This online instalment store for students claims to have disbursed 80,000 loans till now. Operational in four cities, the startup plans to expand to 10 more cities soon.
Madhusudan E, 35, could never have imagined that his love for big data would land him in the lending industry. Having spent more than 10 years with Chinese communications technology giant Huawei, Madhusudan in his last role headed the company’s ecommerce division.
That role would provide a meeting ground to get introduced to future co-founders, Karthikeyan K, 34, and Wan Hong, 34. Karthikeyan was a technology guy and the chief architect of Huawei’s ecommerce system while Wan Hong was Madhusudan’s Chinese counterpart, co-heading the ecommerce division with him.
So, how did Madhusudan get the idea of starting KrazyBee, a startup that looks into giving EMI-based personal loans to students?
A rather interesting incident changed this NIT-K graduate’s perspective towards the student loan segment in 2015.
His cousin, who belonged to a tier-2 city and had come to Bengaluru to study, needed money to buy a laptop. He didn’t have a bank account and transferring money became a big challenge. His parents, from a salaried class background, also found it tough to shell out large amounts of cash in the middle of the month.
That incident stayed with Madhusudan, validating the credit needs of this segment.
He says: “The idea was also to look at small-ticket items where ticket sizes are small but data collected can be huge.”
KrazyBee was incepted in the last quarter of 2015 with three co-founders. However, the final platform was launched only in May 2016.
KrazyBee, said to be India’s first online instalment store for students, is a marketplace that connects borrowers (students or their parents) to the lender.
But this venture isn’t the first of a kind.
Chinese-based Unicorn Fenqile functioned as an online shopping mall that targeted college students and let them repay loans in instalments.
The need to understand these reference models took Madhusudan to China for two months, where he met the CEO of Fenqile and eventually received a seed capital of $2 million in June 2016. The round saw participation by Fenqile and Chinese ad network company YeahMobi.
At present, KrazyBee has six other lenders on the platform, with IIFL being the largest. The firm also has an NBFC licence under the entity KrazyBee Services. It operates across four product lines, and makes most of its income from margins on the products sold. These include:
#1 Loans for electronic gadgets. The company ties up with ecommerce players to facilitate these. With an average tenure of seven months, the founders claim that KrazyBee can rake in as much as 3 percent in margins from ecommerce players like Flipkart and Amazon for every product sold.
#2 Student paycard product. With a wallet licence, the firm has partnered with Mastercard and Yes Bank to give out virtual cards. Once issued, the card is disbursed with a loan amount. However, all credit disbursed is first assessed by the firm. Since this is a semi-closed wallet, the firm controls discretion on vendors where the card can be used. This is done to avoid any malpractices. The founders claim that they can make 1 to 2.5 percent margins on each loan disbursed.
#3 Semester loan product. This allows college students or their parents to take loans for college fees for a particular semester. This is done through tie-ups with college managements, raised as a demand draft in the name of the college. Madhusudan explains that the startup can get as much as 5 percent in commissions, if agreed upon with the college.
#4 Two-wheeler finance. This is done in partnership with dealers. KrazyBee has tied up with five bike distributors and dealers in Pune and Bengaluru. Margins and commissions can help them gain between 2 and 5 percent margins for this segment.
In January 2017, the firm raised its second round of funding from Beijing-based Plum Ventures.
According to the founders, KrazyBee used the investment partially to build technology and the rest to offer additional loans to students. The company is also in the process of raising another round of funds over the course of the next one month.
KrazyBee is operational in four cities – Bengaluru, Pune, Mysore and Vellore – and plans to expand to 10 more cities soon, including Hyderabad, Mumbai, Chennai, Nagpur, Nashik and Manipal. Madhusudan says KrazyBee gets 1,300 loan applications on a daily basis, with an almost 50 percent approval rate.
The company claims to have disbursed 80,000 loans and processed close to 1,70,000 applications. In June alone, the firm said it had disbursed loans 20,000 loans worth Rs 7 crore.
But with no credit history whatsoever, how does KrazyBee underwrite the worthiness of students?
Madhusudan says, “We pick close to 800 data points that help us in making credit decisions. Apart from the payment history of the student on the platform, we have a community-based underwriting system for a college, where we look at the fee structure, pocket money and key in other factors to assign credit.”
Interest rates on the platform can also differ for various colleges, based on the same logic.
KrazyBee gives loans to students in colleges with fees above Rs 70,000, so as to not hamper the ecosystem by lending loans to those who cannot pay back.
As a result of this, the firm claims to have a total NPA (loan defaults) of 0.8 percent. The company sets a loan as a default if there is no repayment after 90 days.
“While looking at NPAs, one should not see just interest as the only income. There can be additional income streams like registration, process and late-fee penalties, which could be used to balance out loan defaults. In our case, the margins we make from dealers and commerce platforms can negate defaults.”
The 80-member team is aiming to reach a Rs 100 crore loan book over the next two quarters. The firm also wants to cater to the entire educational ecosystem, targeting everyone – be it college professors for personal reasons or colleges taking loans for building infrastructure.
The founders want the startup to evolve with college students and enter the young professional segment, crafting short-term loan products customised for their needs.
However, KrazyBee is not the only player in this segment. There is SlicePay, which enables college students to avail everyday products and services with flexible monthly payments. In October 2016, the startup (SlicePay) had more than 120 colleges with over 10,000 active transactions made on the platform.
There is also Mumbai-based Simpl, which is working with NBFCs and banks. It allows a consumer to buy now and settle for the purchase at a more convenient time. However, Simpl doesn’t have an NBFC licence and doesn’t focus specifically on the college student financing space.
KrazyBee continues to work towards fulfilling the aspirations of college-going millennials.