direct lending of our own. We did not want to compete with digital lenders.

Our mission became clear: Build the ‘AWS of Lending’. Our mantra was simple: Enable any company to begin offering digital loans in under 48 hours.

Building plug and play API’s

The journey began to build the ‘AWS of Lending’.

This required modularising and breaking down every aspect of digital lending into easily accessible API’s. This included

  • Customer acquisition tools

  • Consumer-facing app

  • Plug and Play NBFC API’s

  • Credit underwriting API’s

  • Credit bureau rule engine

  • Alternate data from smartphones

  • Alternate data from external data points

  • Fraud Check API’s

  • Digital KYC API’s

  • Compliance and Regulatory checks

  • Digital Loan agreements

  • Credit Insurance API’s

  • Loan Management System

  • All existing LMS systems are built for traditional lenders and are unfortunately priced as such. Unaffordable and overkill for fintechs

  • And Honestly, their user experience sucks. It’s overly complicated and bloated with non-essential features

  • Disbursement API’s

  • Credit bureau Reporting

  • Collection API’s

  • Loan Securitisation

  • Asset reconstruction i.e. selling your bad loans

  • Capital to grow your business as you scale

The above pretty much describes the Operating System of Digital Lending.

Over the long horizon of time, our goal is to build all these offerings such that they were easily is accessible through a plug and play API on the Apollo Platform.

We are doing this through a combination of both internal and external products all integrated together seamlessly on the Apollo platform. Our goal is not to reinvent the wheel but make it all work smoothly together on a single platform so that fintechs don’t have to struggle with multiple integration partners and figuring out what is best in class. Apollo is a curated platform containing both internal and external products that have been tested thoroughly by us at scale.

Working with 30+ fintechs in the country gives us a unique position in the value chain. Every week there’s something new being built on our platform by our fintech partners who are always pushing the envelope on what’s possible. Our scale coupled with a constant feedback loop from fintech’s helps us iterate faster and build a robust platform.

What’s next?

As we keep building the Apollo Infrastructure, it will get more and more easier to launch digital lending verticals for a company. The barriers to entry will drop. Just like AWS has made it possible to launch internet apps in a matter of hours. This will open the flood gates to innovation. This infrastructure is not only useful for new-age fintechs but also existing traditional lenders whose DNA is not technology. They are stuck with frustrating software built 20 years in the past giving them little to no flexibility. Our plug and play stack will allow them to be far more nimble and open to new age products and customer experiences. Apollo will be the platform to build the future of digital lending not only for cutting edge internet companies but also for traditional lenders.

It's been a crazy time to be in the digital lending space over the last few months. The Yes bank debacle, COVID 19 virus and the RBI moratorium have hit the industry hard. The repayments are likely to be poor during these times. This will end up wiping out probably 25%-30% of the digital lenders today. The First loss guarantee clauses will kick in which will render many of them insolvent. As one of our fintech's founder said the other day, lending is not for the fainthearted. Traditional lenders post this are going to be even more reluctant to work with Fintechs and probably focused on solving their internal issues. It’s not all bad news though. If a digital lender can somehow survive this time, there is a large opportunity at the end of the tunnel with a huge demand and significantly lower competition. It’s all about reaching the other side. Stay strong!

Thanks for staying until the end of this long post. If you are a fintech or looking for an exciting role in the fintech ecosystem please reach out to me. We are hiring for roles in Business & Engineering. You can find the details here: https://angel.co/company/apollo-finvest-1/jobs