Flipkart co-founder and serial entrepreneur Sachin Bansal in an exclusive interview with CNBC-TV18 on Wednesday discussed about various aspects of banking and financial services business.
Earlier, Bansal had said while he did some initial investments in various energy and transport startups such as Ola and Ather Energy, his future investments will be concentrated on the fintech segment, particularly microfinance, mutual fund and banking.
The digital technologies have transformed, has changed a lot, the paradigm has changed a lot but the financial services space hasn’t adopted all of that, he said.
The Flipkart co-founder had received nearly $1 dollar from his stake sale in 2018 to US retail chain Walmart.
Q: Mr (N R Narayana) Murthy once told me that to be able to clarify your ambition, your mission statement should be in one sentence so that your grandmother understands it is the best way to execute a business plan. What does it mean to revolutionise Indian banking, modernise Indian banking, disrupt Indian banking, what are you attempting to do?
After Flipkart, I took some time to understand where the banking space was, where the financial services space was.
What I realise is that if you are a high net-worth individual (HNI) in India, you get a great service. Everybody in India is lining up to provide good service, all the banks are after you but if you are a middle-class person or a lower-income person, you get a very bad experience.
Also, the digital technologies have transformed, has changed a lot, the paradigm has changed a lot but the financial services space hasn’t adopted all of that.
So, we thought that it would be a good thing if some of those principles of consumer tech can be brought into financial services, so the mission statement for us is we want to transform financial services, we want to simplify financial services and make them more accessible and affordable. We want to reduce cost and we want to improve customer experience.
Q: So the key layer here is the use of technology and that is how you hope to be able to bring down cost as well as make it more accessible, simple and more efficient. Explain to me, how you intend to do that. You are not the first guy who is attempting to do this. You are up against the big boys who are also now using technology in a big way, you are up against the fintech players - you know PhonePe better than I do. So how do you intend to carve a niche for yourself in this market?
The way we are thinking about it is slightly different from what other players have done and I am sure there is space for multiple players in this area.
What we are going to do is we are going to build a lot of technologies in-house instead of outsourcing them and getting them done from vendors because we believe that creates a bit of a layer of separation from technology to the business, which is not healthy.
Also, what has happened, in the past 20 years, banking and financial services have transformed and they have largely become tech companies.
So, they need to build tech like tech companies, which is like Flipkart or Amazon or a Google will build. I would say that we are going to try doing some of that and solve some key problems for our set of customers, which are middle-class customers of India and see where it goes from there.
Q: How soon do you intend to start? The company is already there ... you have put in whatever money you had, as you said, after your investments in Ola etc, you have decided to bet that on, you have got IFC on board picking up about 4.5 percent stake in Navi Technologies which is the vehicle that you are using and of course you have done a bunch of acquisitions. So, when can we expect all of this to start taking off?
We are in the process of applying for some licenses. We are talking to regulators on a regular basis, we are engaging with them. There are back and forth questions and answers that is happening.
Q: Have you applied to RBI for universal bank licence?
Q: What are the questions that they are asking you?
The regular questions - we are coming from a consumer tech mindset, can we run a great bank, can we build a great bank. I think these are legitimate questions for any regulator.
A: Shareholding of course, but the thing is that is an advantage for us given that we are 100 percent Indian and also the fact that the capital that I bring in, there is no expiry date to that capital, we don’t have to return it to some private equity investors. So it is a perpetual capital.
Even people like International Finance Corporation (IFC) who come in, they bring perpetual capital.
Q: But … you need to bring down your shareholding significantly…
I think ... that is over time. There are norms that RBI has set out, which we will comply with as time progresses and we are aware of those.
Q: Is there any indication of a timeline by when you should hear from the RBI on your bank licence and why the universal bank licence route as opposed to a small finance bank or a payment bank for instance?
Universal bank versus a small finance bank, I think it is one of the big decisions that we had to take was, do we want to solve for only lower income customers or we want to solve for larger set of audience.
The fact is that the problem exists for a very large set of audience. I still believe that even HNIs in India don’t get that great service. I think even the problem exists over there.
Q: Are you facing that problem?
Yes, I think bank apps etc. are not the best, they can do much better. Also the universal bank licence gives us a freedom to invest faster and we have the capital, we have the access to capital, we have the ability to raise more money to be able to invest and scale up faster.
Q: Are you looking at bringing more investors on board, are conversations on at this point in time?
There are some conversations going on.
Q: By when do you hope to close those and what kind of capital raising are you looking at? What kind of dilution are you looking at?
We can’t talk about specifics yet. The discussions are still going on I would say, but we are looking to bring a couple of more people and these are not just for money, we have enough capital of our own.
I can bring my own capital. I am bringing all of my capital into this business but it is more about bringing in people who have built banks either in India or outside of India and who can bring that kind of expertise to the table - not just money. So money is more easily available relatively but it is the expertise which is what we are looking for.
I come from a consumer tech background, I don’t know anything about banking. That is something that I am looking to learn and I am learning.
Although, there will be a pace at which I will learn.
Q: What has been the biggest learning for you so far?
In banking versus consumer tech, I think the biggest learning is that consumer tech companies think very transactional. If you are a Flipkart or a taxi app or a food delivery app, for you that transaction – you have to deliver that transaction in the best possible manner, with the most cost-efficient manner, most best customer experience but in banking and financial services, what I found is that relationship is a multi-year relationship, it is not about just making a transaction happen or getting an account opened or getting a fixed deposit opened or selling an insurance policy, it is a very long-term relationship. So that mindset shift is something that is the biggest thing that I have learnt.
Q: You talked about talent and people with expertise coming on board, you have already got advisers like Paresh Sukthankar, who was formerly with HDFC Bank, and Nachiket Mor, former director of the RBI. Take me through the kind of team that you hope to build around yourself in order for you to be able to meet this objective?
I think this is still work-in-progress and my thought process is evolved as it progresses further.
However, at the board level we are trying to bring a diverse set of people who will bring core banking expertise along with technology knowhow but in the team I am thinking of more like an 80:20 where we will bring 20 percent of the people who will come from core financial services background who have been in operating roles in these BFSI companies either in India or outside of India and then we will pair them up with tech-oriented guys who think fresh, who think new, who can think of creative ways of solving problems.
Q: There are about 100 people already that are working with you?
Slightly less than 100 but we are building the team.
Q: You are building the team but what about the app, the speculation is that you were planning to launch the app in April this year, is that on course?
We are still working on it. We will let you know.
Q: Give me some sense of what that will do?
It is a very small first step in the whole financial services journey for us. We have acquired a microfinance company and we are building that further.
Apart from that, we are launching some digital lending products, on top of that and we are going to launch that soon. So this will be the first step into this financial service.
Q: Digital lending is what you are looking at as the first step, you spoke of acquisitions and that has been the route that you have taken to make a foray into the financial services sector. What more and what next now when it comes to acquisitions? Any specific gaps that you want to plug by way of acquisitions?
I think one is – for us acquisitions is a way to reduce the time to market to a certain extent. We have recently completed the acquisition of a general insurance company, DHFL General Insurance Company and we are in the process of – we have applied for an acquisition for an AMC as well, which is still under review at the regulatory level.
We will be talking about more over time. We just acquired the tech company as well to accelerate our technology efforts. So, we are hiring a lot of organic as well, it will be a mix of organic and inorganic I would say. In a lot of way, similarly -- Flipkart was built in a very similar way.
Q: So that’s the route that you intend to take even as far as the financial services foray is concerned?
Q: Anything on the anvil at this point in time besides the ones that you have already done and somewhere the regulatory clearances are still pending? Essel – you got the regulatory approval or not yet?
Essel is still in the review but for DHFL we got the regulatory approval. Of course the bank licence is under review as well.
You talked about the bank licence. What is Plan-B? I am not assuming for a second that it may not go through but if it doesn’t go through what is Plan-B. Is there a Plan-B?
As of now we are not thinking about that.
Q: Could you then take a route towards acquisition and maybe change the way that you are looking at this?
It’s too soon to say this.
Q: So at this point there is no Plan B that you are looking at?
Q: What is the aspiration in terms of how you see this evolving over the next few years in terms of numbers, in terms of the size?
It’s very early days. Of course, eventually in the next 5-10 years we want to be able to solve large consumer problems for crore of customers, hopefully tens of crores of customers over a time. So that is what our ambition is.
There are some projections which project India’s interest user base to grow to a billion users on 4G and 5G in the next 5 years. It’s a very large user base and India’s GDP is close to $5 trillion.
I think we are looking at a very vibrant market of India and financial services will have a huge space so we want to be able to solve for tens of crores of customers over a time.
Q: I want you to explain me better because you talked about how leveraging technology is going to bring cost down for you in this business but how much and what is that going to mean in terms of being able to acquire, in terms of customer acquisition, in terms of this relationship building, multi-year relationship building that you spoke of and what will be the key differentiator then for the business?
There are 2 areas of financial services where already technology has made a large impact or the new tech thinking has made a large impact. First is, the stock broking space where technology has brought down cost massively and there are payments and UPI where cost have come down drastically of transactions, connection customers, making it super convenient and brining the cost down.
I would say that similar opportunity exists in all parts of financial services whether it’s insurance, mutual funds.
The cost of running a mutual fund should be lower over time, the net interest margin spread of banks today is very large that can be brought down which means that you can pass on those benefits to both the depositors and the borrowers of reducing your cost of operations.
So that is essentially what we are going to try and do; use tech, use automation to self-serve as much as possible to reduce cost of operations.
Q: This is still largely, financially less literate market that you are dealing with?
Q: And, also a less tech literate market that you are dealing with?
I don’t think so. Tech literate – I don’t agree with.
Q: Financial literacy though?
Yes, financial literacy is low but that is the challenge. How we simplify it so much that even my mom can understand. So that is the challenge that we are taking up.
Anybody should be able to (take financial decisions) … financial services decisions are extremely hard. The math is extremely hard for most people to do and people take up some optimal decisions.
So, we plan to build a trustworthy brand where people can believe what we say and then we would give them good advice, we would give them good guidance and through technology or whatever, opportunities that we have and then be able to simplify things for them so that they can understand what is happening.
Most of the times I don’t understand what is the insurance policy that I have taken. So I don’t think anybody understands, truly what financial services costs etc. are built into the whole thing that they have bought.
Q: So the opaqueness of costs that the banking system has come to accept and is almost sort of part of legacy …. are you hoping to disrupt that?
I wouldn’t say disrupt. We will improve that. We will see how much improvement we can make into that. We will try and improve as much as we can.
Of course there are regulatory boundaries etc that we will have to take into account.
Q: How much of that is a challenge … the fact that there are regulatory boundaries that you are going to have to deal with which you didn’t have to in your first innings with Flipkart.
I agree. I think most consumer tech companies are not used to dealing with that kind of a regulatory overhang that financial services sector has.
Q: Do you feel it may restrict the innovation that you are hoping for?
I think it is a right thing to do. You can’t let financial services companies do whatever they want because otherwise it is people’s money eventually. If you bought a health insurance, you better have health insurance, you shouldn’t find out later that you didn’t have one or it was something different.
So, these are for good reasons that they exist. Within that you will have to figure out how do we innovate and I am sure there is enough space. So couple of areas like payments etc we are already seeing technology making an impact which shows that even within the regulatory framework there is enough space to innovate.
Of course, regulators themselves are changing. Regulation is not a static thing, it is a constantly evolving thing as well.
Q: That is the hope that regulation will keep pace with the innovation in this sector. What are you looking forward to now in the second entrepreneurial innings?
I think Flipkart seems like a little bit of unfinished business, want to continue. I want to solve big problems.
Q: Do you regret that it is an unfinished business?
I don’t want to get into that right now but I would say I want to solve some large problems and now I am super excited about financial services, taking that on and we will try and solve some problems over there and see how it goes.
Q: Is this going to be your way of finishing the unfinished business from Flipkart?
Let us see.