In 2015 Lizzie Chapman, who two years earlier opened Mumbai’s first boutique hotel, co-founded ZestMoney: a fintech start-up that’s reinvented how India’s rapidly growing middle class accesses credit.
Since then she’s been named one of Next Money’s FinTech Asia 100, while her business – now the largest of its kind on the subcontinent – has started influencing wider consumer trends in one of the world’s fastest-growing economies.
She told us more about fintech’s ability to empower consumers, why the credit card is on its last legs, and why a cashless society – even in cash-dependent economies like India – is inevitable.
So Lizzie, what inspired you to launch ZestMoney in 2015?
“Myself and my co-founders wanted to exploit a big global theme: that traditional credit products are very unappealing to millennials. Young digital consumers think credit should be an enabler – a way to bring the future to you earlier. Within this mindset you don’t think: ‘I’m going to take out a loan.’
“The penetration rates for consumer credit in India are absolutely pathetic. There are around 400 million people borrowing, mostly from friends and family or via the black market, which can be horrific.
“We believe that technology – specifically transactional credit products – can solve this problem. We want to be there at the point of sale; when somebody’s choosing a laptop or sofa, we can help them buy a better, longer-lasting one just by providing credit.
“These are our two philosophies: that credit should be transactional, and that it should be available when you need it, where you need it. They seem to have resonated with our customers; ZestMoney is now the number one transactional ecommerce product in India.”
The credit industry doesn’t have the best reputation when it comes to pricing. How does ZestMoney work?
“You’re right – if you take a step back and look at the business model behind credit cards, it’s actually quite evil. They deliberately lure you in to spending on credit, they regularly increase credit limits, and they make lots of money by charging penalty fees.
“We believe the price of credit should be transparently linked to the risk being taken. So if you’re a young person with no history, someone with a volatile occupation, or somebody with little data, it’s probably fair that you pay a slightly higher interest rate than a repeat customer.
“It’s a concept called risk-based pricing. It sounds like common sense, but literally no banks in India use it; they just charge one price for everyone. The insurance industry has got its head around it, but credit hasn’t.”
Why is India so suited to your model?
“The Indian market is ripe for technology to be the disruptor. India has leapfrogged a lot of the infrastructure that other countries have had to go through; we’ve gone from desktop to mobile internet faster than anywhere in the world. Now 250 million people pay their bills using mobile apps.
“It’s an infrastructure the government invests in, which makes things relatively low cost and well protected by the regulator. So companies like us are in a good position when we come in with products that are more cutting edge than equivalents in the US, where payments infrastructure is quite outdated.”
Is your model influencing wider consumer trends in India?
“We want people to upgrade their lives. Let’s not beat around the bush – this is a low GDP-per-capita country where people’s incomes are, on average, a fifth of what they are in China.
“On the demand side, companies like Apple and Amazon are growing in India, which creates a really big affordability gap. The solution isn’t ‘Indian people shouldn’t be allowed to have Apple products’; it’s ‘Let’s create financing systems that make these products more affordable and more accessible’.
“Which is fair considering that, in the west, we’re used to the idea that mobile handsets should be bought over a period of time as part of a contract. These just don’t exist in India – 99.9% of all phones are bought as a one off, so a lot of people can’t be part of the smartphone revolution.
“So one thing we’re doing is enabling lower-salaried people to get their first smartphone. This in turn facilitates access to mobile-based financial, healthcare and education services, so we’re enabling lots of people to do things they didn’t think they could.”
Could transactional credit work in developed economies?
“Yes, but we need to differentiate credit/credit-worthiness and the delivery mechanism. The west has become obsessed with the delivery mechanism – it’s all about this card and the points you can get.
“That’s actually almost irrelevant in this day and age. Instead, the focus should be on making sure that everybody is creditworthy to some extent – and delivering credit where customers want it to be.
“So definitely versions of this product need to exist in western markets so we can get rid of the burden of credit cards.”
What does your average customer look like?
“Our range of customers is actually broader than we expected. The biggest variation is location – we’re not north India or south India, city or rural area. We’re everywhere, and that’s because of our digital nature.
“One observation is that young digital consumers are more similar than they are different. Whether they live in the richest area of Bombay or a small village on the way to the Himalayas, they want the same kind of things and they behave in the same way, which is really interesting.
“Our customers are mainly young, but we have people in their 50s and people really turned off by the concept of credit cards. Most are salaried, but around 40% are self-employed – including freelance doctors and lawyers.
“They’re not necessarily rich, nor do they not have access to digital mechanisms. It’s that chunk in the middle, and the interesting thing about this category in India is that they’re the most optimistic about the future. They’re more influenced by global trends than domestic growth.”
Is India moving towards a cashless society?
“It’s a bit of a cliché to say India’s going digital; you only have to spend a few minutes here to realise that India is an extremely cash-dependent economy. That said, I think we are moving towards a cashless future – because cash is non-transparent people can hide their taxes, which the government is cracking down on – but it’s a process that’ll take time.
“From day one we’ve always said to our customers that we won’t accept cash. We actually did well from the demonetisation debacle because more ecommerce companies needed to add payment options.
“Demonetisation didn’t have a massive impact day to day, but what it did was tell the world that that digital payments are here to stay – and that’s a big commitment from the government. In a world where governments, even in the US, are cracking down on digital initiatives, we think it’s good to see an administration obsessed with the digital agenda.
“It provides a good backdrop from a regulatory perspective; in other markets you’d have to be a lot more nervous about building a completely digital business.”