Tailored financial products aren’t just for millionaires or the up-and-coming middle class, says Kaleidofin co-founder Puneet Gupta.
By Joseph Dana | June 4, 2018
When you speak with Puneet Gupta about financial inclusion in India, prepare for a masterclass. Gupta’s nearly two decades of experience is quickly evident as he walks you through the complexities of the dynamic sector. His latest venture in fintech is a Chennai-based startup called Kaleidofin, which focuses on financial services for low-wage earners.
Unlike other financial inclusion startups, Kaleidofin is focused on solutions beyond loans. As Gupta tells in the origin story, he became disillusioned in the industry because of the singular focus on loans. Too many companies lacked comprehensive solutions that mixed loans, investments, savings, and insurance products in a bespoke manner for the individual customer.
From that starting point, Gupta and his co-founder Sucharita Mukherjee set out last year to build a company offering an array of financial products for India’s burgeoning customer base in the informal sector, or the part of the economy that isn’t taxed or overseen by the government. With the proliferation of cheap smartphones, fly-by-night companies have started to target low-wage earners with predatory lending schemes mostly focused on credit. Kaleidofin, which received $2.8m in seed funding led by Omidyar Network in 2018, approaches things in a refreshing new way. Instead of focusing on quick credit, the startup offers everything from basic insurance to investment services – a complete solution for low-wage earners.
“How do we ensure the customer can relate financial services and solutions to their real goals? That’s the starting point of what we do,” Gupta said. “We create a curated bundle of services that works for the customer. A typical solution is a combination of investment, some basic savings, different kinds of insurance products, and a liquidity line all enmeshed into a single solution. We don’t offer single products to customers at all.”
Surprisingly, few other companies are offering similarly comprehensive packages. “Right now, we don’t have any direct competitors,” Gupta told me. “We have a few indirect competitors. We are competing with people who are offering single solutions to customers. The opportunity that we are pursuing is to see if we can work with them as distribution partners and if they could incorporate such a solutions approach to their existing services, so we can all service the customer better.”
Listening to customers who previously had no voice
As Gupta described his product offering, I was struck by the human element at the core of his company. Smartphones, digital identification, and the internet enable his services to flourish, but what’s unique to Kaleidofin is the ability to tailor complete financial service solutions to individual customer needs.
“When you ask most people what their goals are, they typically give you a complex answer or sometimes they will not give you a straight answer at all,” Gupta noted. “So the first step for us is goal profiling. We have to temper their [the customer’s] goals with their current state in life. For example, school fees are a critical factor in a customer’s life and for low-wage earners school fees can be a huge burden and an important milestone. We identify milestones such as school fees in this situation and build out a profile of the customer based on their financial vulnerability and asses how much they can realistically save for the future.”
Sounds like a good life coach, right? There’s more to it. Once the goals are identified, Kaleidofin builds an algorithm to determine the customer’s risk and the type of products the company can offer.
“But then it gets to the next part of the challenge, which is to say if the customer is saving for their daughter’s education, there are other things that can derail the customer,” Gupta continued, outlining how his company operates. “Something could happen to the breadwinner in the family, there could be death or a disability in the family, and then savings goals could be challenged by issues such as ill health and catastrophe. We take these factors into account and offer several insurance solutions to protect the loan.The exact bundle of services we offer is designed by an algorithm that factors in the type of goal and level of risk to determine what we can offer a customer. The customers don’t directly pay for such insurance covers.”
Focus on the informal sector
Facilitating financial services for informal workers has never been easy anywhere in the world but that hasn’t stopped Kaleidofin from focusing on the sector. Gupta explained the company’s approach:
“Many informal sector customers have very high volatility in their expenses and incomes. So there are times when customers will not make any money at all, and sometimes this will also be correlated with higher expenditure. For example, an informal construction worker might not have work during the monsoon season. The customer’s income will be even more volatile because of the combination of income and expense volatility.”
Kaleidofin’s solution is to offer temporary loans for customers who experience high income volatility. The overall solution is a combination of investment products, bundled insurance, and the liquidity of a loan overdraw secured by these investments. Given that this is an investment the customer is making partly in equity, the company also gets them to co-invest a small amount of money in a debt solution, which gives them the option to cash out up to two and a half months of expenditure based on their particular demographics and requirements.
How government decisions impact financial inclusion
Anyone vaguely familiar with India will know the country is in the midst of a profound transformation when it comes to data, identification, and government services. If access to a bank account is the gateway to a host of other financial products, then accessing a mobile bank account will expose new customers to new technologies. This will open a market for additional services, applications, and platforms. In India, where PwC reports 233m people lack a bank account, the government has linked financial inclusion efforts to an ambitious digital identification program known as Aadhaar.
The Indian government is working on a multi-pronged approach that could link Aadhar biometric IDs with simplified and digital payments. The result of this strategy, dubbed the India Stack, will be a streamlined system of money management that will allow for digital welfare dispersal, digital medical records, and the foundation of a cashless society. The India Stack centers on a series of open-source application programming interfaces that allow governments, developers, businesses, and startups to use digital infrastructure to transform India into a paperless and cashless society.
For startups like Kaleidofin, the India Stack is a game changer with the potential to revolutionize the way financial services are offered. Documentation that earlier needed to be carried out on paper can now be done electronically; a customer can sign and submit forms from anywhere and issue direct debit instructions to make payments from remote parts of the country. Kaleidofin’s business model is proof positive that the India Stack has already started to transform the financial inclusion sector. The question remains which other startups will attempt to build on the platform to create products for the new class of customer coming online in India.