The lending bet: why we started with the problem, not the loan

Lending is where a lot of financial services businesses eventually end up. The reason is fairly obvious. It is a very hard business to build, but if you can pull it off, it can also be a very profitable one. We have seen that repeatedly through history and across markets. The way we looked at lending at Better Capital was slightly different though. We did not come from a traditional banking or lending background. Our lens was much more consumer tech, product and distribution first. So instead of starting with, say, we are going to offer personal loans and then figure out how to acquire customers for them, we started with a different question. What is a real problem we can solve for a customer that naturally puts us in front of someone who may eventually need a loan? That became quite central to how we thought about lending. The idea was that if you solve an important problem first, you acquire the customer through a genuinely useful experience. By the time the lending opportunity shows up, the customer already knows you, you understand a lot more about them and the context in which they need the money, and you should be in a much better position to serve and underwrite them. We believed that could create a very interesting flywheel. Solve the problem, build the relationship, understand the customer and then make credit available when it is actually needed. You could describe OTO as a two wheeler financing company, but that misses a large part of how the experience was built. If you were looking to buy a two wheeler, and increasingly an electric two wheeler, OTO helped you discover and understand the options. It also did something that was pretty unusual when it started. With a click, you could schedule a test ride at your home. So OTO entered the customer’s journey well before the financing decision. You came to explore what you wanted to buy, got a great experience, took a test ride and moved closer to making a purchase. By the time you needed financing, OTO already understood a meaningful part of your buying journey and had built a relationship with you. The financing then became a natural extension of the experience rather than the starting point. Khatabook is probably an even cleaner example of this idea. Khatabook started by solving an extremely simple but important problem for small businesses. It gave merchants a digital ledger to keep track of the money they were owed and the credit they extended to their customers. Over time, millions of merchants started using Khatabook to run an important part of their business. That relationship created something very valuable. Khatabook understood these businesses, how they operated and increasingly the financial behaviour around them. Lending could then become a natural extension of that relationship. Instead of acquiring a small business owner because they clicked on an ad for a loan, you already had a customer using your product to run their business. You had solved something useful for them first

Original source: Entrackr