Discovering Fintech Religion - Part 1

Vikram Vaidyanathan
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As part of our guest series, Vikram Vaidyanathan, MD, Matrix India catches up with Rajeev Ahuja, Executive Director, RBL, Bank on “Discovering Fintech Religion”. The conversation is spread across a 2 part episode, and covers the transformational journey of Ratnakar to RBL Bank, a debate on Fin versus Tech, and phygital as a means for fintech companies and banks to scale.

Vikram: Hi and welcome to Matrix Moments. It gives me great pleasure to welcome Rajeev Ahuja to this episode. Rajeev is Executive Director at RBL Bank. He has a career spanning 30 years across banking, financial services including Citi and Deutsche and I think the 30 years gives away his experience and age. He was instrumental in building Ratnakar Bank into RBL Bank. A fascinating story over the last 7 to 10 years.

He has spearheaded the fintech initiative at RBL and really made RBL one of the best partners for most fintechs. For me, he is a friend who I can debate fintech and fintech future with and I thought it would be great to get him in for an episode and have one of our debates. And hopefully, it’s great learning for all of you all listening to this. I have always found Rajeev to be the most thoughtful or having the most thoughtful point of view.

Rajeev, thanks for coming. Maybe start a little bit with this journey of you and RBL and discovering fintech religion as you put in.

Rajeev: Thanks, Vikram, and always a pleasure to talk to you. And we do admire Matrix for some of the incredible businesses you have invested in. And we have the good fortune of I think working with most of your fintech companies well before you sometimes invested, so we can take some credit for that. But thanks for a lot for having me and the bank here.

Yes, look I mean from that 2010 when we moved into Ratnakar, we had so many priorities where - actually which were just to modernize the bank round up in many areas where things were not even there. So our emphasis on technology as a big anchor and driver of new businesses was just not even in our realm. We always have viewed technology as a core support function. I don’t think we had this epiphany that technology could be the way to drive things. And that came about 2013-14 partly of our own situation where we had started building our branch network, retail, and just found that actually just following the playbook of the more successful institutions of private sector space, we will never be able to make a dent.

Something had fundamentally change, and partly our own brand and consistency of product services was yet to be established. So, this was a like an internal challenge and drive that what is really happening. And then you see announcements of significant investments by people like yourselves or global companies in payment products and services and ecommerce and you just wonder what’s really happening. And my own experience of being - I used to be a tech banker in ALEX. BROWN in Asia. And this was the first dotcom era. And sometimes when you have been through that painful process, the aftermath of the dotcom, you tend to disbelieve anything happening around.

Vikram: Due to a bunch of companies public then 2012 -- ‘99.

Rajeev: Yes. 1998 to early 2001 and then it kind of the music stopped.

Vikram: So what’s similar and what’s different?

Rajeev: So I think many elements are similar. And while I am a very chastened person today having learnt a lot, but I do think that some of the dimensions of if you have build it, they will come, curse of capital, which is a phrase I have picked up couple of years ago, are pretty much what you have seen in different parts of the new economy landscape. And I am not saying those are not necessary because I do believe that some of that necessary to create markets. But I think you need to just be careful that using business models and journeys of countries like U.S. and China, very different starting points, very different legacy developments which have helped these economies reach scale and valuation is very tough to replicate.

I think India we have tried to crash almost like 15 - 20 years of history in three years. It happened in ‘99 to 2001 in India. But the interesting thing is online consumption and the consumption of modern services has kept growing. I think it’s just the business model to what do you build and what you avoid and how do you make money eventually. And that’s the other thing I can tell you hasn’t changed. If you asked in me in ‘98 - 2001, how will you money? You know, ho jayega. And between 2014 and at least till two - three years ago, first, let’s build it and therefore you just go and spend money. And sometimes the spending is necessary because you don’t know what’s going to come about.

And if I extrapolate the next 10 years, the space for younger businesses - now I get a little bit - and you have to pardon because of my age, I get a little bit challenged when people just talk fintech. I don’t like the word fintech. I like the philosophy of fintech, but let’s build financial services companies. But the space for financial services companies is enormous. I mean you think about the entire small, medium enterprises, I think you guys have some very exciting businesses. Again, we are lucky to be bankers to them.

You think about merchants where you have Mswipe and we bank them. And those markets are so underserved by the large institutions. And how many large institutions do you have in the country, in the banking space? On one hand. And we are probably on the third hand by size. NBFC every two - three years it becomes a four letter word. I think NBFCs are marvelous companies because they bring focus. They bring access to capital and services for customers who are not yet in the scale zone of large banks.

And we started this journey and I am trying to mix a few things up, so your viewers know.

Vikram: So I am going to put a pin the discussion on fintech, on fin versus tech, and financial services and we’ll come back to that thread. But I want to go back to the original thread on how you discovered fintech religion. And I know that you spent a lot of time thinking through your strategy, learning from everyone else.

Rajeev: So thanks for bringing me back for that, Vikram. But 2013-14, we had this challenge internally. And there was something happening outside. And we had a couple of members on our board who are very very deeply engaged in the tech space. And I have a lot of friends from my earlier journey of actually being a tech banker and running a small tech VC fund. I mean tech is a little overdone word there.

And I reached out to them. And we were prodded along the way saying, guys, just see what’s happening around you. Don’t do anything heroic. But, just go and learn. And it took us about 6 to 12 months of almost two days everyday in Bangalore just meeting VCs and meeting startups, and just hearing things out as to what were these guys trying to do and what was the big agenda they had. And, what were the challenges they were seeing. And I think that started giving us some pieces of a picture which was forming.

And I will probably bring the kind of epiphany we had then to entirely being open to influences, serendipity, and a lot of miles. And I think that gave us some insights that forget the business model, there was a real change in the way customers will approach financial services, businesses will approach financial services. Some of that will be slow. Some of that will be quick. And some of that will need a huge amount of momentum of money, large companies, and some of that will be slow and steady.

I don’t think we got it right the first time. But this ability to actually listen to people, absorb, mull it over, and it was damn confusing to me actually. And then we were lucky because we as a bank built out our technology in 2012-13. So, we had no, what you guys called, the legacy technology debt. And we bought in a very very interesting middleware platform which if you ask me, I figured what an API was finally in the tech world. I knew what an API was in the chemical and pharmaceutical world.

And our tech team said, look, this is way the world is going to do business. And then what does an API mean on your mobile app. And that was the easiest thing to understand. And we figured out that actually what’s happening in the consumer world will ultimately happen in the small business and the large business world. It’s a matter of time.

So we started peddling our on API - very API engines and put it on a developer platform. And that brought us a lot of insight. So this was, to me, evangelizing internally as well as learning externally. And then when we caught on to it and obviously you read a lot. You talk a lot. A lot of consultants come and share with you. And then you assimilate, some you make it out of your own. And then you start implementing, testing. So we learnt also at the same time the learn test experiment, go back and then scale.

Vikram: People often ask me is tech making a dent. And the biggest thing is that bankers are now talking APIs. So fintech has definitely made a dent.

Rajeev: This very humorous because in 2014 and I had taken a script with me from my tech guy and had taken a diagram of what APIs really are and I had taken - because when you sit some of these VCs and young companies I mean you are like a fuddy-duddy banker in a suit, if you drop some of these things, then suddenly eyes light up. So I actually started learning this. And the good news is I never went too techie because I would have lost the conceptual plot. But, it took us a while to convince our own people.

So one of things we started doing in 2014, whatever we are assimilating, we were getting people into talk to our teams, our senior management, our business teams, our product teams, risk teams. And we said, look, we’ll struggle to understand this, but let’s start grappling with it because this is going to be a big driver of our future. I think we were a little bit perturbed because of the enormous money the larger players were pumping into the market and there was this neighbor’s envy. Why is this guy able to do? And you are a young bank and we were being cajoled and coxed to set up a digital-first institution and we didn’t have the money to spend. Our cap structures were not conducive to lose money to create a market. But we said let’s keep learning because one of the things you do recognize having spent 30 odd years in conventional organizations, that business models and strategy and what you intend doing is really a very lon-term game. And India is not going to be make it big and quick and keep it sustained kind of market.

So we said even if we are number 10, number 12, let’s assimilate and learn because we don’t have that money to spend and there was this gut-level conviction that some of this will go horribly wrong. And we don’t want to be there picking up the change which is left from our massive investment. We were investing a lot in conventional things. And I think we started reordering our entire business around tech being a core anchor.

So one of the great learnings to me is not about whether we built a fancy new app or wallet. We couldn’t afford it. But we started looking at tech as reordering our factors of production. So if you look at factors of production, capital, labor, management et cetera, we said tech has to be a larger factor of production. And in some senses when you talk fin and tech, I think in financial services of last two - three years and the next 15 - 20 years, tech is going to play a major role in how you optimize your consumer or business connect, your cost of delivery, your risk management. And sometimes because this is now a very connected world, you can build financial services business in deep partnerships, which by the way is a learning and a philosophy we kept from day one that we are a young bank aspiring to be in the same bracket as the top 7 - 10 banks. We are never going to get there on our own, let’s partner with people who are equally hungry. And this partnership mindset has carried us to me more than technology to this day. And I do believe that consumers and businesses are getting more empowered which will help us connect. So our credit card franchise, our merchant franchise, which you are very well aware of, is totally anchored around partners. We are so comfortable working with them. And more importantly, we respect these partners.

Vikram: So, I want to double click on that because how do you balance this partnership and almost experimentation mindset of spawning some of the new business model, new go-to-market strategies with running a bank which is essentially managing risk?

Rajeev: Yes, so somewhere I think let me be honest, we have had a great management team and second line, third line from day one. That’s being our aspiration, governance, management, capital are three things which frankly whether you are a fintech or a 20-year-old bank will count. So we built enough management. So I could spend my own time thinking about these things. And then rapidly we wanted our entire team to get evangelized. So, today, I would say if you work in RBL and you don’t have a concept of technology, customer centricity design in some element, I am not saying we are there, you perhaps don’t have a future to work in RBL.

I think at the Mancom, our extended leadership, technology is in the same sentence as risk management. And it’s not about technology having an altar where you keep worshiping it every day. But, it’s a big part of how you will build your business, as I mentioned, build scale economies not in a conventional manner, straight through processing risk management. Actually we use more technology in risk management than we do in the consumer experience side. So it took us time. And then suddenly what happens is it’s almost like you build a little snowball, and then keeps accumulating, keeps accumulating, and then there are external influences. And I have to credit Nandan Nilekani for his WhatsApp moment in banking video, which frankly - and we had been seeing the Aadhar journey. In fact, a big part of our business financial inclusion was anchored around Aadhar even though Aadhar had just started. That set the ball rolling and then one after the other. Then you almost are part of the religion. But I do believe that what we have tried to be is being a questioner, a kind of - a not a disbeliever, but always questioning why will this work, why won’t this work, and ensuring that it doesn’t become debilitating for us from a risk management and capital structure perspective.

Vikram: So a part of our business model as venture capital is to go very early and work with founders, but some of these things might not work. But that’s built in to our business model. But some of these things might not work is not built into your business model.

Rajeev: So sometimes it’s fortunate that your construct of being a bank and showing positive ROA leads you to be very frugal in some of these things. I mean we’ve made some of big time errors on credit which was - I mean they are big time for us. They may not be big time relative to market. So let me share with you a business we started in early ‘11. And it’s a business which no private bank took up. It was microfinance. And there were many microfinance entities then. And we felt pretty much that if you take a 10-year view what are the trends? Increasing mobility at all levels, increasing infrastructure, power, roads, transportation, aspiration, knowledge. What happened in the housing market starting the mid 90s because you had - and I love this phrase of the late Dhirubhai Ambani’s, in India supply creates demand.

So we said, look, all of these things and then Aadhar was announced in 2009, we said like in a 10-year journey all of these will converge. And what you guys call the - love this phrase combinatorial, exponential etc etc, everything is converging. So we said, yes, in 10 years everything is converging. And we don’t know what we will play, but let’s start small. So we started very tiny. And we used our existing branch network to test financial inclusion.

So we went - now I know what the word to say is pivot, so we pivoted our model twice.

Vikram: You have really…

Rajeev: Sometimes it’s easy to explain these things…

Vikram: Use startup lingo.

Rajeev: …because you guys have some interesting phraseology which helps us digest our experiences too.

Vikram: So the large bank pivoting, yes.

Rajeev: No, we pivoted to that business. I can tell you that we have pivoted again post demonetization. And there I want to suggest a word of caution for some of the fintechs who actually have played to a playbook of unfettered rights to do business in India in financial services.

I think the cost of regulation and the increasing compliance requirements have not been factored into the speed, scale, and the quality of teams. And I think that will slowdown many people. As you have seen in the payment space and the merchant space through the debit card, I think a lot of that will come in the NBFC space down the road.

But back to where we were, so we said we will only spend this much because we can’t afford it. And the learnings of those two and half years, by the way today we talk about 200 - 300 crores a month, it took us two and half years to reach 100 crores of portfolio. Other banks - other MFs were at 1000 - 1500. And you know what we did? We lent money to MFIs and they were hungry for capital. They were happy to explain to us how this worked. And it was great for both of us. And then its scale started showing promise, then we scaled it up. And de-mon was a big dent. And a business model change was warranted because your customers were more aware.

So interestingly in a seven-year journey, I would say we have build a successful profitable still growing at 45 - 50% with a potential market-leading position which you would to invest at eight price to book, Vikram.

Vikram: And you keep advising me not to do these high priced deals.

Rajeev: But I am sitting here, I might as well tell you that if you had a chance to invest.

Vikram: Thanks so much for taking us through that journey of the internal workings of RBL and through pivots and through discovering tech as core and becoming really a fintech partner. I want to go this debate that we have had is fintech more fin than tech. You mentioned more - it’s just financial services. Everybody is going to be doing about the same thing. And I want to put some biases on the table.

For me, so far, I have preferred working with people who are more fin at least in terms of a mindset, they might be coming from the tech world, but understand risk, understand collections, under balance sheet, are thinking about building both businesses as well as teams incorporating the financial services ethos into their company. When you guys evaluate partners, how do you think about it? What is advice for fintech founders now?

Rajeev: Yes. So I 100% agree with you. And I think as I mentioned early that India is a very interesting market that the revenue width of most of businesses is very narrow. You need to add many more services to make that relevant. And sometimes, the steroid of excess capital can lead you astray. What you need to do is, in my view a very simplistic, I mean had a 10 - 15 year vision when we started with Ratnakar because we said in 10 - 15 years we can build a bank, but we can’t build a bank in 3 - 5 years.

So if you give yourselves enough time - and that’s where people like you as early stage investors also have to reconcile your investing cycles with business building cycles. And I am not saying you guys are not doing a great job. And many people like yourself are doing a very good job. But I do think that especially when you are focused on financial services, which in my view in a country like India will always have this umbrella or the rigor requirements or the compliance requirements and they will keep becoming tougher because we are not a country with for 50 years of a fantastic financial services system or a quasi-oligopoly like China which was mandated. You have smart private sector banks and you have a very very very watchful regulator.

So I think if you incorporate that in your DNA on day one, and you see that this is a 10-year business. And I am actually of a very very firm opinion that you will see some fabulous businesses being built hopefully in some of companies you invested in in financial services because at a deep down our structure of suppliers is very challenged. I mean the reason we are successful even partially as RBL is because you don’t have 20 banks like HDFC or Kotaks around. If you had them, we may not have been as successful.

And if you go back 25 years, the start of HDFC, Axis, ICICI, the reason they are successful with such a short lineage versus many old private sector banks, which have had 80, 90, 100 years, is because the system had many many gaps. And they were smart about it. So just to let you know the first set of private sector banks actually used tech to connect their branches called core banking system which is really now table stakes. I mean every bank became a core banking by early 2000, but they started. And then net banking in early 2000. Then mobile app was in 2010. So banking has had its tech moments too, but everybody gets it eventually. So, I do think that if you build it and you have to imagine it backwards. Where would you be 10 years now? What is the business construct you have? How many people you need to be? And one of things I do believe which has changed between let’s say before the time we came in into Ratnakar and now is that obviously consumption through phone, data, analytics are playing a larger role than they did ever in a financial services world.

It has two implications - actually three. One is your ability to acquire customers, sustain them, see their behavior much like what you do in consumer tech - consumer services becomes interesting and relevant. Second, your cost of processing because if the customer self-selects and self-services, your cost of operations drop dramatically. And we were using Aadhar to build out a savings account base, our cost dropped by 70 - 80%, which means I can afford a lot more average savings accounts than I can afford on a branch. And there is a bigger story behind it. We will talk some other day. And the third element is risk management.

So today when I see fintech lenders just relying on data, nothing wrong in that. And you should have that as a center piece of your thinking because data availability in five years time will be a lot more. GST is coming along. There will be more coverage on the GST. But is GST the only way or is it necessary and sufficient? No. You will still need people if you are lending large sums of money. If you are lending small sums of money even then because I think consumer behavior, business behavior changes with the availability of capital at least that’s the first round of reflexivity.

So consumers, small value payments for taxies and Swiggy and all, you do a transaction, you forget about it. You don’t really bother about it. And those have been induced through…

Vikram: Fair enough. So firmly on risk collections…

Rajeev: And compliance. You had wanted to talk about what advice would you have. So, yes, good I hear you. You’ll need to build collection, compliance, risk.

Vikram: Thanks Rajeev for the time and the candid conversation. Lot to learn from and some views that we scribe to as well.

I am recapping some of these here. First, banks are fintech, probably more fintech than we give them credit for. Great to see the introspection and the learning mindset, and frankly the openness to contra-views. Second, hi-tech, hi-touch or phygital which physical and digital is the way to scale and especially given the Indian context.

Salonie: Thank you for listening. And you can find the transcribed version of this podcast on You can also follow us on Twitter and LinkedIn for more updates.

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