Mumbai: Personal finance websites have been drawing the interest of venture capital (VC) funds enthused by the prospect of young, Internet-savvy Indian consumers looking for mortgages and help with filing taxes.
Chennai-based loan website BankBazaar.com on 17 March got $6 million from Walden International (WI), a US-based VC firm. This was the second tranche of funding for the site following a $1-million investment from Chennai-based AVT Infotech in August 2008.
It also marks the latest in a series of venture investments in sites linked to personal finance in the past couple of years.
“India has a young population with a majority under 35 who are Internet savvy,” said Rajesh Subramaniam, managing director of Walden India and a former ICICI Bank Ltd employee. “Internet penetration is low and only likely to rise, which is a huge opportunity. For banks, it cuts processing fees by half, compared to using other avenues like Direct Selling Agents.”
To be sure, Internet penetration is low and broadband is available in pockets, limiting the number of people who can access such sites. The sites also need to ensure their technology and security are robust, given that users will be entrusting confidential personal finance data to such centres.
Last November, Span Across IT Solutions Pvt. Ltd, which runs online tax filing service TaxSpanner.com, raised an undisclosed sum from Delhi-based Indian Angel Network Services Pvt. Ltd, a network of investors that funds “early stage businesses which have potential to create disproportionate value,” according to their website.
Earlier, Rupeetalk.com received Rs4.2 crore in two tranches from Seedfund, before it was taken over by venture funded NetAmbit Infosource and e-Services Pvt. Ltd in December.
Bankbazaar’s technology ready platform provided his company with a “unique proposition,” Subramaniam said. Although Bankbazaar is a relatively young site at just under three years old, he expects volume growth to be consistent in the next five years, riding on increased Internet usage.
The site allows users to compare loans and make online applications.
“If companies like HDFC are going to see a 20% annual loan growth then at least 20% of that will come through Bankbazaar,” Subramaniam predicted.
Bankbazaar chief executive officer Adhil Shetty said the company preferred venture capital to debt because more money could be raised, besides which it could get access to expertise.
“We now have tie-ups with six banks and plan to double it in the next one year, 18 months,” he said. “Debt would only give us Rs2 crore but through venture we could get large risk investments.”
Shetty, a former Deloite consultancy employee, started the venture in late 2007 along with six other US-based friends. The company now has 40 people, all of whom have stock options.
The company has partnered with five banks—ICICI Bank, HDFC Bank Ltd, ING Vysya Bank Ltd, Standard Chartered and Axis Bank Ltd—and mortgage finance leader HDFC Ltd
NetAmbit, which bought out Rupeetalk in December, has got venture funding twice in the last four years.
The company got Rs15 crore in 2007 and another Rs10 crore in 2009 from US-based Bessemer Venture Partners. Helion Venture Partners also invested Rs40 crore in 2009.
Apart from funding, venture investors helped improve strategy, said Girish Batra, chairman and managing director, NetAmbit.
“The idea to acquire Rupeetalk was theirs. They knew Rupeetalk was looking for funds and said we should look at buying a company rather than building it bottom up,” he said. The venture investors don’t interfere in day-to-day management but gave crucial inputs, such as finding the right talent.
For NetAmbit, the Rupeetalk acquisition has added an Internet presence to 140 offline locations.
Batra said he expects at least Rs50-60 lakh in revenue by the end of September, from “just a few lakhs” currently.
Venture funds are also seen as a better source of funding as Indian banks demand high levels of collateral from start-ups because of the high risk perception.
Anand Lunia, executive director at Seedfund, the earliest investor in Rupeetalk, said his company was persuaded to put in money by the competition between banks in retail loans.
“Before that, banks like SBI (State Bank of India) would not give loans if you didn’t have an account,” he said. “But that changed and it was the right time for a product which provided a comparison between banks.”
The personal finance sites offer greater efficiency, allowing customers and providers of services such as loans to reduce costs, said Robin Roy, associate director, financial services, at audit and consultancy firm PricewaterhouseCoopers.
“Internet penetration is low, so these sites have a lot of room to grow and if they can adopt mobile technology, then the growth can be exponential, but since they access information from public portals, they need to ensure the information is accurate,” he said. “However, I would not like to be over-ambitious with these websites because of the experience with the dot-com bust.”