How Spocto makes loan collection faster and more efficient


Sumeet Srivastava, Founder and CEO, Spocto Image: Neha Mithbawkar for Forbes India

Jhe best way to lose a customer is to turn the account over to their collections department. This is the firm belief of Sumeet Srivastava. This is also what led him to found Spocto, an artificial intelligence-based platform that allows financial institutions to assess the risk profiles of their clients.

Example: When a customer takes out a home loan, a credit and profile check is performed. While past behavior may show that the customer is likely to pay, how do you make an assessment for, in most cases, what is a loan with a term of 20 years? At any point in the journey, the loan may go wrong and the lender may have missed the warning signs.

Or a two-wheeler loan customer may have an unpaid charge of Rs 100 due to an NSF debit for the monthly loan installments. This charge would not allow them to remove the mortgage on the vehicle and make a sale impossible. How do I close this account?

As credit has exploded over the past decade, the number of consumer interactions has increased dramatically. In FY22 alone, personal loans rose 22.4% in value to Rs 792,400 crore, according to data from CRIF High Mark, a credit bureau. There were 58 million active loan accounts. Each of these should be managed and monitored for signs of stress.

Lenders have seen old collection methods fail. Outsourcing to a collection agency brings suboptimal results. At Rs1200, the cost of dispatching an agent may not be worth it when collecting a personal loan payment of Rs2000. At the same time, financial institutions realize that they can’t be good lenders if they don’t learn how to collect effectively. The warning signs must be detected and consumers must be encouraged to make payments. This is painstaking work that is often outsourced and best done through the use of technology.

Enter Spocto, who set up shop in 2017. Srivastava, who co-founded the company with his wife Puja, had spent a decade with Monsanto in India and Asia. At that time, he had seen the power of technology and how it had changed the lives of farmers. He had witnessed firsthand how indebted they were to the change brought about by technology. The penny dropped for him when he saw that as a thank you, a farmer had put the RSVP number on a wedding card because the service on which Monsanto provided crop information. “I called the farmer and he told me that his annual income had increased by Rs 70,000 to Rs 100,000 by using this service.” It was then that he decided not to return to the US with Monsanto and to work in the B2B space in India. (His stint in the finance arm of General Electric had given him insight into retail banking.)

In the nearly five years since its inception, Spocto has served 4.5 million customers through 25 clients, who are lenders. The company expects to generate revenue of Rs 250 crore in the financial year ending March 2023 compared to Rs 75 crore in the financial year ending March 2022. Srivastava says the company is profitable with an EBIDTA margin of 28%.

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In February 2022, the debt market, Yubi, bought a 75.1% stake in Spocto for Rs400 crore to allow lenders to use Spocto’s recovery solution. Spocto operates as an independent unit at Yubi. Gaurav Kumar, founder and CEO of Yubi, explains that for Yubi, Spocto’s work with lenders in India was a key reason for their purchase. “We believe it is not possible to deepen debt markets without providing strong collection capabilities,” he said.

How Spocto makes loan collection faster and more efficient Working with lenders

Over the past decade, lenders have strived to hone their debt collection skills. For them, it was a learning curve as they tried to balance the cost of collection with the effort and time involved. As the number of accounts grew, they realized that customers new to credit had to be treated differently. The collection methods used for a large business loan cannot be the same as those used for a personal loan of Rs50,000.

Here’s what they’re up against. Only 18% of the country has an office record, but with the proliferation of Aadhaar numbers, a person’s identity is no longer in question. So when a new credit customer applies, a lender can often make a quick decision about starting the person off with a loan of Rs 10,000-100,000.

Even with a customer with a credit score of 750 and above, there’s a 38 to 40 percent chance they’ll default, says Srivastava. How to solve this problem ?

Using a marketing analogy, it becomes possible to understand how to map a customer. Suppose a customer is looking for a plane ticket to Thailand or a yellow sofa. Although this data cannot be traced back to a specific customer due to the General Data Protection Regulation, it may be used in an anonymised form. As a result, on this computer, banner ads for flights to Thailand or a yellow sofa began to appear.

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Similarly, when a customer applies for a loan, up to 240 data points can be tracked. Suppose an employee of a particular company applies for a personal loan. The IP address is publicly available. The lender can immediately tell that the person is in office when applying. If you are applying from home, the lender knows the speed of the data connection used. A 40 Mbps customer would be treated differently than a 300 Mbps customer. Then once a phone number is entered it is possible for the lender to see if it is a mobile phone with a data connection as there are startups that sell API information. If the person does not use a smartphone, this tells the lender something about their socio-economic background.

Data points like these help lenders assess customer credit and also allow for smoother collections. “If I send a debt collector to a client using an iPhone 14, I might get the door slammed in my face,” Srivastava says.

Once the loan has been granted, it must be monitored. Spocto looks for signs that a customer who pays regularly might not make the next payment. For example, if a credit card statement that was sent to an email id is not sent in a given month, a red flag will light up. If a mobile number goes inactive, another red flag goes up. If a card that’s been inactive for months is swiped near the credit limit, the bank will keep a close eye.

Banks and lenders now monitor their portfolios continuously and in real time. “Overall, 30% of the loan portfolio will remain high risk at some point,” says Srivastava. This can take the form of an EMI rejection, late payment, direct debit rejection, or dispute with the bank over a small fee.

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Second, when it comes to collections, customers don’t want to be intrusively disturbed. For millennials, sending an email requesting payment works better than having a call center employee chase them away. Jitesh Pujari, head of retail strategy and debt management at IndusInd Bank, who has worked in the industry for more than two decades, says only 1-1.5% of customers default. The others either have a temporary cash flow problem or have simply forgotten to pay. Using aggressive tactics is often counterproductive. “Thanks to technology, we can talk to a customer in the language they understand,” he says. The bank is a customer of Spocto and has gradually extended its use of its offers.

Using a combination of demographics, psychographics, and numerical behavioral data, Spocto was able to predict the likelihood of a customer defaulting at less than 30%, according to Srivastava. This compares to the 38-40% chance that a credit bureau score can predict.

The company says it is working on mapping the digital journeys for each customer and then creating a risk assessment. For example, if a well-meaning customer has not paid, an SMS with a payment link will be sent. If the customer clicks on the link, the risk rating goes down a notch. If he attempts to pay but is unsuccessful because his UPI account is not working, the risk rating will decrease further. A few days later, another message would be sent with a payment link and the risk assessment redone. Each of them is a different digital journey to place the consumer in a different bucket.

While refusing to divulge numbers on their success rate, Spocto says the results have been very encouraging. The company launched its offer for customers in the Middle East on October 5.

Spocto is also clear that they will take no balance sheet risk. The model is a fee-based model and the risk of non-collection on the loan remains on the lender’s balance sheet. Srivastava says it expects to serve 40 million consumers with 85 lenders by March 2023 for agricultural loans, personal loans, home loans and buy now pay later. While lending continues to grow rapidly, demand for services like these looks set to remain.

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