After moving back to India from the US in 2013, Nityanand Sharma’s hunt for a credit card hit a major roadblock. As per the banks, he wasn’t eligible for credit cards and it came to him as a shock, despite his successful career on the Wall Street, an Amex platinum card and a decent bank balance. To add further insult to injury, his application was rejected even though he had a very strong relationship with banks in India. This was experience that drove Nityanand to start Simpl as he understood that millions of Indian consumers face the same issue. Simpl was conceptualized in 2015 and today is the market leader in the Pay Later space. Built as a B2B2C (business2business2consumer) platform that acquires users directly from its merchant network at the point of sale, Simpl is backed by Green Visor Capital, a San Francisco-based VC fund that is led by Joe Saunders, ex-CEO and Chairman of VISA. In this week’s Finapolis Conversation, Kumar Shankar Roy speaks to the Co-Founder & CEO of Simpl on the evolution, today and tomorrow of the company. Read on.
Why did you start Simpl?
The idea of starting Simpl originated from a personal experience that made me understand that millions of Indian consumers face the same issue - consumers with the same qualifications and characteristics as me, who were unable to access the benefits and convenience of a credit card, but were credit-worthy. That was the starting point in a long series of events that lead to the founding of Simpl.
What is the business model of Simpl is? Do you charge interest beyond an interest-free period?
We, at Simpl, realised that the best payment experience is no experience at all, which led us to create a platform that allows consumers to shop seamlessly by simplifying payment process. We created a model that solves the payment woes of customers by enabling a digital ‘Khaata,’ which has been traditionally the most reliable payment mode for India. By providing ‘ONE BILL’ for all payments, we aggregate all the expenses a user has made and generate their bill twice a month.
While mobile wallets often do not offer a single click checkout option since in most cases money has to be added during the purchase, we on the other hand, offer a single-click checkout option for customers.
We do not charge customers for utilising our services, Simpl is absolutely free to use. Once the bill is generated we provide five additional days to our users to clear their bill if the bill remains unpaid beyond that, then we charge a late fee of up to Rs 250.
Simpl’s pay-later business currently generates revenue directly from the merchants, and they pay a Merchant Discount Rate (or MDR). This MDR compensates Simpl for the cost of the transaction (covering everything from the credit risk associated with the underwriting to the financing of the advance to the merchant and the full stack cost of collections and servicing).
Is your credit assessment algorithm a sustainable business advantage and how?
Simpl is a lot more than just new-age ‘khaata’ because we have reimagined payments from the ground up by making it easy sans all the hassles. Talking about why we are a leading fintech start up, it’s because Machine Learning is an indispensable part of Simpl today. 100 per cent of our credit decision is done by machine intelligence with no human involvement at all. While onboarding a user, we focus on two key decisions - if the user fits our criteria for onboarding, and if yes, then what’s the credit amount that would be allocated to the user.
Our credit performance has proven that our underwriting models work, with credit losses continuing to outperform target loss levels, even as the user base expands. At any given month, 90 per cent of our users are repeat users that provide extremely attractive gross margins.
Is Simpl a technology company or a financial institution? Who is your regulator? Who are your backers i.e. investors?
Simpl is a tech company and since the company’s founding, we’ve had the support of our lead investor, Green Visor Capital, a San Francisco-based venture capital fund that is led by Joe Saunders, ex-CEO and Chairman of VISA. Joe’s experience in both financial services and most importantly payments has been a huge tailwind for Simpl, not only in thinking through consumer engagement but also in building the payment network of the future. In addition to Green Visor, our cap table includes IA Ventures, FJ Labs, and Recruit Strategic Partners on the institutional side who have relevant industry expertise and believe in Simpl’s vision.
Our aim is to continue offering convenient and safe checkout experience to our users. We do so by building a smart data and intelligence layer facilitating commerce between merchants, consumers, and capital providers. Being a neutral entity allows us to be the intermediary of trust that connects the three groups to each other in a way that creates value for everyone involved. Our long-term vision is to offer affordability when required, and loyalty programs to users who deserve it.
Who are your ‘Pay Later’ network partners? How do you acquire customers? What kind of growth are you witnessing? What is the average transaction size and is that growing?
Simpl works with 1000+ merchants like Zomato, Bigbasket, Quick Ride, Bounce, Faasos, Dunzo, etc. Simpl is a B2B2C platform that acquires users directly from its merchant network at the point of sale that allows it to be extremely efficient in its Customer Acquisition Cost (CAC). It does not urge users to sign up or opt-in.
The ‘Pay with Simpl’ button becomes visible to those consumers who are pre-approved for credit on the network. The platform functions as a powerful tool for building a reliable relationship between merchants and consumers through seamless registration without the requirement of KYC and offering one-tap checkout for multiple purchases. The average transaction size varies across the category of the partnered merchants for example the average ticket size on food category is between Rs 250 - Rs 300 and on essentials it’s Rs 800+, whereas on the other hand daily commute apps sees an average ticket size of Rs 30 - Rs 50.
Some companies have arrived on the ‘buy now, pay later’ scene. Along with Simpl, there are ePayLater, LazyPay. Amazon India is offering it. Flipkart is offering it. In this backdrop, how does Simpl stand out from the crowd?
All of the above are part of the fastest growing payment categories in India called Pay-Later. Naturally, the industry will witness multiple companies expanding the market, and Amazon Pay Later along with Flipkart Pay Later is a great initiative. It’s a huge market opportunity and I believe it requires multiple companies working together to solve the problem around digitisation of payments. Simpl was started in 2016, and today is the market leader in the Pay Later space.
We have always focussed on small transactions that consumers do frequently. We are approaching this segment with a user experience that is superior to all other current payment options from a consumer and merchant perspective, which drives massive engagement and habit formation. For Simpl, the superior user experience addresses deficiencies of the India payments stack through our deep integration with merchants is as important as the pay-later feature. We don’t view Simpl as an affordability or credit product but rather as a convenience and trust building feature that merchants offer to their best customers.
If someone had a large amount of capital to burn, what would stop them from competing head to head with Simpl?
To be successful in Pay Later business, we would need to be able to underwrite users at internet scale. 100 per cent of our credit decisions are made using Machine learning. Our Machine Learning models have been observing user behaviour across various platforms for years, and it’s constantly evolved. We don’t think any amount of capital can buy this learning time.
Our Machine intelligence has a headstart. Further, we have deep integrations with most of the category leaders. Being a neutral platform, merchants are more willing to work with us. It takes time to build a merchant network. As with any marketplace, if you do not have enough merchants, customers will not have avenues to spend and vice versa. Capital can shorten the time to build the merchant network, but it still can’t happen overnight.
What is the proportion of Simpl people that are charged late fees? Also, what is the proportion of customers who turn delinquent?
Owing to the invite-only nature, Simpl attracts a selected group of convenience seekers (rather than credit seekers) who constitute the most loyal and highest value customers of our merchants, creating an inherent risk mitigation framework. About 90 per cent of our users pay their bill within the due date and about 10 per cent users miss their due date and are charged late fee. And about ~0.95% customers turn delinquent.