Raghunandan G, CEO of Zolve, on cross-border banking in India

I'm an engineer who worked for a couple of years before doing my MBA. After that I worked as a consultant for a few years, then started a venture called TaxiForSure. 

As a consultant, I traveled a lot. And wherever we used to travel, finding a cab was always a challenge. Usually, our company would have a partnership with some taxi vendor, and we'd get taxis from there. But whenever we were in cities where we didn't have this kind of partnership, we would call up radio cabs such as Meru, Easy Cabs, Mega Cabs. Often the call center would be busy and you would get the recorded message that “Your call is important to us. Please wait for twenty minutes.” But what would happen is you would see a lot of empty cars on the road waiting for customers, and you would have customers waiting for taxis. Because the call center was the bottleneck, we were not able to get in touch with each other. 

I think during that time is probably when the geolocation sensor was added to smartphones. As a consultant, I used to get the latest phones from the office. So that's when I thought, “Okay, what are the call center people actually doing? They search for any cabs in the immediate vicinity of where the customers are and they will just locate them -- which the customers themselves can do if you provide a platform for customers to see where the cabs are and a service for them to communicate with the drivers directly. This is not rocket science. We can possibly start building it.” So that's how we got in the taxi space, and then the journey happened. I exited TaxiForSure. 

Post TaxiForSure, I've been an active angel investor in the startup ecosystem in India. I have a personal portfolio of around seventy companies now, including a few unicorns and a few $100 million plus companies. I sit on the boards of some of these companies as well. I’m an LP also in some funds -- Accel Partners, Blume Ventures and a few others. As part of my angel investments, I used to travel a lot. I traveled to China and the US to understand what was really happening, primarily because I think India is a few years behind the Chinese and the US markets, and if I’m able to see what’s working well in those countries I can choose the kinds of companies that I hopefully want to invest in. 

During one such trip, I was meeting some friends who had moved to the US recently. We had dinner in New York, and when the check came, they offered to pay because they were the host, and they used cash to pay. I was like, “Why are you using cash?” In India, we never use cash. People like us always use a credit card to pay. So they explained, “No, we don't have a credit card, so we're using cash to pay.” I asked them, “Aren't you upset?” They had very good profiles, and how could they not get a credit card? They said, “Because we don't have a local credit history here, we are high credit risk individuals. That's how the banks see us. We need to slowly build everything.” I said, “But you guys have an amazing credit history in India.” They told me that the Indian credit history didn’t work in the US. I was shocked. Your education qualification in India works in the US. Your work experience in India is counted. Why shouldn't your credit history be counted?

Then I met some guy from Lisbon and, a couple of days later, a guy from Canada. I spoke to them, and they also said the same thing. They also found it challenging. I thought maybe this was pertinent just to the US, but then I spoke to some people in China, the UK and Germany, and they were facing the same problem everywhere. In India, too, it's the same case. It’s so unfair. Credit history is a reflection of one's behavior, and that doesn't change based on the location. Why this happens is because the financial institutions in one country don't talk to the financial institutions in other countries. That's where there's an arbitrage, where a low-risk individual in one country is treated as a high-risk individual in another country. So let's see if there's a way for us to solve it. That's how Zolve started. 

The more I started dabbling in this, the more I realized it was a universal problem. Every year, twenty million migrants travel across the world to different countries, and there is a lot of cross-border activity. They have their families back here, their investments back here, they earn money there, and then they send money back here. This happens in all countries. So I thought that cross-border is an extremely large market -- much larger than probably the domestic market -- and I realized that nobody else was looking at it. Usually, everybody is looking at the domestic markets only. Cross-border has been driven by some of the larger banks, which haven't done much innovation over the last twenty to thirty years. We thought that this was something that we needed to address. It was a great starting point for us. In terms of the market also, what we realized was that these days, wars are not fought with guns and tanks. They’re fought on trade sanctions. When you cut trade to a country, the country comes to a standstill. So by far, this is the largest market that anybody can look at. 

Cross-border is not just remittances. Travelers who come to India also have issues buying tickets. They have to book flight tickets; they need to buy insurance. Also, using an Indian credit card or a forex card in the US -- they all have their issues. The entire experience is broken. And not just that. Currently, we are a US company with an Indian subsidiary. If we move money from the US to India for three or four days, no one knows where the money has gone. And the exchange rate is at the time of the money hitting the bank at the destination, not when it was initiated. I don't know how people have been living with this for twenty years. 

This market is very ripe for disruption. And this is what got me excited. I didn’t want to wait for somebody else to come and start this, where I could potentially pay a lot as an investor. I thought it made sense for me to go ahead and do this. This is trying to build something for the global markets based in India. I’ve built a consumer brand in India and have been part of many others, so building another consumer brand in India might not necessarily be something that would push me. But building something global out of India is way out of my comfort zone, and that’s something that I wanted to do. And the whole objective is to provide to every individual and every entity an opportunity to participate in the global markets. That’s the reason that pushed me.

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There are many neobanks that have come up in India, like Jupiter and Niyo, but they are all essentially trying to solve domestic banking problems. You’ve instead decided to address cross-border banking issues. You touched on the cross-border TAM being larger. Could you dive deeper into that and help us understand what the dimensions are?

The cross-border market is the largest. For example, if you only looked at remittances last year, remittances to India from outside were $80 billion from individuals, and from SMEs it was $550 billion. That’s only cross-border remittances. We're not even talking about migration. We're not even talking about insurances and loans. There is no domestic market which is $550 billion. 

And then there is investing in foreign markets. People have so much visibility on Apple, Tesla, Uber, Airbnb, Slack, Stripe, and they want to participate in this market. Currently, it's not seamless. People don't know how to really go out and do this. Crypto -- India's crypto is only trading accounts. The US has derivatives, staking, loans and much larger things. Indians don't want to just keep trading. They want to participate in that. Currently, the government doesn't let them do that. If you open it up, then you will see amazingly crazy participation. The Indian markets get you 10 to 15% returns, and outside markets can get you 20 to 30% returns on the index only.  

I really look at the domestic market as primarily an underbanked population. In cross-border, I'm going to talk to a prospect who is super prime, and these guys have the intent to pay. Twenty million people a year go outside India, and everyone faces the same challenges. No banking system will change overnight to accommodate those guys. All these guys have some relationship back in their home country with their families. It’s going to be a much larger market. And there is nobody -- absolutely nobody -- helping them.

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How are people solving this problem without Zolve?

What they do is they have to put up a $1,000 deposit in a bank, and they get a credit card with a $250 limit. What do you do with $250? If you spend more than 35% out of that, you become a high credit risk individual. And how many people have $1,000 to deposit? Some people ask their family or friends that are already in the US to lend them some money so that they can put down the deposit and get the credit card. Some people ask for co-signers. But it is so uncomfortable. You don't want to ask your family members to be a co-signer. It's extremely hard. But that's how the system is happening. It’s not only credit cards. If you want to find accommodation for rent, the landlord does a credit history check. So nobody can give you a house either. You ask your boss or somebody else to take the house on rent in their name. Again, it’s an uncomfortable conversation to have. 

It's supremely important to build credit history in the US. It's kind of a chicken-and-egg problem. You don't get access to credit products because you don't have any credit history, but you can't build credit history because you don't have access to credit products. So even though these alternatives are expensive, people don't have a choice but to do this. The market is completely inefficient. 

Another thing. We have been able to raise capital from some amazing investors, such as Softbank, Tiger, Lightspeed, etc., because every one of these firms has got migrants. All these guys have faced this problem. So there was no need to sell the problem.

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You're partnering with the Community Federal Savings Bank in the US to offer cards and a bank account. Could you tell us about how you decided to work with this bank and how monetization works?

If you want to provide banking products -- a bank account, debit card, credit card -- in the US, you need to be a licensed entity. Licensing has certain requirements. It's a very long process. The second thing is that licenses in the US are given state-wide, not at the country level. If you really want to apply, then you apply for the license in all fifty states, and each has its own processes. But if you partner with a bank, like CFSB or anybody like that, they have all the approvals and all the licensing in place. They take care of the regulations and compliance. So that bit is handy. When we partner with them, we use their balance sheet and use their licensing, and we start giving our customers bank accounts, debit cards, credit cards, loans, insurance, etc. They take care of the back-end rails, regulations, and compliance. We take care of the consumers’ end. So we focus on what we know best; they focus on what they know best. 

Why did we choose CFSB? The criteria that typically come into the picture are an appreciation of this migrant population, having the ability to provide the banking products and credit products, and tech savviness. Our growth is limited by our partner's growth. If they don't appreciate the customer segment that we're targeting, then we end up with problems. So it would be fair to say that they met all our criteria, as well as speed to market. 

Since we acquire customers in India and look at their credit history, education history and employment history, we know what a good risk profile is. We don't mind taking the credit risk on the customers and providing them with a credit card and things like that in the US. That's what it comes down to. The bank is just providing the rails, so the bulk of the revenue that we make from the customer comes to us out of the bank.

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Is it the interchange revenue that you are splitting with the bank?

Late fees, interest charges, everything. 90% of it comes to Zolve.

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You said that the credit risk lies with you. How do you deal with a customer default on a payment or delinquency?

That is on us -- the risk is ours. We have partnered with a few people, and we need to do that. 

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Have you partnered with vendors who do credit collection and servicing?

So whatever are the standard practices that are available in the US market, yes. But the interesting thing is, who are the people who are migrating? They are probably the cream of the country. They are the guys that banks want to underwrite but can't underwrite in the US. These are the guys we are underwriting.

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I assume the US credit bureaus have certain norms that are different from the Indian market when it comes to credit profiles. How are you building your credit underwriting model in India? Is it a proprietary tech model, and do you use vendors? In addition, how are you converging it with what the US credit bureaus or banks are looking for, if at all?

In some sense, it’s hybrid. Part of it we do in-house. The algorithm is proprietary. We use some vendors to help us with data processing and things like that. 

In terms of credit underwriting, there are two parameters that we will look at. One is the intent to pay. The intent to pay comes from your credit history in the local country. How many credit lines do you have? Do you pay for those things on time? Were there delayed payments? Things like that. There are other surrogates for intent to pay, also. Which university did you study at in India? Which university are you going to? Who's your employer? Where were you previously employed? Do you have an education loan? Does it cover living expenses? What is your pay? What is the CTC? What's the salary? On all those things, you can get that information. Based on that, the algorithm says, “Okay, so-and-so has a great intent and I believe will also be able to pay. We should issue them cards.” So that's how we do this.

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You’ve mentioned elsewhere that your CAC is in INR while your revenue is in dollars and that that gives you an advantage. Can you unpack that for us?

The costs are in Indian rupees. When you look at working professionals, there are certain corporations that send the bulk of the professionals abroad, and these guys use a few relocation agencies to relocate from India to the US. These people use the same visa centers. They use the same forex place for forex cards. So the same set of people is approaching different channels. If you look at students, the students go to the same test prep centers to apply for tests. They have all the same counselors and consultants to help them with their SOPs and which institutions to apply for. Again, they use the same visa centers and forex centers. Also, students are extremely active on Facebook forums, and they have their own WhatsApp groups, so there is a significant amount of virality also. These are the ways we acquire customers in India. Revenues come from the interchange, interest, late payments in the US, so the revenue share is in US dollars. And the cost is INR.

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People moving between India and the US are typically students and IT professionals. What are the customer segments you’re currently targeting in India, and how do you see that changing as Zolve evolves?

We're looking at cross-border from India to the US, so there are students and working professionals. Once they go there, they need access to credit, and we solve for that. The next segment will be the diaspora -- people who are already there and have got families back in India. They are remitting money, they didn't open up NRI/NRO accounts in India, they have investments in India, and they pay taxes on both sides. So how do you facilitate all that? Then there’s the local population here that wants to invest in the US and other foreign markets.

This whole spectrum of things is what we are focusing on. Wherever the cross-border money movement happens, we want to be there. The way we're looking at it is that students will become working professionals, and working professionals will become part of the diaspora. So they become our brand ambassadors among the diaspora. Once the diaspora starts coming in, we start making all these things on the Indian side. Then these guys will become the influencers for us for the local population. This is how we are looking at it.

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Let’s say someone landing in the US from India is using Zolve. After they get there, the options open up once their credit history is built. What are your thoughts on the lifetime value and retention of these customers once they are settled?

Once you start off, there's no reason to change. Actually, people don't like to change their bank accounts or even discuss bank accounts with their friends. It's there, and it's always there. If you are the first guy who's there -- because you provide them with the bank account in America the first day they are there -- there is no reason for them to change it. 

And we have an amazing app experience. They use it for a year. By the time your credit score gets built, there's a huge resistance to change into something like a traditional bank. You see Jupiter, and you see the HDFC Bank app. Do you know the difference? Use the Zolve app, which is like the Fi and Jupiter apps. Then you go to the Chase app, which is like HDFC. Which one do you want to continue with? 

The second thing is the credit card per se. You want to put your credit card on Amazon, Uber, Lyft, etc. You put your credit card on Google Pay, Samsung Pay, Apple Pay. After a year, you get a Chase card. There’s huge friction for you to go back and change your card in all these apps. You’ll probably change if you're not happy with something, but if you're happy with something and it is working fine, then why would you want to change it?

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From a retention point of view, you're competing with the US players on your product features, app features, rewards, cashback -- all of those things. What are you benchmarking against?

We will customize as per the competition that we have in the US. And US banks are not in the business of customizing and personalizing things for migrants. Rewards or cashback are universal. But for us, the rewards and cashback are completely personalized, because we know exactly where the customer is spending. Are they closer to Costco or Walmart? When they are next to a Walmart, and you give them Costco discounts, why would they go all the way to Costco and wait for that? None of the US banks do all that; they don't get down to that level. Because large banks don’t really know all this. But if somebody is already personalizing things for you based on your spend patterns, your purchase patterns and things like that, it's always a ;pt better for you. If we ensure that our customer doesn't get any significant advantage by moving to somebody else, why would they move?

You have different types of customer profiles: students, working professionals, diaspora. From a unit economics or a CAC/LTV point of view, how do these different customer segments compare with each other?

Obviously, it will be different. CAC for students will be on the low end; working professionals will be a bit higher; diaspora significantly higher. But the LTV is uniform. When we get these customers, we want to provide them with full-stack financial services. I don't want to refer to it as a “super app.” I would really prefer to call it “full-stack financial services,” because if you look at it, these people have moved to a different country to do something else, either to study or to work, so they need something. We want to be that something. 

When they want to do something else once they are settled, we don't want them to go and search for an auto loan, auto insurance, mortgage, mortgage insurance, wealth management, rewards, loyalty program, stock investments, crypto. Everything should be available with the same press of a button. When they have us, they don't need anything else or anybody else, so they can completely focus on what they're there for. People should not even know that we exist. The experience is so seamless that they don't have to really think twice to get anything done. Whether it’s wallets, payments, deposits, remittances – everything is safer and seamless.

Companies like MoneyHop and Winvesta share that ambition of becoming a full-stack financial services provider, but they’re coming from a remittances and US stock investment point of view versus Zolve’s bank accounts and cards perspective. How do you think about these different approaches? Did you think about going after remittances first, or did you think bank accounts first, then layer remittances and the rest on top?

Look at it like this. We provide a bank account. Once our customers get a bank account, what is the next step that they will do? Fund the account. You understand remittances because you're looking at cross-border. When someone is looking at cross-border for the first time, they will not even know the meaning of the word “remittance.” How many people know the names of Remitly or TransferWise or MoneyHop? They don't know all this. 

You create an account, and there's a call to action immediately. Now fund the account. The remittance happens instantaneously. We don't even have to call it a remittance. This way, we own the flow. If somebody uses MoneyHop or Winvesta for remittances, they need to have a destination account. These are migrants who are traveling, and they don't have an account. We create that account for them. MoneyHop and Winvesta also have to compete with the TransferWises and Remitlys of the world to do remittances. So we're not really looking at remittances as a competing product with TransferWise or others. 

For us, this is like the immediate next step, and they don’t even have to know that they’re called remittances. We are ahead in the customer lifecycle. I'm traveling now, and I need a bank account there so that my money is waiting there. So I create a bank account and fund the account. It's part of the journey.

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From an expansion point of view, what are the next two or three milestones that Zolve is working towards?

Currently, we have a few products. For a period of time, we want to increase the number of products that we have, so we are working on that. The business provides multiple opportunities. There is a whole list of products on one side: bank accounts, credit cards, remittances, wealth management, trading accounts, etc. There's a whole lot of different customer segments: students, working professionals, local Indians, etc. Then there are multiple corridors: India to the US, India to Canada, India to the UK, Canada to the US, the US to Europe, etc. So it’s x cross y cross z. 

The question is, how do we prioritize? Currently, we are looking at different products for different customer segments. In the long-term, we will look at different corridors.

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Zolve’s website mentions connecting students with student loan providers, especially for studying in the US. Do you see cross-selling products as a lever for growth?

The thing is, it's not about cross-selling. As I mentioned, we want to be a full-stack financial services provider for our customers so that they come to us to get access to everything. For a student, a student loan is something that they will be worried about. In this case, why make them go discover who is offering loans? They come to us, and they get the options for getting a loan. When you apply for a credit card or a student loan, the documentation is the same. The customer uploads documents once, and they can use them for multiple things.

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