India ahead of global fintech in having more women leaders, says Lizzie Chapman : Tech News

Lizzie Chapman, the cofounder of Buy Now Pay Later (BNPL) platform ZestMoney who
bagged the top honours in the Woman Ahead category of the Economic Times Startup Awards 2021, believes the time for BNPL in India has arrived. Chapman, who cofounded the firm much before India’s ecommerce and digital payments boom kicked in, told ET’s Ashwin Manikandan
in an interview that these firms will generate more market capitalisation in the country than anywhere else in the world. Edited excerpts:

Financial services have unfortunately been male dominated in India. Was it a challenge to crack this space?

It is much better than three years ago. The last couple of years have been great for women leaders. There is definitely more awareness. In fintech, there are actually some very strong female founders – there is Upasana Taku who is leading Mobikwik’s IPO charge; Mabel Chacko and Dina Jacob of Bank Open are strong founders. We have, in fact, a rich history of senior powerful women in India’s biggest banks as well. In a very ironic twist, India may be better off than globally in having senior women across companies. We definitely could do better, and we do need more female VCs – but it takes time.

When you co-founded ZestMoney in 2015, the Indian fintech ecosystem was far smaller compared to now. What made you bet on Indian fintech?

I started as an equity researcher at Goldman Sachs. Very early in my career, I got interested in India, particularly Indian finance. I was working with a big endowment fund which would invest in Indian banks, and my job was to fly here and meet the CEOs of Indian banks. We also invested in private NBFCs. At the time, I had invested in Muthoot Finance when it was still a family-run private business. I happened to spend a month in Kochi, understanding the gold lending space, visiting small gold shops and dealers on the streets of Kerala. It was just so obvious then that India was about to explode, both from a consumer finance perspective and economically as well. It was apparent that big businesses in the travel, ecommerce, and fintech space would be built; it was all just picking up. I think I was in a club of entrepreneurs who thought like that (Paytm founder Vijay Shekhar Sharma was another), who were thinking this is an opportunity to disrupt.

Many people in India understand credit cards and zero-cost EMIs but not BNPL, which is still nascent. How is ZestMoney introducing BNPL to customers?

In India, we found that EMI is understood very well. People in India also understand the difference between credit and EMI. With credit there is a slightly negative connotation, but EMI doesn’t have that. In our outreach, we use the concept of EMIs to explain our product proposition. There is just so much overlap that frankly it’s all jargon. What is important is that customers and retailers understand the product.

Bajaj Finance has been providing zero-cost financing solutions for two decades. How are new age BNPL firms differentiating?

In a lot of conversations with investors and VC funds, they would comment – “but BNPL is tiny in India,” and my response to this will always be – “yes, but only if you exclude Bajaj Finance.” A market cap of $15 billion has been built in India by this company. They were doing digital marketing for firms with a financial product, and they did it before Afterpay and Klarna and others. However, we believe that the BNPL model for the digitally consistent is a different challenge. There are young digital customers coming to the market with high expectations and they are very demanding. And a lot of incumbents find it challenging to offer that experience.

Across the globe, very few BNPL firms are actually making profits. What is the correct business model?

It is a mix of credit, payments and marketing. You’re helping brands convert repeat credit. Bajaj cracked it and they cracked it for physical retailers. Just in the last 18 months, the world has woken up to its potential, but we have known this for a decade. I still believe India will be the largest BNPL market in the world. There will be more market cap created in this segment in India than anywhere (else) in the world. It will be an India category.

Do you see BNPL as a challenger to incumbents like banks and NBFCs offering low-cost personal credit?

We actually work with incumbents and most of our credit is not on our books. We work with 22 of the biggest banks and NBFCs – we don’t want to beat incumbents, we want to work with them. This sets Indian fintech apart from the world, where globally fintech and banks are competing.

ZestMoney does have an NBFC licence. Do you plan on taking more lending risks on your books going forward?

We don’t want to be an NBFC, we want to be a platform for NBFCs which know underwriting and collections much better. We will get whatever licence we need to be compliant – so we have an NBFC licence, but we would prefer to enable a bank which has regulated, capitalized business. Why do double work? Regulatory and political environment in India would push towards this system. In the West, there is a lot of friction and tension between tech, particularly the Big Tech and traditional banks, and that’s not good for the consumers ultimately.

Over the last month there has been funding activity in the Indian BNPL space with both ZestMoney and Capital Float raising capital. Do you feel this space is undercapitalized right now?

If this is going to be a multi-billion-dollar market creation in a couple of years, the actual funding going into BNPL currently is still very low. While $50 million (
capital raised by ZestMoney and
Capital Float in respective rounds) is fantastic, there are entire categories way more niche than BNPL (that are) raising much more capital. It’s such a big market in India but what surprises me is that it still has low competition. There are only a handful of firms including us and Capital Float. In comparison, if you look at the UK, which is a much smaller market, they have Afterpay, Zip, Klarna, PayPal all fighting it out.

Why are legacy fintech and e-commerce companies in India as well as pure-play firms finding it tough to crack BNPL?

It does require some capital to take off. Even Klarna is not an overnight success; it’s a 15-year-old company. Anything that touches credit becomes more complex – there would be unsuccessful stories. And if some don’t work out, investors become nervous to fund the space. Because there is not enough capital flooding in, it is becoming harder to build out the market with critical mass. I think we are there now. Klarna, Afterpay and Affirm’s success is a catalyst. It is going to be interesting in the coming months. I want to add that BNPL is not an add-on business; it is highly complex and requires specialised focus. I believe there will be five or six big BNPL companies popping up specializing in India soon.

Do you feel any of the big BNPL firms – Klarna, Affirm, Afterpay – would enter India soon?

India is a tough market for global fintech firms. I hope I’m not speaking off-turn, but PayPal struggled here and if PayPal – which is a firm I have idolized – has found it tough in India, then others would be aware that it would be a tough market. Any of the global guys coming here would need to invest heavily, rebrand products, learn about socio-economic diversities, learn about KYCs. It’s going to be a big project and I don’t think they are there yet.

Was your conviction in BNPL ever challenged?

The reason why BNPL is so clear is that we studied it all over the world. The reason people were turning away from credit cards and jumping to BNPL around the world was because there was a real cynicism about credit cards. In 2011, I was so astounded by the implicit informal credit in the system here. In the UK, you have to pay even to pre-book a hotel. Here the trust is built into the system, and I don’t believe India is a low-trust society. My point is that BNPL is a product that people in India already understand. The entire supply and demand chain here works on implicit credit. Like all good business, what BNPL does is to build a product around a disorganized behavior implicit in the system.

How are you mitigating repayment risk involved in lending for the Indian market?

There is a trend in tech business around the world, which is ‘growth at all costs.’ We believe that anything that touches credit – and BNPL is a credit product – has to be conscious about risk models. We are focused on affordability. In India there aren’t many unscrupulous products yet. The Reserve Bank of India may also look at regulations as this market grows and we support that. Indian customers are unique – they are savvy, they are fee conscious, and they don’t like to default. In the UK, people are way more complacent about their financial behavior and take much more fee load, just like in the US. Therefore, I feel that it would be more improbable in India to have such a credit bubble like in the western markets. We have a well-regulated financial market and robust banks that are not incentivized to over-leverage customers.