reaching new customer categories using technology · on amazon, snapdeal and ... • weighted...

Reaching new customer categories using technology

September 02, 2015

CAFRAL Presentation Aug 31_v1.0.pptx 2

Sustained lag in SME credit growth

100 250 68050USD BnCAGR (FY'96-'11)

13.7%

25.0%

24.2%

20.3%

20.3%

3241

52

9

1223

16

11

10

111147

3725 20

80

60

20

100

0

40

20062001

MSME

Retail

1996 2011

Agriculture

Mid andlarge corporates41

Growth in outstanding bank credit (FY'96-'11)


Why is SME lending difficult?Gap in quality, quantity, timely (QQT) info.

Over half of next billion1 who needed credit have gone to informal sources

40

60

20

0Formal financialservice provider

16%

24%

Money Lenders /Family and Friends

OthersNot taken credit at all

54%

6%

Have taken credit

1. Segments having annual income less than Rs 200K per annumNote: Number of respondents = 11583Source: BCG’s Financial Inclusion Survey, October–December 2010; BCG analysis.


1 M SMEs will plug into digital platforms in the next 5 years

Expl

osio

n o

f eco

mm

erce

Emer

genc

e of

dig

ital

ag

greg

ator

s

New category of digitally enabled

customers

Macro Enablers

1 M+ digitally enabled MSMEs in

the next 5 years

Need digitally offered products

• 1L+ small business units already just on Amazon, Snapdeal and Flipkart

• CAGR of 50-55%

• Key categories -Food Services, Home Services, Cab Services

• Wave of aggregator growth


There is a LOT happening around the world

• AliFinance, established in 2011, provides loans to vendors on the Taobao and Alibaba platforms

• Accumulated gross loan reached $ 32.5 Bn in 2014, serving 800K online sellers

• Established in 2009, Kabbage provides small business loans upto $100,000

• The company has lent more than $750 Mn to small businesses till Mid 2015

• Amazon has offered hundreds of millions of dollars in loans since 2012 in United States and Japan

• The company is extending this facility to 8 more countries including India in 2015

Source: Press Search, Company Websites


Industry yet to deliver a winning platform SMEs loan (PSL) model

"

Source: BCG customer survey; n ~ 500, 2015

" I struggle to expand business on marketplace at the same rate e-commerce is booming ...only because I do not have adequate funding available" - Electronics trader, Delhi

" SMEs are forced to raise money through unorganized sector – we need banks to partner with us by providing financing at the right time....there are immense opportunities for growth" -

Computer hardware seller, Mumbai

"I should be able to borrow, increase funding limit and repay online … all merchants are moving to digital platforms" - Footwear manufacturer, Delhi


Banks need to plug into the internet economy to reach customers effectively

Cus

tom

er N

eeds

Plat

form

Nee

ds

Imperative for Banks• Access to

finance

• Simple and digital workflow

• Quick processing and availability of funds during times of need

• Enable Financing options to customers in order to scale supplier 'network'

• Provide customized solutions

• Forge partnerships with digital platforms

• Design simple digital financing workflows

Reach new categories of customers through partnerships and customized solutions


Art of managing risks – Requires careful orchestration

Marketplace + account + CIBIL (MAC)

Payment through escrow account

Agreement to sell unsold inventory

Delisting of defaulters


Willingness to repay

2

Ability to repay

1M

arke

tpla

ce d

ata

Sales Parameters

Inventory Parameters

Pricing

Parameters

• 6 month average monthly turnover (comparison with industry)• Weighted average (Product category) growth rate for last 3 months• Buy box (%) -- (Probability of selling the next product purchase)

• Sales / Inventory Ratio ; 6 month average inventory• Estimated loss sales (Unit/Value) over time• In stock (%) over last 3/6/9/12 months

• Premium / discount charged as compared to competitors in category• Weighted average profitability margins for last 3 months vs category • Average ticket size of sales vs. category

Mar

ketp

lace

&

Acco

unt d

ata

Concentration Analysis

Round Tripping

Vendor performance

• Contribution of top 2/3 products as % of Total Sales• % of Sales in negative region (high defaults) customer base pin codes• % of Sales in regions with high product returns

• % of sales to top 10 pin codes• Pin codes with > 10% of average quarterly sales• % of returns from top delivery pin codes

• Order defect rate• Late dispatch/response rate• Bureau data analysis

Platform data pipe is RICH and powerful


Need customized digital lending platformData + Partnerships – Alliances with platforms / aggregators and negotiation to secure proprietary data

Customer Portal / mobile app – Customer friendly and intuitive interface to access loan products / solutions

Data warehouse - On Premise / Cloud based databases to manage big data

Analytical models – Big data lending models

Monitoring Engine – Digital loan monitoring

CRM interface – Predict probabilities of cross-sell


The time to act is now

Thank you

bcg.com | bcgperspectives.com

reaching new customer categories using technology · on amazon, snapdeal and ... • weighted...

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