Vinay Bagri, CEO and cofounder at Niyo Solutions Inc, is a big believer in India’s growth story. He thinks India can catch up with China. “You don’t have to worry about political stability for the next five years. India is also going to benefit from the US-China trade war,” says Bagri.
Together with his co-founder, Virender Bisht, he is all set to take advantage of the Goldilocks condition to grow his neobanking business. A neobank is a digital bank primarily run on mobile, said Bagri during his chat with The Passage’s Avanish Tiwary and Ebin Gheevarghese.
He waxed lyrical about the opportunities, challenges and state of play in the neobanking space during the interview.
The Passage: Tell us how it all started.
Vinay Bagri: I headed the personal loan, liabilities and salary account divisions in Standard Chartered bank for almost a decade. Since I am a banker, in 2015 we started Niyo with tax planning and then pivoted to salary account. The idea was always to go for the salary account.
My investors introduced me to my co-founder — a CTO at Mobikwik, he is a hardcore techie. We got to know each other in 24 hours. It was like speed dating. Somehow we clicked.
We pivoted our business to salary account when demonetisation of high-currency notes happened in November 2016. Customers who started facing trouble disbursing salaries reached out to us during demonetisation. That’s when we worked out the solution.
Initially, we thought we’d just do it for a few months. But there was a lot of demand even in the last quarter of 2017. Then we thought let’s put some resources and make this business happen.
We opened 20,000 accounts in the first three months of demonetisation.
The Passage: What is your business model?
Vinay Bagri: We have two large businesses — Niyo Bharat and Niyo Global. Niyo Bharat started with demonetisation in 2016. We acquire around 100,000 customers a month.
Niyo Bharat is a neobank for blue-collar employees. Globally, if you look at neobanks like Revolut or N26, it is typically for millennials or people in the upper end of the income bracket. Demonetisation gave us an opportunity to flip it completely. We have made mobile banking extremely seamless – from a security and banking perspective.
We built our technology in-house, which allowed us to bring the cost down significantly.
Private banks have a heavy cost structure which gets passed on to all customers. For a customer with Rs 10,000 salary, the ability to cross-sell and lend is negligible. Private banks are not interested in customers with salaries below Rs 15,000 or Rs 20,000. It doesn’t make economic sense to them.
On the other hand, the government wants to do it through the Jan Dhan financial inclusion program, etc. However, the government is ill-equipped. If you open a Jan Dhan account, your mobile app will be in a language you don’t know. It’s difficult for a customer from a service perspective.
We realised there is a segment which is underserved by both nationalised and private banks. Today, we open full-fledged salary accounts. It runs on a prepaid platform, which means you cannot have more than Rs 1 lakh as deposit at any point of time. Other than that, it has all modern banking features.
The average size of the companies we deal with are 100 to 200 employees.
The Passage: Why would a company sign up on your platform?
Vinay Bagri: Suppose you are a small mill in Thrissur with 100-200 employees. No one will come to you to open a salary account. That’s the employer’s problem. The labour law says you can’t pay your salary in cash if it’s above Rs 10,000.
Just imagine a manpower provider, who has given Flipkart a set of delivery boys. When he raises a bill to Flipkart, he can’t say he paid the delivery guys in cash. You have to show the proof of payment. That’s why they have to open employee accounts. Private banks don’t open such accounts. In government banks, you have to queue up to open an account. The employees lose a day’s work and employers suffer. And when they disburse salaries, the customers don’t get the best-in-class services and can’t do bulk NEFT. They have to sit in a branch and do the NEFT. In our case, we give them a platform. We upload salary in real time.
The Passage: You recently raised money from Horizon Ventures and Tencent. How will you use that money?
Vinay Bagri: We’ve been fortunate, in the sense that we didn’t have to approach anybody. Horizon Venture Partners, who co-invested with Tencent, was an existing investor in Series A. Horizon reached out to us and said it understands this can become a big segment as India is a large market with a big blue-collar employee segment.
They have seen how the segment played out in China. People who were in the blue-collar segment over the last 15 -20 years have moved to the middle class. They are the largest consumers in China. They think, if we are able to build a good customer base in two to three years, the same customer base will move to the middle class as India’s economy grows. That’s the bet they took.
India has a host of companies doing fintech, which is lending, transaction or wealth-based. I don’t really know a startup which does large-scale liability-based business like us.
We plan to spend money in three areas. First is distribution. We are in around 38 cities in India. We intend to go into 100 more next year. Secondly, we have got a lot of brand building exercises to do, We have spent less than Rs 5 lakh so far in marketing. Third is product and tech development.
On the global side, we are exploring if we can get into Southeast Asia countries.
The Passage: Who do you earn money from--businesses or end clients?
Vinay Bagri: We take an annual fee from the end user. If a consumer opens a salary account, there is a debit card fee of Rs 200 plus taxes. We also partner with banks or NBFCs to offer credit.
Niyo Global is just six months old and has around 50,000 customers.
It is for anybody who thinks of herself as a global citizen. If you have our card, you don’t have to pay any forex markup while traveling. The app will show you the current rate, which is 5-10 paisa from the IBR. And you swipe it. That’s all.
In India, Merchant Discount Rate (MDR) is going down, but internationally MDR is quite strong. The MDR comes to us as an issuing bank.
The Passage: Could you elaborate on your diversification plans?
Vinay Bagri: We are building a neobank. It entails three things. One is transaction, which we are doing right now. The second is lending. We have done several pilots on lending. We realised since salary comes to us, we are in a good position to underwrite. We have the first right to money when the EMI comes. We will get into lending big time. Third is wealth management. We have piloted a bit in mutual funds, gold, fixed deposits, etc.
Our users’ average salary size hovers around Rs 10,000.
We would be working very closely with some of the partners. Nobody really lends to the low-income bracket except moneylenders. They don’t have too much history. We would work to create a history for them. We would initially start with small-value products. Maybe advance salary of Rs 500, Rs 1,000 etc., build a history and then take it up from there.
The Passage: How soon do you plan to get into lending business?
Vinay Bagri: We won’t get into it unless we are absolutely sure. At the start, we will go with partner banks, work on different programs, shared-risk model, etc. If everything looks good and we think we understand the market, then only we will go on our own. For example, Bandhan bank built their whole business on the low-income segment. Definitely, there is a great business opportunity. But you have to really work on the fundamentals. Instead of normal three to five years’ acceleration, maybe it will take 10 years. But if you go wrong in credit, you are dead.
The Passage: Take us through your business trajectory, touching up on the ups and downs.
Vinay Bagri: The growth has been fantastic. With Niyo Bharat, we have never seen a low.
Global is still a young business. It’s only going one way. On the tax benefits side, we have seen lows. It was growing real fast in 2017 as well. Then we had some budget changes; medical as a tax benefit went away, conveyance became simplified. Our biggest competitor, Sodexo, which was largely on paper also moved to electronics. We realised differentiation is not much and with the direction government is moving in, the whole business will go away. That’s when we had to take the hard call to scale it down.
The Passage: Tell us about your competitors.
Vinay Bagri: Our major competitors are small finance banks like Jana, Ujjeevan, etc. The good thing about banking is that it’s not a winner takes all market. SBI was ruling the roost until HDFC and ICICI came in. After that Kotak came in 2006. Now Kotak has Rs 3 lakh crore plus market capitalization. Then, Bandhan bank came in 2015. Now it stands at Rs 70-80,000 crore market cap.
The Passage: Do the latest macro numbers worry you?
Vinay Bagri: We are a huge economy. We were all talking about BRICS, 15-20 years ago. Now Brazil and South Africa are in recession. Russia is in stagnation. Only China and India are doing well. Nobody has grown like China in the history of mankind.
In the last 30 years, China got 700 million people out of poverty. We got 400 million people out of poverty. Of course, we have a lot of catching up to do.
On the Niyo Bharat side, if I take the companies I have on-boarded in 2017, the cohort has a total of 2,000 employees. Fast forward, and in nine out of ten cases, the employment has increased. It’s very difficult to justify an argument saying the economy is dead. Otherwise, the employment would have gone down.