We had the opportunity to host P.K. Khaithan, CEO of one of our portfolio companies, NeoGrowth. During his visit, Jackson and P.K. sat down to discuss how to maintain the personal touch while using tech to scale up.
Here at Quona, we believe in combining big ideas to create value. This includes combining finance and technology, east and west, impact and investing. As an individual, you typify these connections. Your previous start-up became the status quo for payments in India, yet you are back again as an entrepreneur trying to disrupt a new market. In what way might your experience with NeoGrowth match these disparate ideas together?
In terms of marrying ideas, we describe NeoGrowth as a tech & touch business. We’ve certainly come across businesses in our space which are all tech – lending companies who claim it’s all done instantly, that, “we don’t even need to know who the customer is; we don’t need to meet her, talk to her.” That’s not NeoGrowth. For us, tech is important, especially when it comes to customer acquisition, underwriting, and portfolio management. Tech is at the core of everything we do. But having said that, the touch is really important as well. For NeoGrowth to know the customer, for the customer to know NeoGrowth – to lay the foundation of a partnership and of a relationship that can go a long way is crucial to us. So to that extent, what Quona stands for and what NeoGrowth aspires to do are very closely aligned.
Something we talk about a lot is the fact that our companies are fintech startups innovating around certain shortcomings, whether in infrastructure or connectivity environments – and yet they are innovating through touch. How do you see NeoGrowth fitting into this “disruption via touch” model?
Our customers are small businesses, typically mom-and-pop establishments, convenience stores, pharmacies etc. Touch matters a lot to them. In fact, one of the things we hear from them on a regular basis is, “Why are you the only guys who come and talk to us? Nobody else seems to have time for us.” So we realize that no matter how serious [the merchants] are as business people or how important it is for them to make money, a touch and a relationship is very, very important.
Now, why do we focus so much on touch? Well, it’s a new product, it’s a new concept, and we want to be sure customers understand it completely and derive confidence from knowing who we are. I remember when we were doing our last round of equity investment, one of the investors who went to meet merchants asked a small shopkeeper, “So why did you take a loan from NeoGrowth?” He responded, pointing to our loan officer, “I took it because of this guy! He came to my shop, sat with me and explained everything – that made all the difference.” So NeoGrowth is still old school as far as touch goes. What we’re trying to do is to ensure that we can still build scale. At scale, we will need to leverage technology in order to make decisions using massive amounts of data and make them very fast.
On the topic of scaling the model, we’ve seen that, in SME lending, touch inherently doesn’t scale as well as technology. Do you envision a NeoGrowth in 10 years that has the same levels of touch as today?
The unit economics of this business, customer acquisition, are always challenging. What we find is that small loans, from $4-5k up to $10-12k, are very expensive in a touch model. But the moment you cross that threshold, then you can afford to invest in touch. So what we’re actually doing, as we speak, is building technology that enables us to automate a large portion of the processing for the smaller loans. So definitely, I think, the scale on the smaller loans will come increasingly by moving to the tech side. And yes, you’re right, to some extent, the scaling process is, one could argue, compromised. But then, we have to understand the lifetime value of the customer. We find that about 70% of the people who pay their loans to NeoGrowth come back a second time. Now that is smart business – investing in the touch to build that relationship to get the customer to come back to you.