Prime Venture Partners Podcast

India Fintech 3.0 - UPI, Lending, Compliance, GenAI with Srikanth Rajagopalan, Anshul Rai & Sanjay Swamy

• Prime Venture Partners: Early Stage VC Fund • Season 1 • Episode 144

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Introducing Prime’s special series on ‘Fintech in India - Past, Present and the Future’. This is the 3rd episode titled ‘India Fintech 3.0 - UPI, Lending, Compliance, GenAI’ in a 3 part series.

In this special series of episodes, Sanjay Swamy, our Managing Partner speaks with industry stalwarts Srikanth Rajagopalan and Anshul Rai. Srikanth is currently the CEO of Perfios Account Aggregation (AA), an off-shoot from the Perfios legacy. Anshul is the Co-Founder and ex CEO of Happay, his claim to fame is Happay’s celebrated exit to CRED for $180M. 

In this episode the three fintech stalwarts chat about the impact of UPI’s 10-12 Billion transactions per month, the India Data Privacy Act, compliance for Fintech startups and the potential opportunities and impact with AI taking over. A special bonus tip is on the RBI Sandbox and its features that will benefit every Fintech entrepreneur in India today. 

0:00 - Gaps/Opportunities for Future Fintech Entrepreneurs

10:42 - Global Expansion Strategies and Data Privacy

14:36 - When should Fintech startups think of Compliance?

23:42 - Regulations, RBI, Sandbox

29:26 - Favorite Movies, Sports Person & Conclusion



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Sanjay Swamy:

Indian companies selling in the fintech space to international customers.

Srikanth Rajagopalan:

I mean the biggest moat is staying out of jail.

Anshul Rai:

Every successful founder has gone to jail at least once.

Sanjay Swamy:

Governance and compliance being so overbearing that you can't build the product in the first place.

Srikanth Rajagopalan:

We had to be compliant and to the standards of an HDFC bank, for example.

Anshul Rai:

You have to think compliance day zero If you are in the space, and that's the cost of doing business.

Srikanth Rajagopalan:

Month we are going through at least four or six audits done by our clients. People who survive will be the winners in the long term you guys are directly doing this.

Sanjay Swamy:

You know we have invested in several companies and the big second wave of fintech financial services came about with credit right. So we think about the first 10-15 years, which was largely dominated by payments, and obviously UPI, which we didn't touch upon but has just been a phenomenal success for the country as a whole. You know 10-12 billion transactions per month, continuous growth in terms of volume acceptance. I haven't been to an ATM machine in, I think, five years now. Right, I think, post demonetization, I don't even recognize the currency notes of India anymore because I don't even know what the denominations are. And everywhere from you go, park your car and somebody has to, you need to pay a tip. They're generally happier accepting UPI because you probably tip higher than what you would have otherwise.

Sanjay Swamy:

So it has been transformative for several of us. And of course we've had Bharat, billpay and Fastag and things like that which are now integrated in the malls. You don't even have to go and even in the mall it just builds your Fastag. So we've kind of leapfrogged a lot of the developed countries on this, this one front. And I think that data exhaust and the fact that everybody has got a digital ID and a smartphone, has kind of led to the ability to create various forms of lending, whether it is, you know, bnpl uh, that you know at amazon you guys had launched in the checkout process.

Sanjay Swamy:

Whether it is b2b, you know credit. Whether it is, uh, of course, unsecured you know secured lending, all of these things for SMEs to consumers and so on. So, but you know India, still today we say that there is like a $500 billion odd credit gap. That's there in India, right, and that gap only continues to grow because people are getting more and more, perhaps, digital and aspirational, and yet access to credit is still fairly tightly controlled and a regulator, rightly, is sort of putting more and more rails around it. So how have you all seen this big boom that has happened, right, and, to some extent, what are some of the gaps at a product level that you know entrepreneurs should be thinking about? To dive into Anshul, do you want to take a first cut at it?

Anshul Rai:

Yeah, sure. So I think, uh, uh, I'll talk more from a b2b perspective uh, I think the the gap is primarily in the SME segment, right? Uh, sme segment is the segment which is not very well served. Uh, uh, I think they're from the demand that they have. If, if I remember the numbers right, they have like a 500 600 billion dollar credit requirement, out of which only 250 billion dollar is met, right, so, so the massive credit gap.

Anshul Rai:

But the problem with the SME segment continues to remain that it's a smaller ticket size, so you can't really do like a 5 crore loan to SME, right? So smaller ticket size essentially means that the lower revenue and unless until you have solved the cost of acquisition and underwriting to a fairly large extent, and it is all product led and digital in nature, you can't serve this demand and you can't, and it will continue to remain unserved and you can't, it will continue to remain unserved. But I think, for all the digital infrastructure or the public infrastructure that is now our country is putting in place, right, with A's coming in, with BBPS and invoice flows with e-invoice, I think this is going to change massively right.

Anshul Rai:

I think this is going to change massively right and I strongly believe that there is a large opportunity for a product-led, sme-focused digital lending company which uses all the public infra now available to digitally underwrite the SME instantly, give a credit line and then solve that gap right, which is, I strongly believe that you know, very hard for banks to do it right, like their DNA is not tech right and, of course, the tech service providers will try to solve that gap. But the problem I strongly believe the problem with the tech service providers is that they don't. They have their ear on the ground. They are not talking to most of the customers directly, so there is a big gap. You know the banks listen to them, of course. Then they translate it to the tech service provider.

Anshul Rai:

Saying you this is what I need usually does not match. The iterations are slow, things are. The bank is looking at. Then if I ask for a small change, a new invoice is gonna come right. So that's why I strongly believe that, instead of the banks, probably a some new age fintech will probably have a better shot at solving this problem. I think that's a good opportunity in the lending space I believe is still untapped and unsolved.

Sanjay Swamy:

Yeah, and I think obviously we'll bring in a little bit discussion on the regulatory thought process also in a bit. But this debate has started happening now more openly, which is even the fintechs. You know, are you fin or are you tech? You know Bhavant Turak has been tweeting about it, others have been talking. We've been discussing this over several years also.

Sanjay Swamy:

I mean, I used to say financial services versus fintech, but broadly, the separation of are you the customer facing service provider that is going to be backing them with the loan, or are you the technology vendor? Your commercial model might be, you know, revenue share or whatever to the regulated entity, right, whether it's a bank or an NBFC. And I think these are two different and distinct opportunities. Both could be quite interesting.

Sanjay Swamy:

One thing I think that's different in the whole lending space is, unlike payments, these are not winner takes all opportunities, right. So the fact that somebody has solved a problem and is a successful lender does not mean that another company cannot start and solve exactly the same problem, probably a little better, maybe in a different geographic region, targeting a different sub-segment of the customer base, etc. So I think lending to me is kind of like this Akshay Patra right, it's this gift that keeps on giving from an opportunity perspective, and it's up to entrepreneurs to do that. I think what is becoming clearer is, if you want to be the customer touchpoint, it's at some point, and ideally sooner rather than later. It's important to get regulated.

Anshul Rai:

Yeah, yeah.

Sanjay Swamy:

Right. I think that has become sort of a clear thing Now how you get regulated, you know, is it an NBFC license? Is it in, you know, working within partnership with somebody who has a license? These are still challenges, I think, because it's still a little bit of a gray box in terms of how these licenses are evaluated and awarded. But hopefully there'll be more clarity on that from the regulator as well as it becomes. You know, Because on the one hand everybody wants to see the progress, on the other hand, if you're going to control it, then it'll be good to have a clarity.

Sanjay Swamy:

In fact, one of our companies, Dozee in the healthcare space, got FDA fight and care approved and I studied that process a little bit. Fda's process actually has got a 120-day honest commitment. So you apply for a license, they start evaluating the license for a license. They start evaluating the license, your application At day 63, they may come back and say here are 70 questions we've got, and then they pause their clock like you can think of a chess grandmaster. Now you might take two years to answer those questions, but when you're done you come back to them. The 63-day clock starts again Right now, on day 119, they may come back to you with another 400 questions and you submit it the next day. They might just reject the application. That's a possibility, but at least there is a sense that you know if you have your ducks in a row. There is a finite time frame in which you'll get a confirmation.

Sanjay Swamy:

I wish we would have similar processes here in india, especially with the, with the regulator, um, but I think you know we'll get there right at some point. So lending to me always feels like look, we have such a credit star market. I can't think of any, you know. I can't think of a handful of entities that are going to serve as this 530 billion dollar gap, which by that time will probably be a trillion dollar gap by the time we even get there. So I think there is going to be continuous opportunity, but it's also one where it's not like a get rich fast scheme.

Sanjay Swamy:

You have to play within the rules. You have to take your 15 years to to build this business. You're just you. You cannot drive on the shoulder of the road. You have to drive on the road and drive within the lanes, and I think for entrepreneurs are willing to do that. I think there is still phenomenal opportunity because the profit pools are huge, right, and I think that that's a big thing in India. I'll switch gears a little and maybe, shrikant, you can talk a little bit about the whole internationalization of the opportunity as well. Right, you guys are one of the few companies that has also gone and sold internationally. I know we had done some experiments in Happay, but of course the company exited by the time. So tell us your experiences about Indian companies selling in the fintech space to international customers.

Srikanth Rajagopalan:

Okay, so I think what we've learned as we went international is we started the typical product way right there countries where there is a similar problem of data being in all different places, the need to aggregate it and classify it and bring it together in one form and manner. That actually was the easy part, right. Even in some of these Middle East countries where the bank statements are in Arabic, the product worked right. What we figured out and what we learned through experience was that you need very strong local partnerships for two reasons Partners who understand the regulatory environment there and are able to guide you in a way that is compliant and also meets the regulator's requirements and, of course, has a lot of go-to-market advantages. One of the biggest costs that you realize when you go to a different market with a b2b SaaS product is really GTM.

Srikanth Rajagopalan:

In our experience, we invested in an international team about three to four years back. That team has grown significantly and we're seeing significant revenue starting now. Right, so there is anyway a three to four year lead time between the time that you say yes, I want to press the button on international and then you find the right team, the right partnerships, the right kind of you know product partnerships, revenues come, you know, three to four years down the line. So if somebody is going international, the first word of advice I would have is have a lot of patience. Choose your adjacent markets well and get the right partnerships in place.

Sanjay Swamy:

And in terms of monetizability, right? I mean, of course, there are several countries where India we are blessed with the software talent and the scale that we've been able to bring these products to be really robust. How should one think? I mean, yes, the number of customers is probably fewer and there is a lead time to get started, but after that, does it go well? Does it scale up? Is it worth it, right from an investment perspective, in terms of, you know, on an ARPU basis?

Srikanth Rajagopalan:

Oh, definitely. I mean the arithmetic works out both from an ARPU perspective and the roadmap to growing that adoption. I mean you start, I mean typically you start with one or two products per customer and then build from there and deepen further and further into the workflow. So the trick really is, once you've acquired a customer and this is really, I mean, this is like basics, right. I mean, once you've acquired a customer, enterprise customer can you sell in three, four, five products for that customer so that you monetize your CAC far better, right?

Srikanth Rajagopalan:

So I think the game in markets where there are fewer customers than what we're typically used to in India is to deepen, is to go deeper and deeper and find use cases that you never imagined would have existed. And that goes back to the point of know, trying and finding the right, right partners who can be in the customer's face, you know, week in and week out, and make this happen. So, yes, absolutely, from investment thesis perspective, definitely worth it, provided the right, you know, product outlook, the gtm and patience so I'll uh, maybe a couple more topics.

Sanjay Swamy:

You know we can keep going on and on, but there's uh, you know, I think this will be a couple of good things to cover.

Sanjay Swamy:

Uh, maybe I'll start first with you talk about this whole data privacy act and maybe I'm sure you can give some closing thoughts on the role of ai and artificial intelligence and fintech and you know some of the things coming up. So, uh, you know data I, you're in the data business or you're certainly managing a lot of data for your enterprise customers who have their customers. And India has, of course, now come out with the Data Privacy Act and you know it's going to have I mean, you are sort of going to have two, maybe three regulators, right, I mean, as the company scales will also potentially have a public listing and you know companies have to prepare from that perspective. Of course, all your customers are probably regulated by the Reserve Bank or the equivalent RBI equivalent in other geographies. You have to help them with that.

Sanjay Swamy:

And then, overall, you know data privacy in various shapes. India has its act, but others in the GDPR. They have European customers and so on. So, from a technology infrastructure company perspective, when does all of that start to start thinking about all of these? Because you can't have governance and compliance being so overbearing that you can't build the product in the first place, because that's what a nimble, free-footed startup is supposed to do. So, for entrepreneurs who are listening in, maybe from your experiences the Perfure's journey. You can share some insights here.

Srikanth Rajagopalan:

It's actually a great question in terms of what you put first right, whether by design or by accident, the fact that we were serving the SBI'sFCs and barrages of the world. That automatically raised the bar for us on compliance and data security and data destruction. You could go into 20 different rabbit holes on that one, but the underlying theme for us was day one we had to be compliant, and to the standards of an HDFC bank, for example, and all the banks that we deal with have some of the highest standards and requirements of vendors in passing the sniff test on data security, separation of data systems, I mean when you serve about 80 or 100 clients in the country itself. Just keeping that data separate itself is its own, you know, design and architectural challenge, and this is a continuous process. Every month we are going through at least four or six audits done by our clients as part of their systems audit and part of their compliance audit. So I think in hindsight, we've been blessed that we started with that mindset, saying compliance first and make sure that your clients, who depend on you, are able to able to meet their regulatory standards while still working with you. In hindsight, that has actually, you know, solved a lot of problems for us and made us future ready. But, having said that, it's not a solved problem. It's no way a static problem.

Srikanth Rajagopalan:

One of the things that the DP-DPA draws a clean line between is a fiduciary and a processor. Right, if you're a bank and forget bank, if you're a business who determines what data is collected, how it is processed and how it's going to be stored, then you're the fiduciary In our example it is a bank or an NBS. But if you're a processor or a TSP in the parlance, a technology service provider who processes this data on the clear instructions and contracts and you know safeguards with the client, then you're a processor. The DPDP applies directly to the fiduciary and it's a fiduciary's job to make sure that their downstream TSP agreements or processor agreements are in line with it, right? So if you're starting a business today which is going to serve enterprise or even mid-market financial services customers, I think the day to start they to start thinking about compliance was yesterday.

Srikanth Rajagopalan:

Today we'll have to do yeah right and I don't and I don't mean this facetiously, because if you look at some of the signals that we're getting over the last few months, the message from the regulators is very clear that we absolutely want the market to expand and innovate, but do so in a way that doesn't jeopardize a customer or the financial stability of the ecosystem, because that would be a very, very poor outcome a customer or the financial stability of the ecosystem, because that would be a very, very poor outcome. So I think let's learn from mistakes that we made in the past, either in exuberance or in maybe people didn't know, like to your point that we later realized, two days before launch, that we had regulated businesses.

Sanjay Swamy:

I think those accidents it's better than two days after launch for this. There you go.

Srikanth Rajagopalan:

So from an investor perspective, I think what you will want to look out for is this will have a kind of a Darwinian impact on people in the industry. The cost of compliance is going to go up, definitely, but what that will mean is that people who survive will be the winners in the long term. There will be a natural attrition of people who either don't have or don't want to invest that much into staying compliant and building these systems. So I think the net outcome is going to be positive.

Sanjay Swamy:

Super. I think that will also create opportunities, so I think the answer is day zero, sanjay.

Anshul Rai:

I think that will also create opportunities. So I think the answer is day zero, sanjay. I think you have to think compliance day zero If you are in the space, and that's the cost of doing business, because, unfortunately, whether you serve to the bank as a TSP or basically you are whether a tech, fin or fintech to your context, so it doesn't matter the compliance has to be there on day zero. You literally can't tell the regulator or a bank partner or anyone saying you know, let the volume scale and then we'll figure out the compliances.

Sanjay Swamy:

I think I generally look at regulation always and say, look, regulations are black and white. If it's not stated, it's black. So this example of using a prepaid car to lend on it, for example, that's an example of you know it's called a prepaid card for a reason.

Srikanth Rajagopalan:

For a reason.

Sanjay Swamy:

Just because it doesn't say you can't lend on, it doesn't mean you could, right, and I think that is where some companies unfortunately got caught on the wrong side of the quote-unquote gray area, right, whereas if you take the ultra conservative approach now, sometimes you can get left behind, and I think that is a risk that startups will will have, but it's not a formula for success for sure, right, and I think one needs to be always sort of vigilant on that, and that is that is also what creates the moats for the startup is yeah, absolutely.

Srikanth Rajagopalan:

I mean on a lighter vein. I mean the biggest moat is staying out of jail.

Sanjay Swamy:

Well, the jail can be a moat in itself. You go to Alcatraz.

Anshul Rai:

Balavans told me that every successful founder has gone to jail at least once.

Sanjay Swamy:

So if you've, gone to jail, then I think that's a good thing we don't have any founders like that here. So, um, until the, I think, last big topic maybe to discuss and you know, given your uh tech roots in particular, so much is happening in the ai space, particularly the last 12, 18 months, on the whole gen ai side of things and from a fintech financial services space, where you know you have to be fair to your customer, a lot of ethical issues also that come about in terms of granting, you know, underwriting, a loan and stuff. So I I've generally looked and said, look, anything in the scaffolding which is around customer service, around this, around that, I think a lot can be done and you know that's sort of the, the low-hanging fruit, uh, but anything that's in the core of this is still, I think, juries out as to when you know one can, and there's probably regulatory questions that will come up.

Sanjay Swamy:

So you know, what are you seeing, what is exciting? You you about the recent trends in AI and where do you see opportunities here?

Anshul Rai:

One thing that I think could work in the PFM space. Right, for example, if I have, let's say, invested in a certain type of stocks, right, and you would not have time really to understand their earnings, call any news that is out there in the market for your portfolio that could impact any new policy change. Right, uh, could there be a product that would actually summarize the earnings? Call the any news, new news that has come which could impact my portfolio or any new policy change, and create?

Anshul Rai:

a very summarized version and give it to me uh to read for me to understand how it will potentially impact my portfolio? Should I take I'm not sure of now going a step further to suggest whether you should basically exit from this position or continue to hold that? I'm not sure whether the current set of AI would help, but definitely it would help you to consume all that massive data or massive content which is related to your existing set of investments. I think that would be exciting.

Sanjay Swamy:

In my opinion, Talking about exiting positions. I'm just kidding so for the audience. Hape is one of our first born investments and a really happy outcome out of happy pun intended with the exit to CRED, and we're still part shareholders now in CRED. So, coming back to maybe a few, you know closing questions, closing thoughts right in terms of where you see like real opportunities these days. You know, if it was one thing you would tell an entrepreneur you know from your lessons perhaps you can start with that. You know what would be your one message to them, be other than saying go to prime for funding one lesson that I have.

Anshul Rai:

I would definitely said look, if you are operating in a regulated space, you better be the regulated entity yourself, instead of sitting on the fence and said, look, I will partner, you know, and not be the regulated entity myself. I'd say I think regulator has very clearly shown their intent saying you know, if you really want to scale any financial services business, you better come and get regulated. There's a risk to it, also from an industry perspective, that if the regulator is not fast enough in giving these licenses, then a lot of innovation will get impacted. Right, and the industry, the way the, the whole industry has grown over the last I would say 10 years or so right, and the rate of innovation will go down drastically.

Sanjay Swamy:

But I would definitely say someone in operating in the financial services space right, you please figure out the regulations first and what is the model that is kosher with the regulator, instead of just jumping right into it small variation I have on that is, while all that has to be done, you may get started through partnerships, but be very clear from the beginning and in fact put in the application of the regulator so that the regulator also is comforted that, okay, you intend to get regulated right.

Anshul Rai:

So that that would be sort of a variation yeah, I think if you're thinking, so that you don't lose time sure, if you're thinking on day zero, right, I think you know there is always a path to reach to that right, but I think you must think about that on day zero for sure, in my opinion.

Srikanth Rajagopalan:

Just add to that, you should look at the rba website and look at specifically what is called a sandbox environment. Yeah, actively. This is the second or the third cohort the RBI has opened up. Applications are open till, I think, 6th of April. I might have the dates wrong, but if you're an entrepreneur, you want to get started in the regulated space and you don't know yet where the limits are on the regulation. Go and put your hand up for that sandbox environment. The version one was a trial, even for the RBI. Their feedback was there is a lot of innovation that's happening that is going under the radar that we should actually benefit from. Let us ring fence the risk from any non-compliance in the sandbox environment, put these things in place and then let you become a regulated entity. So there is not just a partnership but also a quasi-regulated way to get started, just to validate your business and you know uh, you know be on the right side of the regulator great, uh any any other.

Sanjay Swamy:

You know message from your side. You're building on on shows.

Srikanth Rajagopalan:

My simplest request or advice to startup founders learn to sell. It's a learnable skill. Just learn to sell. You might be the best techie, the best product guy on the planet. That's necessary, not sufficient. Learn to sell.

Sanjay Swamy:

Terrific, terrific. So maybe one last round of some rapid fire questions, starting with you, shikant, you know favorite, I guess favorite book.

Srikanth Rajagopalan:

Ah, how many of them. But the most recent one that I read that I really took away a lot was this book by Atomic Habits Brilliant book, it's, like you know, just opened this thing and the sequel to that is a book called Hidden Potential Just recently came out. Totally enjoyed reading it.

Anshul Rai:

Anshul, mine is a hard thing, about hard things, I think I.

Sanjay Swamy:

You're working for punishment. Mine is a hard thing about hard things.

Anshul Rai:

I think I is. I think, uh, when you read after a journey and read how and you are able to relate with that a lot, right, and then how, uh, and then you realize that you are not alone, right, like every founder goes through some really hard stuff in their entire journey. I think this is really my favourite one.

Sanjay Swamy:

Suffering has many friends. Any favourite cricketer? You used to be a big cricket fan earlier on.

Anshul Rai:

I love Virat Kohli. I think the aggression and commitment to the game is beautiful.

Sanjay Swamy:

Extraordinary role model. I have my views around him, but certainly as a cricketer he's just off the charts extraordinarily. How about you?

Srikanth Rajagopalan:

Favourite cricketer, or can I expand it to favourite sport? Lewis Hamilton, a guy who came with zero privileges, no base to start with. His father was holding down three jobs to put him through the paces as a motorsport racer. It's a very expensive sport and just through his hard work and his talent he's reached where he is. It's usually I mean Formula One. If you follow the sport is a rich white man's sport. It's the one guy who's broken through.

Sanjay Swamy:

Privileged yeah.

Srikanth Rajagopalan:

Born in privileged households, I guess.

Sanjay Swamy:

Right, that's the story. And then favorite movie most inspiring movie. What movie would you take your team to?

Srikanth Rajagopalan:

I don't know. I think we'll make our own movie.

Sanjay Swamy:

Awesome Anshul.

Anshul Rai:

I'm not really a movie buff. I don't watch so many movies.

Srikanth Rajagopalan:

But if you force the answer personally, Diwar Diwar, Very old, very this thing, but what a movie.

Sanjay Swamy:

I think the movie that's an all-time favorite at prime from a work perspective is Moneyball firm believers. I think you know there's a lot of potential in people that can be uncovered and you know we love founders who you know have not yet been sort of, you know, not yet realized their full potential for everyone to know, and that's where we see the opportunity.

Sanjay Swamy:

Nice, great Shrikant and Anshul, thank you so much. It's been wonderful having you on the show. I'm sure our audience will have a lot of interesting and deep insights to take away from it and for the audience we'd love to hear your insights, your takeaways and any comments we can for next time.

Prime Venture Partners:

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