Poonawalla Fincorp and L&T Finance are in a race to become top-class digitally enabled finance companies:
Abhay Bhutada, Managing Director, Poonawalla Fincorp, and Sudipta Roy, Chief Operating Officer, L&T Finance, laid down their ambitious tech plans at their respective recent Q1, FY24 earnings conference calls.
It has been more than a year of unveiling L&T Finance (LTF)’s strategic plan – Lakshya 2026, wherein the management said it will strive to make LTF a top-class digitally enabled retail finance company moving from ‘product-focused’ approach to ‘customer-focused’ approach by creating a Fintech@Scale. Every decision ever since has been taken keeping in mind these targets of Lakshya 2026.
Sudipta Roy, Chief Operating Officer, LTF, underlined: “We have continued to improve not only the products we offer but also the systems and processes we deploy within the company. In fact, every quarter, we have gone out of our way to try and put even in the investor presentation, the specific moves that we are doing to become more and more a retail company, more and more a company absolutely entrenched in retail and digital.”
Over the course of the last multiple calls, Roy has talked about transforming LTF into a Fintech@Scale, with a comprehensive strategy and continuously putting data analytics to excellent use. Roy elaborated: “Our steadfast focus on data-driven insights, innovations and customer-centric solutions have driven this and will continue to contribute to the success of LTF.”
At Poonawalla Fincorp (PF), the disbursement under direct digital program (DDP) distribution model has expanded the customer base and thereby lowered the cost of customer acquisition. PF’s LAP and unsecured business loans, along with supply chain finance business contributed to a healthy growth on the MSME side, while its personal loan, consumption loan and pre-owned car loan, led the growth on the consumer side.
Abhay Bhutada, Managing Director, PF, indicated: “We remain completely aligned to our strategy of building a strong consumer and MSME focused tech-led retail lending franchise and continue to scale up on both these segments. While the competition intensity continues to be high, the unique proposition that we bring by being a lender of choice for the customer that offers user experience, agility of a fintech and customer understanding along with practical approach of an NBFC, the fair pricing, service, and transparency of a bank, has ensured that we are ahead of our competition.”
Farming Database, Analytics
LTF is farming its large customer database. Over the years, it has developed a deep pan-India franchise and its q-o-q performance bears testimony to the strength of this franchise. Roy added: “We have optimal mix now of physical presence, preferred channel partners, coupled with leveraging our database, and of course, our digital tools for reaching the customer. We, today have a database of about 21 mn customers, out of which 14 mn are in rural and 7 mn are in urban, which helps us in building a superior retail franchise.”
This quarter LTF disbursed to 6.9 lakh new customers and its active customer base now stands at 8.9 mn. The important thing is share of its cross-sell / upsell in the total disbursements now stands at 34%. The company of course, envisaged these numbers to increase slowly as it concentrated its efforts on increasing the share of cross-sell and repeat loans, like Pragati loan, Vishwas loan, Kisan Suvidha, 2-wheeler loyalty, consumer loan top-up and housing loan top-up.
Roy explained: “This is how we have built a strong cross-sell engine with great use of digital and analytics, which shows the strengths that we are building to address the additional needs of our customers. It definitely benefits the customer, gives the customer the advantage of having a loan ready if the customer has been good with us.”
Given PF’s deep technology inclination and digital-first approach, it has been able to create a truly digital organization where the benefits of technology are visible with increased productivity per employee. Abhay added: “Our focus on clearly defined segments, credit-tested customers, digital data collection, rule-based underwriting and graded approach to loan exposure is aimed at getting better risk-adjusted returns. On the manpower and branch network front, we have continued with our focus on tech-led and branch-light model. We have reduced our manpower by 5% over the previous quarter and we continue to further strengthen our team in the technology and digital space.”
The new book build of PF over the last 2 years continues to perform well. Abhay added: “We have benchmarked our performance against the industry data through the credit bureau, and we continue to outperform portfolio of competitors. We have completed about 70% of the digitization agenda.”
App Inverts Service Pyramid
LTF’s D2C app PLANET was launched in March 2022, and it has been built through minute planning and detailing, but the kind of success it has seen was even beyond Roy’s expectations. He informed: “From offering service features like downloading statement of accounts and interest certificates, it has developed into having superior engagement features like providing mandi prices for farmers, insurance, credit scores, D2C journey for top-ups, etc.” The app has already crossed 4.4 million downloads now in a span of a little more than 1 year. The app crossed 1 million in Nov’22, 2 mn in Jan’23, 3 mn in April’23 and 4 mn in July’23. Roy added: “So really, it is actually catching speed with enhanced features and focus on marketing it to our customers.”
LTF has already done Rs3.60 bn of collection from the app and business of more than Rs30 billion through the app and catered to 6.7 mn plus service requests through the app. Roy stated: “It has genuinely inverted the service pyramid. Just 2 years back, branches contributed 51% and digital contributed only 14% of our service requests coming in. Now this is completely reversed to branches contributing 9% and digital contributing 77%. So just imagine the pluses which will come from this for cost, but much more important, for quality customer service and hence hopefully, much higher customer retention.”
One area which remains a complete upside for this app is rural. At this point of time, about 10% of total downloads i.e., from 4.4 mn, around 4.4 lakh come from rural and this speed is likely to catch up now with LTF’s big efforts on marketing this app in rural. Roy thinks: “The app has the potential of clearly changing the way that its rural customer behaves and slowly even the way the rural customer repays and once that happens, the upsides to his credit score, to our cost structures, our credit cost can be immense as it goes ahead.”
PF reported its highest ever disbursement of Rs70.63 billion, up 143% y/y and 11% q/q. Abhay updated: “Disbursement under direct digital program (DDP) constituted 86% of our total disbursement in Q4 as compared with 81% in the previous quarter. Our target was to achieve 80%, which we have achieved in the last quarter itself. The DDP distribution model has accelerated disbursement.
As PF moves ahead, its digital journey is now fully available across all product lines and has also digitized the customer servicing process. Abhay informed: “We are leveraging WhatsApp for giving us a complete do-it-yourself journey, and the results have so far been promising. We are now leveraging WhatsApp across the entire life cycle for our customers.”
Developing Digital Finance
LTF’s idea of Fintech@Scale envisages development of digital finance delivery as a customer value proposition. The objective is to touch every part of the customer ecosystem with superior digital infrastructure. As far as collections is concerned, LTF’s strength definitely lies in its feet-on-street network owing to the nature of the business it is in.
Roy revealed: “We have now been able to build 100% paper-less journeys in rural business finance, in farmer finance, in 2-wheeler and in consumer loans. We are continuously boosting our digital collection capabilities also. In urban space, our eNach penetration has now reached 97% and 93% of urban collections now happen completely digitally. It looks like a small number, but a number that I’m very proud of is now 14%. 14% of rural collections are happening digitally. Now just about 2 years back, this number would be low single digit and it is now developing and I believe, personally, that this is going to accelerate as we go ahead.”
LTF MD & CEO Dinanath Dubhashi at Q1FY24 Earnings Conference Call, assured: “Our target, our plan of making the company a ‘leading digitally enabled retail finance company’ is well on course, in fact, ahead of course. The company will draw on Sudipta Roy’s strengths and he will draw on the strengths of the significant market positions we have achieved in our flagship businesses. Needless to say, the focus is going to be on making LTF, a retail fintech giant.”