Why we built Trustio?

When I graduated from college (DCE 2014), I joined Akosha (now known as Helpchat) for a generic profile (called Startup Junkie) where my main role was to work directly with the co-founders and help them in whatever domain/task they needed my help. A sort of fast track leadership role at a startup that had just secured Series A from Sequoia (just 1 week before my joining). The big idea behind leaving my Business Analyst placement from college and joining Akosha at a lower salary and at a role that didn’t offer any specialization (or for that matter, even a job title that made sense) was that I wanted to learn the fundamentals of running a startup. My salary was low, and my hours were skewed. Our office was in Okhla and I HAD to reach the office at 10am sharp. If I ever got late, my mentor Vishrut (and cofounder at Akosha) made sure that I learnt my lessons in professionalism and discipline by giving me a 15 minute lecture and asking me to step out of any morning meeting. I loved it. Unlike most people, startup culture didn’t ruin me. I learnt a lot. But that aside, my home is 35 kms away from Okhla, and it took me 1:30 hours on my bike in the heat, morning traffic and pollution of Delhi to reach Akosha office from Paschim Vihar. On top of it, I almost never got free before 9pm. Travel was pain. Salary was low. Time was limited. And there were too many things that I wanted to do.

For starters, I wanted a flat near Okhla (which I eventually got), but that meant paying a security deposit and brokerage (remember no time for house hunting). At that time, I wanted to do courses in Finance and get some certifications. But most professional certifications and exams required up-front money deposit, which I didn’t have. I was using the same laptop that I had in college which I got along with my education loan, and the same mobile phone which was so old that I was not able to hear the other person properly on a call. Not exaggerating. Anyone who knew me back then would attest to the glorious stories of my mobile phone and how it displayed one miracle after another, every week. All things aside, I just needed around INR 1 Lakh to get my life in order. And I could have repaid that within just 12 months. I never asked my parents for any favor because that’s how I have been. I took an education loan in college to fund my INR 40k/annum fees at DCE and a laptop of similar worth, because I just didn’t want to be a burden on my parents. I had no clue from where I could get the money, but now that I had a job, I was definitely not going to ask my parents for financial aid for things that (according to them) I could do without. It took me a few months to get my life in order. I ultimately rented 1 room in Jasola (near Okhla), where I slept on 1 side of the double bed and kept all my clothes, food and utensils on the other bed because I didn’t have anything else in that room except that bed. At that time, I didn’t have the time to think about all these things. In fact, I just let these things go, thinking that everybody of my age group suffers from the same issues and things will pass. Most things were postponed. In fact, even today I have not done any certifications and I still use the same laptop. Everything was postponed.

So when I left Zostel at the end of 2016 (another story all together), after the Oyo acquisition, and I took a break to figure out problem statements that I related with, one of the things that came to my mind was this problem – the absence of credit option at low rates at the beginning of one’s career when you don’t have a credit score (the other 2 ideas were on Education and Entertainment of Millennials). Usually there are 2 ways to borrow money – From family and close friends; or from Banks and such institutions. Asking money from Family and close friends is not always feasible. And taking money from Banks is not only complicated, but also it is almost impossible for a person with no credit history to get a loan. So for someone who has just started his career, there are no easy ways to source money quickly. We built Trustio with the understanding that there are lot many use cases which are not satisfied by the above 2 buckets. And often, we end up postponing our needs for later. To solve this, we turned up towards the alumni community, which has graduated from same college, been through same situations and have somewhat settled down in life. We believed that these people would not only relate to the problem statement but also fund such brilliant graduates at the beginning of their professional career if there was some financial incentive on top of the social good. Trustio aims to increase the personal financial safety net for everyone and create a sort of alumni community that invests in each other in their good times and borrows money at low rates when they need it. Why go to Banks, when you can borrow at rates lower than what they offer and invest at rates higher than what you get from FDs? All this while doing something good for the community.

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The whole idea behind Trustio is to use new technology and social media to get back to an old-fashioned model of finance where members of a community invest in the success of other members of the community. Whether it’s helping fellow alumni settle comfortably into their new life after graduation, pursue professional certifications or buy electronics to increase their productivity and give their career a boost, we offer a rewarding new way for alumni to invest directly in each other. Trustio’s unique, alumni-based social circles enables people to bypass the banks to get better rates by borrowing and lending directly within communities they trust. To help people identify lending and borrowing opportunities, Trustio looks at factors such as where a person went to school or what they do for a living, and based on these similarities match people with relevant alumni who would be interested in backing their peers who are similar to them. Trustio handles user authentication, bank account verification, workplace and university verification, income verification, funds transfers and collections. We wanted to make the whole process as safe and easy as possible: Trustio suggests a socially appropriate interest rate to borrowers but leaves it open for them to decide the interest they want to offer their community for helping them so that nobody has to negotiate, it automates payments so you don’t have to remind or be reminded, and it provides an option to the borrowers to ask for some grace period to repay the loan, without any physical communication with the lender, in case of emergency, economic hardships or unemployment.

Trustio is an unique experiment to create an automated, low-overheads, community network that reduces the cost and returns the savings to the members of its community. We are currently inviting people from Delhi College of Engineering to join the private beta and invest in their peers; also we are open for the second batch of applications from people who want to borrow (and have graduated from DCE). Our first batch was successful and we managed to give loans worth 5 Lakh INR to recent graduates of 2016 batch from DCE. Most of these loans were 3 month loans and have already been returned to investors. Others were 6 months loans and have shown 100% repayment till now. We are happy to have served more than 16 people in the last few months. If you feel our cause is worthy enough, write to me at pranay@trustio.in and give feedback or request access to our Beta. Trustio exists because of the trust between you guys. Let’s create a safety net for the entire generation so that nobody ever has to borrow money at high interest rates again.

The author is the CEO of Trustio – the personal financial security net for the new generation. Write to him at pranay@trustio.in

Unbundling of finance 2.0

In my last post, I talked about how Banking is the next frontier for disruption. We read about the changes we have gone through in our lives in the last 10 years because of similar disruptions in other industries; and also why it is high-time to disrupt Banking. In this post, I will show you how this disruption is happening via the unbundling of Banks.

A post from Hedgethink gave me this picture that summarises the unbundling of Banks in USA and Europe. Although this lists only a handful of top players in each category. Once you dig deeper, there are almost 100+ startups disrupting all these categories.

Let’s take a look at some of these services that are being unbundled.

Everyday Banking – Everyday banking basically involves a checking/savings account to hold money, transfer to other accounts, pay bills, give standing orders for deductions, probably a card for swiping at vendors and a tracker of all the activities performed.

All these activities are presently being done by your Bank’s mobile app or website. And since this is the ‘only’ service we have at our ends, we believe all this is pretty fast and seamless. Just like people 10 years back believed that Blackberry phones were the best that ever could be. Until Steve Jobs showed them otherwise. Similarly, imagine using a service like Paytm v/s your bank’s app. Paytm has more ease, relevant tie-ups (for bill payment, etc.), easier peer-2-peer money transfer model, uploading money and deductions process, and on top of it the 7% interest doesn’t hurt either. Now how is Paytm able to give this kind of service and interest rates? The reason is that it is asset-light, low overhead and automated (no branches, less humans, less calls/sms and less checks involved). Banks can’t be the same. And this means no fees on ATM deductions, lower transfer fees and other service charges; plus better service and customer support. These are the reasons why today I keep a 50–60k balance on Paytm and almost nothing on my Savings account. Who needs Banks?

Wealth Management – This basically involves investments and savings. It is now common knowledge that you should keep 3 months of your present salary as an emergency fund in your savings account and invest the rest in a diversified portfolio (after taking an insurance obviously). Banks give several options for this – FD, RD, Mutual Funds, Index Funds, various ETFs, Bonds, etc.

All these activities are being managed by Relationship Managers from Banks (on Customer side) and Fund Managers (on Investment side). Obviously these things can be initiated via Online Banking or mobile app; however, the online interface only acts as a lead generator and ultimately everything happens offline. This offline model is not only cumbersome, but also results into higher fees charged by Banks. Startups like Betterment and Wealthfront give robo-advisory services, which means that based on your aspirations, your risk appetite and present financial stage, they automate the investment process via AI. That is, in simpler terms, these funds are not actively managed by humans. Every robo-advisory firm has a different algorithm and investment mindset, but the common thing is that they are able to give similar sort of results with much less fees and a simpler process. Besides, who wants to ‘think’ about finance. Just look at my data, do some magic, and automate my investments. Don’t ask me random questions and charge high fees.

Side Note: I am not an expert, but multiple articles on internet will tell you that the average returns on a Mutual Fund (actively managed, high fees, tries to beat the market) are always lower (usually 14% p.a. over a 10 year long horizon) than the Index fund (not managed actively, low fees, copies market movement), meaning that, even with all their expertise, very few Fund Managers are able to perform better than the Markets. In India, only 2–4 Fund Managers have consistently outperformed the Markets in the last 20 years. So much fuss about ‘expertise’.

International Money Transfer – This basically involves sending money by an individual from one country to someone in another country. This doesn’t work like normal Bank Transfers as the currency exchange ratios keep fluctuating, along with the economies of other countries. Western Union has traditionally been the market champion in this. WU charges around $5 for a transfer of $50 (10%) and upto $76 for a transfer of $900 or above (WTF!). This has been searched from Google. I take no responsibility on the accuracy, please sue Google.

Anyway, let’s take a look on the approach used by another startup, TransferWise.

https://vimeo.com/76420173

Their Peer 2 Peer payments within a country idea is brilliant. For those who didn’t see the video, suppose A in India wants to pay INR 10 Lakhs to B in USA then rather than wiring the money, Transferwise finds a person C in USA who wants to wire $x to D in India. Then A pays D in India, and C pays B in USA. Imagine if there are 1000s of such transactions happening daily, it is easy to always find donors to match the amount. Huge cost savings for all parties involved. And they are able to pull this off with a much smaller team than Banks.

Peer 2 Peer Lending – This basically involves lending money to individuals or businesses through online services that match lenders directly with borrowers. In other words, it is giving individuals the power to invest in people and businesses directly, rather than keeping money in Banks and letting the Bank lend money further to the consumers and businesses.

Consumer lending is the most profitable business for Banks, and corporate lending is the most revenue generating. Banks in India usually takes deposits from individuals (or retail customers) at 4% p.a. via Savings Account or at 8–9% p.a. via Fixed Deposits or Recurring Deposits. They then lend this money to businesses and individuals at 9.25–20% p.a. The usual slab is that Corporate loans to very big corporate houses (think Ambani, Adani, Mallya, etc.) are given at 9–10%, and the rates go on increasing from then on for smaller businesses. For consumer loans, the lowest rate is Home Loans at 9–12% p.a. (because house itself is collateral and govt subsidies), then ‘New Car’ Loans at 9–12% p.a. (because Car dealers subsidize most interest rate from their own commissions, also car itself is a collateral), education loans at 9–12% (very selective loans outside top colleges, govt subsidy reduces rates), personal loans at 13–20% p.a. and then Credit Card loans (After the first 50 days are over) at 22–40% p.a.

Essentially, the margin between the interest rates they charge from borrowers and what they pay investors (people who deposit money in Banks), is their profit for taking the risks of giving out loans and their operating costs. Now here is an interesting quote by Marc Andressen that sums up my thoughts on these rates. ““We have a chance to rebuild the system. Financial transactions are just numbers; it’s just information. You shouldn’t need 100,000 people and prime Manhattan real estate and giant data centers full of mainframe computers from the 1970s to give you the ability to do an online payment.” Here is the link to the article where he talks about reinventing the entire thing (financial services as they are given today. To repeat myself, there is a huge opportunity for new age, low-cost, automated technologies to come in which can do creditworthiness analysis, fraud detection and much more with a team of 50, without 2500 branches across India. Plus they give the individuals a chance to directly invest in an asset class and earn some money. The money that they were owed till now by Banks. I will cover P2P separately in my next blog.

There are many other interesting developments happening in Fintech space, including Bitcoin, Bank as a OS, etc. but I feel these are more sophisticated things that can be dealt with later. But to summarise the whole thing, internet and mobile have totally changed the way we work, communicate, live and commute today. It is only fair that the way we bank also changes to match the new age. Millennials specially have very different expectations from digital services. These people will form the largest consumer base the world has ever seen in the next 5–10 years and they don’t have any legacy relationship with Banks the way our parents did. They are more open to try out new and different things, and as they mature, they will demand total control and transparency over their financial lives just the way they have it on other aspects of their lives. And any company that doesn’t respond to this demand will likely not stay in business for long.

~This post was the part 2 of a series. The writer of this post is the CEO at Trustio – a new age community lending platform for alumni-backed loans.

Are start-ups giving entrenched market leaders death by a thousand cuts?

If you look back to where we were in 2006, you will realise how much has changed over the last 10 years. Take any big industry for example. In 2006, main channels to consume News were ToI and HT newspapers. Today, the main channels are NewsInShorts, Facebook, Feedly, etc. Newspaper and Magazine sales have fallen drastically, and people are now even moving towards video news consumption slowly. In 2006, main channels for entertainment were via TV. Today, we entertain ourselves via TVF, NetFlix, YouTube, etc. TV viewership has fallen in cities and major studios like YRF have also started making short online series like Bang Baja Baarat. In 2006, we used to listen to music on CD players or by downloading them on phone. Today, we consume it online via YouTube, Saavn, Gaana, Soundcloud and Spotify. I doubt if people even have CDs today. Any artist can launch themselves and reach the customers without going to costly music houses who controlled everything. In 2006, we used to mostly use costly SMS and calls to communicate, today we rely heavily on Whatsapp, Skype, Snapchat and Messenger. Revenues from SMS have fallen drastically for telecom companies and so have call volumes. In 2006, we used to travel via Bus or Auto or Personal Cars. Today, car sales have fallen, taxi and auto unions are on strike with the advent of players like Uber and Ola Cabs. Every industry from Telecom to Transport, from Music to Retail, from Travel to Media, has been disrupted. Imagining our life without these services is impossible today.

Now think about what has not changed – Banking. We use Banks today the same way we used to do 10 years back. True they now have a Mobile app and Internet Banking, but have things changed significantly? In every industry that we saw being disrupted above, the start-up provided a platform that general public could use to earn money and become service providers themselves. Example – Hilton, Hyatt, etc. are big Hotel chains. These companies have huge networks, budgets and infrastructure to sell their service (rooms) to customers and because of their high overhead structures and monopolistic kept, they charge a lot of money for providing these services. Enter AirBnB. Most people have empty homes or rooms that are lying vacant. Why can’t they rent it out to customers for staying and earn some money too? Case in point Uber. Use your car to earn some money by driving other people around. Let’s take another example – Flipkart. Why do you need to set-up up shops in costly malls to sell your product line? Simply become a vendor on Flipkart and distribute your product line to customers. Anyone can do it now. Every single industry has been disrupted via similar entrants, and Banking is begging for a disruption.

The question is – how to defeat a giant? The same way that David defeated the Goliath. Not by directly engaging the giant, but by putting small cuts all over his body, again and again. Overall startups are disrupting the Retail banking industry by focusing on specific activities associated with a bank and trying to perform them better. Almost every financial service that is offered by a bank (wealth management, money transfer, loans, savings, and so on) is now also offered – or soon will be – by a financial technology (fintech) company. For the consumer, this means that for the first time ever, there is a real alternative to the banks. Banks make a huge proportion of their profits in consumer banking by opaquely bundling services together. Bringing in customers through free or heavily subsidized savings accounts, they then use hidden charges on the bundled services to make a profit: everything from overdrafts to fixed transactions every month on ATMs; from late fees to prepayment fees. The nature of the current “bundled” model of banking is fundamentally unfair. These unnecessary fees and charges hurt the customers with a INR 50000 bank balance more than the HNIs. The role that new fintech startups are playing within the system is, effectively, to provide high quality financial services at a fraction of the cost and hence save money for people through almost zero fees. And now the general public can also participate in instruments that were once available only for the financial elite.

New technology and innovative business models have led to springing up of new services like Robo-Advisory, Real time credit scoring, Real time money transfer, Peer 2 Peer Lending and so on, disrupting the way Lending, Investment, Saving or Money Transfer are being done presently. In five years’ time, the financial services sector will look completely different with a host of new providers and innovative new services. In ten years, it will be transformed. The main shift will be in our expectations and behaviour as consumers; the result will be the true democratisation of finance. What does all this mean? More people will enjoy better pricing and a vastly improved system. It took Skype ten years to secure 40% share of the telecommunications market. In five – ten years, we can expect fintech companies to achieve the same in the financial sector.

~This post was the part 1 of a series. The writer of this post is the CEO at Trustio – a new age community lending platform for alumni-backed loans.

Reference:

  1. https://medium.com/@tanayj/the-state-of-consumer-fintech-8ae5a1644b5b#.kf93qzhfe
  2. https://techcrunch.com/2015/05/29/the-unbundling-of-finance/
  3. https://transferwise.com/gb/blog/how-technology-is-democratising-the-financial-services-sector