Compiled by Preya Pandya
SCALING A FINTECH STARTUP FOR THE GREATER GOOD
What is financial Inclusion and Exclusion?:
In recent years, the term “financial inclusion” has become more prevalent in our everyday vocabulary. Around the world, countries and organizations are homing in on how they can foster a culture of financial inclusion. However, with all of the focus on financial inclusion, far less people really talk about or define financial exclusion.
| Financial Inclusion | Financial Exclusion |
| Access to savings accounts, loans, cashless transactions, credit and other traditional banking services. | No access to these because of socio-economic status and don’t meet mandatory requirements for credit and banking institutions |
What is Credit?
It is basically a person’s financial standing defined by official financial institutions. These credit scores are a central feature of the US financial system.
An individual’s credit score, credit history is going to determine their ability to get a mortgage, a credit card, the cost of these loans, whether they can open a bank account, as well as other things like their ability to rent an apartment or ability to get a job. Credit scores and credit histories in the United States play a huge role in people’s day-to-day lives, much more than one would actually imagine.
According to FICO, which is the Fair Isaac Corporation, which is a leading provider of credit scores, 28 million Americans have files with insufficient data to generate credit scores and 25 million Americans actually have no credit file at all. These people are referred to as the credit invisible.
In India, although the concept of credits has recently become popular, it is still very important in terms of loans and applying for credit cards. There are four credit information companies or credit bureaus in India whose credit scores are popular with both lenders and borrowers. These are TransUnion CIBIL, Experian, Equifax, and CRIF High Mark. A borrower’s credit score ranges between 300 and 900.
As per a recent World Bank report, about half of India’s adult population is unbanked or under-banked.
Factors of Good Score & Benefits of good credit in India
Scores that are at least 750 or above are deemed to be good
Factors:
- credit history
- whether one has been making timely repayments,
- the number of times one has borrowed, the amounts one has borrowed,
- the type of loans one has availed of, and other relevant factors.
- Timely repayment of EMIs on loans
- Timely repayment of credit card bills
Benefits:
- Lower loan interest rates
- Better ease of loan or borrowing approval
Esusu is a startup for the credit invisible people- The Start – United States
The US company Esusu recognized the issue problems of the credit invisibles in the US. Abbey Wemimo and Samir Goel, the founders of Esusu, met in 2014 at a Clinton Global Initiative conference. Abbey and Samir both come from immigrant families, and had firsthand experienced financial exclusion in the United States and how crippling it can be. Founded in 2018, Esusu was built to include everyone on the journey from financial identity and stability toward financial wellness that leads to wealth building. They started out with a rotational savings product. So, in a rotational savings program, participants pull together capital and they take turns in using the capital as a loan.
Why is this a beneficial program?
-providing access to funding
-encouraging incentives to save.
The payments to the rotational savings group are going to get reported to credit bureaus so your credit score improves.
Esusu had to change Strategies from rotational savings. Here is why:
After connecting with the customers, Abbey and Samir realized that the savings part was not exactly what they were really looking for. What the customers really wanted was easy access to credit. The rotational savings product also had a very high customer acquisition cost. The rotational savings program worked by acquiring groups of savers, and acquiring customers like this was costly. In order to make this profitable, Esusu would have to maintain some very high retention rate, of about 90%. While the product seemed helpful, it didn’t seem as though it was going to have that large impact and reach a huge scale with just the rotational savings product.
Scaling-Up Journey:
Esusu being a fintech startup, scaling up is one of the major challenges they have to face, like any other fintech startup. While that is true for all startups; it is especially true for fintechs.
Fintech startups often require huge investments and working capitals, more than what is required for other industry sectors.
Esusu founders were also not immune to these challenges. As mentioned before, the rotational loans program was costly and not very scalable.
How did Esusu finally crack the code to become profitable as well as make a huge impact:
Esusu quickly analyzed through their rotational savings product where majority of the people’s cash was being spent. They could do so because they had access to people’s bank accounts and people’s cash flows. It became clear that rent payments were actually a really large fraction of total expenditures. For the lowest income quintile within the United States, more than 50% of all income is spent on rent. This became a turning point for Esusu because it became clear to them that they would want to people improve their financial lives by reporting rent payments to credit bureaus.
Thus, Esusu collected rental reporting data and also other data on the tenants and provides a service to the landlords and in the meantime, reported the rental payments of the tenants to the credit bureaus, which improves the credit scores of the tenants. And in terms of customer acquisition costs in this scenario, Esusu has focuses on signing up landlords with potentially tens of thousands or hundreds of thousands of units. This reduced the customer acquisition cost, making it a very clever way to scale the business in a profitable way, and to really have that big impact.
Today Esusu is fairly successful and is genuinely making a powerful impact on the society of USA. They are the leading financial technology platform leveraging data to empower renters and improve property performance. The Esusu platform provides rent reporting, rich property management analytics, and rental assistance unlocking financial access and stability for renters and property owners alike. This is a very good example of a fintech startup scaling up for the greater good of society.
Indian Fintech Startups:
In India, there is no such startup as yet because the importance of credit is not yet fully realised. However, there are startups like CRED and Paytm that aim to make the lives of the people simpler. Some startups like Neogrowth have been working towards this already. NeoGrowth is a technology-enabled lending business that provides loans to under-served micro, small and medium enterprises (MSMEs) in 21 cities across India. In a concept similar to Esusu, they have pioneered a model in India that uses data from credit and debit card sales to determine the credit worthiness of small and medium retailers and to provide loans against future sales.
Now with fintech, people don’t have to travel to get a loan anymore. Access to mobile phones is extremely easy and affordable, so with fintech people can get access to finance right away. In the near future, it would be great to see more startups that work towards financial inclusion and curbing poverty like Esusu in India mainly where it is most required.
