Vinay Bagri, Co-Founder and CEO of Niyo chats with Amit Somani, Managing Partner, Prime Venture Partners,  on Neo banking and fin-tech startup scenario in the country. 

On this episode, they discuss how to achieve product-market fit, how should entrepreneurs think about partnering with classic institutions like banks, what does ideal fintech team look like, how Niyo is disrupting the banking in India and more.

Niyo is a fin-tech company founded in 2015 that offers digital banking solutions. Before founding Niyo, Vinay has spent 18 years in the corporate world working with diverse organisations like Parle, 3M, ICICI Bank, Standard Chartered, ING and Kotak Mahindra Bank.

Listen to the podcast to learn about

0:45 - What’s exciting about Neobanking

3:15 - Vinay’s journey from a banker to a fin-tech co-founder

6:45 - How Niyo Global helps a traveller & what is unique about it

11:20 - How Niyo achieved Product Market Fit

13:45 - How Niyo reaches blue collar workers

18:55 - How a fin-tech entrepreneur should think about partnering with large banks

21:25 - How a fin-tech entrepreneur can find opportunities

24:00 - Building founding team for a fin-tech startup

Podcast Transcript:

Amit Somani  

This is Amit Somani from Prime Venture Partners. Prime is an early stage venture capital fund based out of Bangalore. We invest in early stage tech and product driven companies. We're delighted to have with us today, Vinay Bagri, co-founder and CEO of Niyo, one of our portfolio companies. Welcome to the podcast, Vinay.

Vinay Bagri  

Hi Amit, Thanks for having me here.

Amit Somani  

Thanks, Vinay. So neo banking is all the rage in FinTech and financial services these days. Why is it so exciting for everyone? What's going on? Can you talk a little bit about that?

Vinay Bagri  

Sure Amit. So neo banking has been a rage for some time across the world. India has just taken off. Let's say the announcement has started coming in a year or so, why it is so important Amit is that, When you look at costs of various banking services, you keep going back to Bezoz's thought that "Your margin is my opportunity." And there is immense opportunity in banking in all the segments. Now the major cost, if you see for all banks or most banks is infrastructure and people. You will see that the fanciest of the landscape in every country, or every city would belong to banks, whether it's Nariman point here or whether it is, New York elsewhere. Now that, naturally cost has to be born by somebody normally it is the customer. And neo banking is all about building a bank in the cloud, where you don't have those kind of infrastructure costs. You don't have a huge hierarchy of people and passing on the benefit to the customer. So that's why it is important. I think it's something which is going to be growing substantially as time passes.

Amit Somani  

Vinay, great points. So one, of course, is the cost right and making it more accessible and more inclusive. The second thing is really the customer experience. Do you think that new age tech companies can provide a much better customer experience? What are the new age companies going to be better at and what are the classic banks going to be better at?

Vinay Bagri  

In terms of customer experience there's no doubt. See, what happens is that most of the banks who are there in existence, run an old tech naturally have a tech team which is tuned to work a certain way. So, not that they will not be able to provide it but it'll take time and time is in the favor of the new age neo banks, who will be able to do a much better job in terms of customer experience. 

Other than that, there are various niches within banks which are large enough for people to go and excel there. So we'll see a lot of kind of used words like unbundling of banks with certain segments, traditional banks will continue to do well. Example are areas which require a lot of trust a lot of money getting deposited, etc. Whereas, certain areas which which are fast moving payment related lending, where I think, the neo banks are going to excel.

Amit Somani  

Great! you used to be in one of these older banks or actually many of them, right? Can you talk to us a little bit about your background, and also how the journey has been from being a classic banker to a new age, FinTech, co founder CEO?

Vinay Bagri  

Yeah so, I've been banker always, even now continue to be a banker. But yeah, almost 15 years, most of them with standard chartered  almost a decade. And then on both sides of balance sheet so I've seen around six, seven years of liabilities, six, seven years of assets. So as far as retail banking is concerned, I've basically seen it all. Why did I move to the other side of the structure, the reason is that, till 2015 banking in India was very different, because there was no eKYC, there was no OTP based KYC. So, as long as you meeting somebody in person to do KYC, the scope of neo-bank was limited, but when it opened up, thanks to Aadhar, it's opportunity to really, really disrupt and I know that word is used very loosely, but because of Aadhar actually and you would have seen with UPI and all these things happening that because of the entire stack, the banking is is getting disrupted every single moment as we see it and I wanted to be on that bandwagon. And of course, one of my co-founder is not listed as co founder, which is Sanjay from Prime Ventures. So he pushed me into this. And I'm very, very delighted to be where I am today.

Amit Somani  

Sounds great. So maybe we can jump and talk a little bit about the Niyo journey itself, right? There are several different products you guys have launched. It's been an interesting sort of rapid fire journey over the last three, three and a half years. So can you talk about a couple of the products that you guys have? And maybe we'll we'll drill into one of the ones that are some more recent.

Vinay Bagri  

Sure. So, Niyo is basically inspired by my last organizations, I was working with the ING, which was taken over by Kotak and then I moved to Niyo. So ING had a product called ING direct which was basically a bank based in the clouds and it was doing extremely well. I'd seen its operation in Australia and I was really fascinated by it. And why not basically create a similar bank in India, which was on the cloud, digital and can be a large bank. 

Now, what we do Amit in Niyo is that we try and identify segments which are huge, which are either unserved or underserved by current banks, and we think that as neo-bank, we've got significant competitive advantage. And based on that segment, we keep rolling out products as and when those segments turn up. So for example, one of the big instances was demonetization and the labor law changes according which came in with demonetization, which really opened up the whole salaried segment of blue collared employees. And that's what our flagship product really got rolled out. And we got a million plus users on the product. Because we think that no other bank today has got a capability to understand and serve the segment the way we do. Similarly, we saw trend last year around Indians, thanks to Instagram, Facebook, and these social media things won't really travel and the trend has changed with the first loan is no longer, a car loan or a home loan or anything else. It's a travel loan, and the whole country seems to be traveling. We have 25-30 million people who will travel this year, which likely go to 50 million people again, the service as a bank to understand a travel customer and really serve them well we think is pretty broken and we thought there's a chance to introduce a kind of a bank account for somebody who thinks himself as global citizen. And there's when Niyo Global came in. So while we've launched various products, the two products which really stand out is Niyo Bharat, which is a salary account for blue collar employees, and Niyo global, which is a bank account for global citizens.

Amit Somani  

So let's talk a little bit about Niyo Global. Let's say I'm a traveler and I'm traveling to some countries I'm going to Australia. How does new global help and what is unique and differentiated about that product that is not there elsewhere in the market?

Vinay Bagri  

So for every product we build we look at 2-3 things. The first of course, is consumer value that whatever the current banks are providing, which is like I said, banks margin we provide a better value to the customer because our costs are low. So that's the first thing and I'll come why Niyo Global if you're not carrying Niyo Global when you are stepping outside India, you're losing money every single day. Okay, so that's value. The second thing we look at is the convenience factor. What is the the UX of the product. You will experience the product and third of course for whatever reasons if you are stuck then how is the customer service when you reach out to us so these are two three things which we focus on all our products. So let me talk about Niyo global and each of these things three things and how they kind of pan out. So first in terms of value, so if you don't take Niyo global What are your options? Your option is cash, forex card or a debit or credit card. Cash of course, you gotta pay a charge upfront to convert it. If you get back your cash from your trip again, you will be charged to convert it or maybe I don't know where will you keep the cash.

Amit Somani  

There is no hassle of carrying cash,

Vinay Bagri  

Of course, all those anyway, the second is a forex card, famous multi currency forex cards when you go to Dubai, let's say and you loaded dirhams, but guess what, normally you load either less or more. In any case, when you move to the next country let's say, from Dubai you move to go Europe, then you need to use Euros here, then you have to convert double time. So first INR to Dirhams cost and Dirhams to Euro cost or Euro to Dirham cost. So by the time you come back and you've done all your mathematics, It's a very very costly way of carrying a foreign currency or not to say the the hassle of getting your first forex card itself you cannot get it on your in your house you to go walk in the branch and do it and when you get money back after you travel again you to go to branch and and kind of get it converted into INR so multiple conversion costs. And so, most of the people what they do is whatever money is left on the Forex card they go and end up spending in duty free shops, so, it's unnecessary shopping. So, everything kind of adds up to a very broken process and very costly process. Third one of course, the easy one, you carry your credit card or debit card simply keep swiping it. Only, thing is you will never get to know what is the Forex charges. 

Amit Somani  

You will get to know when you are back. 

Vinay Bagri  

Yeah! you will not get to know at that point in time, after one and a half months suddenly you will see on statement you will not be able to put heads or tails. You would have forgotten what you did. But you will be down anywhere between 3% to 6% depending on what kind of customer you are for the bank. So these are the two three processes which are there right now in case of Niyo life is very simple. The way we've designed it is based on my own travel experience and for travel experience of all the colleagues and the product head. So we're building it very simple, you load INR, our mobile app will give you a real time currency conversion rate. And when you swipe your card, you will get charged the same rate, not a penny more, not a penny less. And that rate is actually the visa exchange rate, which is very, very, very close to IBR. Let's say if a huge multinational or a huge company like Tata, somebody who is buying forex, you will get a forex rate or wholesale forex rate. That's effectively what we have brought in for a regular customer. So that's in terms of value, convenience, of course, you've got a beautiful app with multiple travel features, including ATM locators and which tells you about where to find certain attractions. And then Google travel, built on the app working seamlessly notifications, SMS, email, OTP coming on email. So even if you don't have your SIM with you, you can do all the functions which you need to do when you're traveling abroad. And third, of course customer service, we are probably the only bank in the country where you can do complete service from lodging a complaint to getting it solved to solving for your last card to ordering a new card, everything on WhatsApp at 24x7, of course. So naturally for these reasons why, we have a fan following our NPS rating is 80 Plus, I'm sure nobody, nobody can even think current banks can think of the current NPS rating. And an app store rating is around 4.7-4.8, which is at-par of the best global banks in the world.

Amit Somani  

Wonderful. I have two questions. One is around the product. How did you know that you're getting the product market fit? So you clearly started with the hypothesis, my opportunity, convenience, safety, trust- but how did you know that you are getting the product market fit number one. Number two, how do you think about distribution, right? For a product like this, is this all digital, it's offline, it's hybrid. Maybe you can talk a little bit about that for the benefit of other FinTech entrepreneurs out there.

Vinay Bagri  

So, let me let me answer the product market fit question first. So, my firm belief in product market fit is that you should not need a sales team if you got the product right and you should be all inbound referral driven etc. So, we realized that we got the product market fit when our relatives started calling and we had to do a waiting list when basically the demand exceeded supply and that happened for all our products fortunately touchwood. We understand the product market fit when customers are referring their friends and relatives, they are coming at a pace at which we we find it difficult to service. I think that's the point when you know that the product is going to do well. So that's one The second way to proceed product market fit is that how is competition reacting to it. So we had basically almost all large players panicking and calling out why you're doing it is and, they'll break the market and we will lose the margin XYZ so somewhere you you hit the chord with the customer and with the competition. So that's product market fit in terms of channels,  I firmly believe that we should always have a multi channel approach. In banking, fortunately, I've seen all kinds of channels do well, you have to be of course very careful about compliance and about KYC and what can go wrong. So that is something you would ideally want to control yourself. Other than that, from a sourcing perspective, I think you can use multiple channels. To give you our examples, how did we do what did we do of course, we started up with a very, very close group, for product market fit and once we knew that the customers love the product and the product works seamlessly, especially because money is involved in any banking products, everything was working fine, is then we opened it up for channels and channels depends on the product. So for example, for global card, now naturally, who's a channel partner a channel partner is a travel agent or channel partner is somebody who is let's say, a student counselor where students go when they are going to study abroad. So identify points where a lot of our target segment are and go and meet them and then ensure that anyway these huge value for the consumer,that the the channel partner can sell the product as a win, whether for money or whether to show that he's adding value to the customer who's walking up to that channel. So if we position it that way, and of course, we've been extremely successful in doing that.

Amit Somani  

So for Niyo bharat distribution is slightly different. Right? Can you talk a little bit about, how do you reach, blue collar workers Pan India? There are millions, if not 10s of millions of these folks.

Vinay Bagri  

Yes, 100 million odd people who'd qualify as organized semi organized, unorganized blue collared employees. Again, the distribution point of view, it is very similar to global, you'd be surprised that what we're looking at global for example, is a travel agent, where a lot of people are converging, which can be online or offline can be Yatra or it can be like,Akbar or whoever it is. Similarly for Bharat salary accounts, that the travel agent is basically replaced by an SME. Now, an SME has got 200-300, 1000-2000, depending on the size where there is a medium enterprise or a large enterprise, but basically, it's a point where All the laborers are or all the employees are congregating. So they become kind of our channel. Now, what we'll do ensure is again that they see value, they should know that, when they give this product to their employees, employee should say thank you rather than come with the issues that something's going wrong or something's not working. So as long as that is there, it's again, for most of our employers, distributing our product is almost like a value they are adding to their employees, because of the value we provide to the employees in the product. For example, there is no product in the country, which can say that I can give you a full fledged digital dining experience with zero minimum balance charges with zero maintenance charges with no transaction charges through your life. Nobody else can do that and you would know some of the large banks like SBI and there was an RTI against BOB, for example, Government banks, right, a large part of their bottom line is coming from minimum balance charges, which is getting charged to the poorest of the poor. Why on earth would you want to do that? These guys are willing to pay some money, but we need to be transparent. So like we provide nothing free  we very, very unit economics that would not be a great idea. But we are very, very unit enomics savvy startup. So we don't do any product with doesn't make unit economic sense. So we charge 200 rupees to these users, but then they know that once they pay 200 rupees for a year, they're not going to get charged anything extra and that transparency they deserve or they should not be devoid of the transparency just because their salaries 10,000 rupees and not two lakh rupees. So most banks today would give everything in a platter to somebody who's who earns like a 20-24 lakh rupee, but somebody is earning like a 10,000 rupee or a lakh rupee a year is actually killed at every single level whether it is a private bank, Government bank, anybody and we are there to to change it for them.

Amit Somani

Can you take a few examples of customers on either side on Niyo Bharat, as well as Niyo Global, whose quote unquote, lives have been transformed as a result of this. I'm sure there's a lot more part of customers who are not even under the umbrella of financial inclusion or financial services or barely have had a bank account. Maybe we will start with Bharat, where this has really been a material change in their, quality of financial life.

Vinay Bagri

Significant Amit, While we've touched many lives, but where we've been transformational is people who are not too literate. So they can, understand bits and bits, but they can't read a sentence, or they can't read comfortably in let's say English, where most of the apps, including some of the larger banks have are in that language. So one is we've got the Bharat app is available in 10 languages, so practically it covers 90% of the country. The second interesting thing, Amit is that the app talks to you. So, for every feature or every transaction, you just have to tap a button and the app will talk to you in your language. It will tell you that this is a transaction you did at this point in time at this shop. So if you want it to read through the whole sentence, if you find it difficult to read for whatever reason, you don't need to worry. And similarly, for every single feature, like, we've introduce bite sized mutual funds, bite sized salary advances, very, very transparent, very, very easy to understand. And that's where I think we are on a journey. So if you look at it a million out of a 100 million, we're not even scratching the surface. And the reason is that, we've ourself been very, very conservative about how fast we grow. Reason being you want to be sure about the product, we want to make sure that it adds value to the user, and they hopefully use it for their lives. And that's really a change for them. Because normally they see banking as somebody where the moment they change their job, they're to quickly take all the money out. Otherwise people will start hammering there will be these kind of charges. So it's a journey where we have to be able to change thought process, to be able to change how people interact. But I think we are doing a great job on it and we want to create momentum ahead going into the 2020.

Amit Somani  

I loved your point about the value add for, for partnerships in terms of the distribution channels and the distribution partners. Given that you come from the banking world, maybe we can talk about kind of classic FinTech battle partnerships, right so a lot of new age FinTechs they need to partner with banks or NBFCs or the classical institutions. I know you have several partnerships yourselves right with various banks. Can you talk a little bit about like, if you are a new age FinTech entrepreneur? How should you think about partnering with classic institutions ? What is the method to that madness?

Vinay Bagri  

Yeah, so Amit, the way you the regulations are in India and most of Southeast Asia, is that you have to partner with a bank if you want to become a bank. Right? It is unlike a digital bank license with let's say, Revolut enjoy. So if you look at my global card it is nothing different from Revolut just that they can do on their own banking licence. I have to do with a partner bank licence, so partnership is a given in India and Southeast Asia. Now, How do you make a successful partnership? So the way I've been lucky I've been on both sides of the table. So I understand whenever I'm going for a partnership with the bank, I just put the banker hat on and say who is the partner who I would want to partner with. First thing which comes to my mind as a banker is I should not lose my job in this partnership. (Laughs)

Amit Somani  

(Laughs) Survival of the fittest.

Vinay Bagri  

So the thing of banking or any partner who's regulated by RBI or any regulator for that matter, would be very, very, very careful with a new FinTech partner wants to partner is that are you KYC compliant, have your system built for a money laundering, tracking money laundering, tracking, any suspect frauds happening, customer service. It should not land up that the partner banks mail IDs and and call centers are getting flooded because they are a partner with you. So you have to give them the confidence that you are more than committed towards KYC guidelines, regulatory guidelines, customer service, banking ombudsman recon, and you know these things. So there's the first thing, which you need to provide confidence to your partner bank and then starts the commercial angle, where eventually it's a symbiotic relationship. There are three people in a partnership who need to see value, If one of the three doesn't see value, It is only a very temporary in a fleeting partnership. The partner bank or whoever the partner FinTech is they need to see value, startup, we need to see value and the customer. So these three parties, each of them have to see clear advantage. Otherwise, it is not gonna survive.

Amit Somani  

Sounds great. Switching gears, let's say I'm starting a new company, while you said you've been pretty fortunate with product market fit, and I'm evaluating an opportunity as a new age entrepreneur, how should I look for opportunities in terms of where is there going to be liable business model where is there going to be this magical auto product market fit, etc? How would you go about doing that what what advice would you have for entrepreneurs.

Vinay Bagri  

The way I would do it is, I would look at successful banks. And for example, I draw a lot of inspiration from Kotak. Uday Kodak himself is an unbelievable entrepreneur. So the way you look at it is if you look at, for example, Kotak, or for example, Bandhan, for example, Bajaj himself in all these in a way are startups. Some maybe 10 year old, some 14 year olds and 15 years old, that's what they are. And they are billions and billions of dollar 30 billion, 40 billion and  50 billion valuation. Now What will be really interesting for a FinTech player to do is to look inside a bank, for example, like Kotak and look at verticals, which have just exponentially grown. It can be maybe a credit card vertical, it can be a CASA vertical, it can be a mortgages vertical, it can be SME vertical or whatever it is. And you would realize that each of the verticals if they were in a startup, every single vertical will be unique. What happens is that in banks, almost especially in banks in the journey, for example, Kotak started and then early ICICI started and then Axis started in their journey every two years, they will be launching one new product vertical. And then three years later that vertical will be gone. So from a FinTech, point of view I would very, very strongly recommend to look at all the possible verticals, which banks have, understand if those were a startup, how many how many years would have taken them to reach let's say, unicorn status? Pick one of the verticals where, let's say the bank did very well for three years and now it is kind of stagnated because what banks are very good at is growing very fast and becoming big, but after that, stop innovating. So look at those verticals where the bank has not innovated too much, and then you basically put a skin of innovation on top of it. Partner with a bank or a partner who's hungry, who's got the product, but not the skin, and then go attack the market.

Amit Somani  

That sounds very exciting. Thank you for sharing that publicly. But, so you have the idea, right? And you've studied, the role models, whether it's a Kotak or Bajaj Finserv or whatever. How do you think about putting the team together? I know you have a tech co founder, what what is an ideal kind of FinTech founding team look like what are some of the early hires to apply it, maybe you can talk a little bit about the first 10-15 people in the company.

Vinay Bagri  

So one is, I will never do a FinTech without a tech co founder. Because he does all the work anyway. So yeah, I think one of the important things is to definitely have a banking and a FinTech and a tech guys as co founders to start with. I think that's a bare minimum, I would say. Other than that, what is really, really important for the first 10-15 people is that everybody has to bring in a talent which is different, everybody has to bring in a skill set, which is different. So for example, when we look at expansion of business, the business side, we need to get in guys who know more than me on the business side, when we look at the tech side, we need to get in the first few people have to really add and be more than let's say what Viren alone alone or Viren and me together. So I think that's that's really critical. And that's how we went about we went about doing he couldn't especially going to specialists who knew Niyo Bharat better than me, we got a specialist who knew Niyo Global as a travel segment better than me. And similarly, we got, people in tech who had worked with banking stack etc. And he knew integrations better than probably what Viren knew and I knew together and another very important role, often, not given due importance is finance. So I think we should, At least my philosophy is, you should overload your company with chartered accountants. I think they've gone through a lot to study, they are intelligent and they add a lot of value. So even if you get like a couple of years experience chartered accountant, I think you should be a third higher after the cofounders.

Amit Somani  

And what would the role of a chartered accountant slash finance person be that early at the startup? You don't have revenue. If a baby just getting started on the product or don't yet have product market fit,

Vinay Bagri  

First thing he will do, he will ensure we don't waste money. So his salary will get recovered in the first 10 days of him being in the company. That's what my experience has been. And then of course, see because as I said, at least our philosophy has been constantly keep looking at you and economics. I've seen large companies, large banks very easily lose focus of cost efficiency. So while revenue is very important, all of us are chasing revenue and continue to chase revenue. But we need somebody who's like has relentless focus on cost efficiency, and that cannot come in without a strong finance team.

Amit Somani  

Talk a little bit about the fundraising journey whether it's with prime or just overall in sort of New Age ideas, kind of how was your experience been and any any thoughts and words of advice?

Vinay Bagri  

I think fundraising is one part where I think I would more be not the right guy to speak to, for a simple reason that we have just outsourced our fundraising most of the time (laughs). And Prime has done a series A Seed, of course, and series A and series B largely so I would not be able to add too much other than that. Let's say you were in a state where fieding was set, we have to bat well, and for batting, of course we prepared so from a preparation point of view, what was important was that we then kind of really looked at data once, again, twice, thrice spoke to our customers and understood what they're going to talk. Because the way I understand is investors would like to talk to your customers. And if your customers are unhappy at any point in time, that's not a great time to raise funds. So what we ensure that our customers anyway, it's part of our parcel of our business, but we thought our customers were really delighted with whatever we were doing. We know, we knew the growth is good. And of course, we have done like 100 rehearsals of our data and our market and I think that's what we did.

Amit Somani  

sounds great Vinay. This has been great talking to you. Congratulations on all the success so far and wish you continued success for Niyo Bharat and Niyo Global. So thank you for being on the podcast.

Vinay Bagri  

Thank you Amit and I hope you and your family relatives, friends, anybody traveling abroad don't travel without Niyo card, you will lose money.