CxO of the Week: Bhavin Patel, co-founder & CEO of LenDenClub

Human civilization is practising finance and commerce since ancient times. As a third-world economy, India is encouraging its financial sectors to change world-view through the fintech industries.

In these unprecedented times, a fundamental change in customer-oriented services for the fintech industry is visible in the ecosystem. At CIOL, Bhavin Patel, co-founder & CEO, LenDenClub, has shared his insights on fintech ecosystem and success mantra for budding entrepreneurs.

How did you brainstorm the idea of a P2P startup?

When I was ideating for my startup, P2P lending wasn’t initially on my mind. I started my securitization consultancy during the global financial crisis in 2008 to help NBFCs raise capital to serve borrowers on a large scale, as NBFCs could cater to a small group of people due to capital restraints. 

Post my first sting, I went back to corporate but was constantly looking for alternatives to increase credit availability to contribute to our country’s economic growth. I discovered with existing lending institutions, NBFCs, and Banks that they wrestled with a series of issues because our per capita debt did not increase beyond a limit in India. To resolve this limitation, we had to find a new type of capital to be deployed in the form of credit to people and businesses. Ultimately, we found that the P2P model satisfies this need to amass idle capital from individuals and utilize it in giving credit to needy people. So, the purpose of LenDenClub was similar to my first entrepreneurial journey, but only the medium changed.

How would your employees and partners describe your personality?

People often observe my passion for whatever I do, whether it’s work, football, fitness, or love for mobiles & cars. Being a quintessential Gujarati, I am positively stereotypical in my entrepreneurial approach, and I know how to hustle. Hierarchy is never a yardstick for me and I prefer being emphatic and equal in my day-to-day interactions with team members whether a GET/MT or my Co-Founder.

What was the extremely conflicting situation you faced? How did you resolve it?

LenDenClub started with a typical personal loan product with an average of around a lakh rupees. But we were just another player in the already crowded personal loan market. Our unique capital power enabled us to develop a differentiated product to cater to the same borrower segment, and we launched InstaMoney, a new loan product, in June 2018 and centered our approach around this product after the initial success, focusing on delivery, underwriting speed, and automating the process. We were able to establish product-market fit in the first year, but the CAC and collection costs remained a significant challenge.

InstaMoney is a small-ticket loan, and each loan transaction earns the platform only a few hundred rupees. Making the CAC efficient and profitable was a critical task, especially when the high growth rate was also maintained. However, we tried to focus and achieved the same results over the next few quarters. As a consequence, we discovered a niche product-market fit, where we've been profitable for the past six quarters and have had a positive operating business for over three years. We are India's largest P2P lending platform in terms of monthly net disbursals, monthly loans, and platform users, thanks to the success of our product.

How do you balance your company culture and customer relations?

I am a firm believer in the importance of business culture in any successful organization. Every part of the business, including customer relationships, is influenced by this culture.

We've created a culture where we respond to every customer contact, treat customer interactions as vital activities, and listen to and act on customer feedback. This has helped LenDenClub establish strong customer relationships, generate repeat business, and engage our customers. It has also helped me create a strong community of more than 5 million customers across the country to either earn higher returns from their investments or get instant loans during times of need while empowering them to reach their financial goals.

Please elaborate on your fintech business model.

LenDenClub as a brand was born to get an alternative investment option and better returns for individuals. The core idea was to increase capital availability for a better spread of credit among seekers. Both givers and seekers come to the LenDenClub platform for their financial benefits. While doing so, the platform earns processing fees from borrowers and investment fees from investors. It makes overall platform fees of around 5% from both the users.

What is your risk-management strategy to identify issues and manage them?

LenDenClub has integrated Artificial Intelligence and Machine Learning extensively on the platform. Our risk algorithms keep evaluating the risk of existing borrowers even when they are under repayment. It is completed for new clients when they visit the platform for the first time. Various scorecard-based models and binary decision-making phases make up our risk algorithms. It virtually duplicates the decision-making powers of a single credit manager, but with far greater efficiency. We are always working to improve this capability by enhancing our risk algorithms.

According to you, what is the future of the fintech industry in India? What are your views on the digital currency announcement by India’s Finance Minister in the budget of 2022?

Over the previous five years, the expansion of digital lending has been phenomenal. It is now time for digital lending to go full throttle now and enter some areas which are not yet touched. Examples are secured loans, home loans, etc. P2P lending, as a significant component of the larger FinTech sector, is quickly becoming the most popular alternative investment class with a potential of $55 Billion worth of demand from individuals, HNIs, and corporates. The proliferation of lending fintechs has the potential to quickly transform India into a credit-inclusive society while also delivering one of the most attractive asset classes for investors.

I believe that in the next five years, individuals will be able to obtain credit without having to apply for a loan. To find out how much credit they have, customers only need to open a financial institution's app. It may even reach the point where children are born with a ready credit line. FinTechs have entered a fascinating period, which is only going to get more fascinating with each passing day. Indian payment companies, lending companies, insurance companies will start capturing a lot of international customers over the next 5 years to establish India as a global Fintech leader over the next 10 years.

Regarding digital currency, let’s wait for the next step from the finance ministry or RBI. Any comment on that will be just speculation.

Any plans to expand into the banking sector? Please describe it.

LenDenClub is eyeing to transform the whole banking model by digitalizing it. The P2P model itself is quasi-banking. It is important to transform the whole model rather than thinking that we become a bank. The world may see the scenario when banks are becoming P2P platforms or adopting the P2P model to make their banking practices more efficient and productive. However, one thing is certain we will continue building needed efficient solutions for our customers on the base of the P2P platform. This will in a way improve the overall banking sector.

Please share your success mantra with budding entrepreneurs.

Focus, execute, and don’t get driven by what’s going around you!