Transforming Credit Cards into Lifestyle Essentials

Ankur Joshi:

Hello, everyone. I'm Ankur Joshi, the founder and CEO of Nuclei, a Fintech collaborating with various enterprises, providing products to multiple banks and telcos. Today, I have the privilege of hosting Rupesh Kumar, a dear friend and a banking industry veteran, now a startup founder at OneCard, on the podcast. Rupesh, I'm glad you took the time to join us.

Welcome to the podcast.

Rupesh Kumar:

Hi, Ankur. Thanks for having me. It's a pleasure to be here.

Ankur Joshi:

Just before we started recording, we were discussing how the journey of OneCard has been more than just a three-year endeavor but a 25-year plus journey. We talked about how certain life events shape an individual and lead them to their current positions.

So, let's start from the beginning. Please tell us where you grew up and how your journey unfolded during your IIT Delhi days.

Rupesh Kumar:

Ankur, I grew up in a small town called Bokaro Steel City. Known for its steel plant, it was a unique place filled with engineers working in the steel plant. The diversity of people from all over the country resulted in a convergence of bright minds and varied cultures, influencing friendships and experiences. These were some of the best days of my life, with fond memories of school, diverse friends, and exposure to different cuisines. The town's engineering-centric environment naturally drew me towards pursuing engineering. Moreover, the steel plant's collaboration with the Soviet Union introduced me to Russian books and schooling, distinct from the American approach I encountered later in college.

Ankur Joshi:

That's very interesting. You're the first person I've come across who distinguished between Russian and American books. How is it different?

Rupesh Kumar:

Russian STEM is very problem-oriented. What you do is start with problems, and then you move to concepts. The way they explain things is everything begins with a problem, and then they delve into the theory. In contrast, the American approach is mostly theoretical, and you look at the problem afterward. This approach really puts your mind in a problem-solving orientation before you dive into the material. It had a significant influence on the way I think about things. I tend to look at problems, understand them first, then look at solutions and figure out something.

So, it had a huge influence on me. I'm a big fan of Russian books, by the way. I have many of them still in my house, preserved from those old days.

Ankur Joshi:

With that framework in mind, you used it to get into IIT. How was your experience at IIT Delhi?

Rupesh Kumar:

The first two years were challenging as I transitioned from a small town to the bustling city of Delhi. It was a significant change, but as I made friends and adapted, things became interesting. IIT Delhi had a mix of day-scholars and those like us who stayed in hostels. The last two years were a blast, filled with exploration and interactions with diverse people, providing a humbling experience. During my childhood, I aspired to be a pilot, but a summer training experience in aeronautical engineering shifted my focus to software. I pursued a minor degree in computer science, marking the beginning of my journey into computer science and engineering.

Ankur Joshi:

I can relate to your experience. Moving from a smaller town to a metropolitan area comes with its own set of challenges. Your journey continued with stints at tech companies, an MBA at ISB, and a 16-17 year tenure at ICICI bank.

What made ICICI unique, and why did you stay for so long? Please walk me through that.

Rupesh Kumar:

ICICI is a very unique institution, and I have very fond memories of it. Sometimes there's a slip of the tongue, and I still refer to myself as being from the bank. What stands out is the culture that the institution has built, and all credit goes to the leaders there. I joined as a management trainee after my last job in the Fintech company called Web Tech, which aimed to build a prime brokerage system on the web in 2000 and 2001, ahead of its time. Unfortunately, it shut down, and I found myself at ISB, where I got into finance. This seemed mathematically interesting, and I naturally gravitated towards it.

Coming to ICICI, I thought I would work on financing models. I specifically chose finance and became a part of financial strategy, cooperative mergers and acquisitions for the entire group. However, from the first day, I realized it was more about accounts than the models I had in mind. B-school accounting focused on industrial companies, and the banking sector's accounting was entirely different. It took a few months to gain confidence and start understanding it. Accidentally, I ended up working with leaders like Mr. K V Kamath, Ms. Kalpana Morparia, Mr. Kannan, and Rakesh Jha, which shaped my thinking from the ground up.

It was during those years that I turned from an engineer to an accountant, truly understanding accounts. Since ICICI was listed in the US, I was involved in preparing the 20-F, the listed statement for companies on the NYSE. I also participated in two fundraisers, including a $5 million follow-on offering, the largest at that time. The institution trusted its people, gave them responsibilities, and set performance metrics. This trust and entrepreneurial spirit built many leaders. ICICI was very entrepreneurial; you were given a job, expected to do it, and held accountable for it. This approach cultivated a crop of leaders, and Mr. Kamath deserves credit for fostering such an environment.

Ankur Joshi:

Exactly, that's precisely what I was going to mention. The number of leaders in the financial industry, at CEO, CXO, and even startup founder levels, often have a strong connection with ICICI. It's unique, and I haven't seen it in other banks across regions. There's something right happening at ICICI. As you rightly said, even at a young age, they give you the freedom to test, make mistakes, learn, and take responsibility. It's a courageous approach that reflects in your pride about your ICICI background. Spending a long time there is a testament to the entrepreneurial atmosphere and freedom it provided.

Now, from the perspective of OneCard and ICICI being a significant issuer in the country, what problem did you identify in the market? What gap led you to decide to solve this problem?

Rupesh Kumar:

Fascinating question, Ankur.

Let me take you back to the days when a significant event occurred. This happened during the 2008 financial crisis, a period etched in my memory. At that time, I was managing investor relations for ICICI. The crisis had engulfed ICICI in its own set of challenges, and I found myself interacting extensively with investors, traveling extensively to meet them. The global financial landscape was unraveling, and we were severely impacted. Our share price plummeted from 500 to around 52 during that phase. It was a profound learning experience in finance. We, including myself and Hari, during that era, witnessed ICICI lose nearly a billion dollars in credit cards alone, specifically in unsecured lending like credit cards and personal loans.

This setback prompted a deep introspection within the company. It took us some time to recover, but it was during this period that I formulated what we now call the three laws of successful financial institutions. These principles, derived from our experiences, continue to shape the ethos of OneCard.

The first and foremost criterion for long-term success in this industry, according to us, is robust risk management. Given the highly leveraged nature of our industry, where capital effects allow for significant balance sheet growth, effective risk management is pivotal. Institutions like Goldman Sachs, JPMorgan, HDFC, and recently ICICI have stood out, emphasizing the importance of solid risk management. It became the foundation upon which a sound financial institution is built, ingrained in our team through the challenges we faced in that critical period.

The second lesson learned was the importance of low-cost funding for a financial institution's success. In this industry, where money is the raw material, having the lowest cost of funds enables us to offer competitive pricing. Building a long-term deposit franchise became crucial, influencing the type of franchise we needed to establish.

The third lesson was a realization that, fundamentally, we are in the service business. Customer experience and how we engage with customers are the key drivers of profitability. Contrary to the misconception that high rates on credit cards generate profits, the truth lies in retaining customers for extended periods. If you can keep a customer for 20, 30, or 40 years, you will make money without resorting to exorbitant rates. These three principles have been deeply embedded in OneCard from day zero, a testament to the lasting impact of that challenging period.

Our journey at OneCard was a convergence of minds. Anurag and I, along with Deepak and later Hari and Devang, had previously collaborated on various projects. Anurag managed personal loans, Deepak handled prepaid cards, I managed digital channels, and our paths would often cross on different projects. Despite Anurag's earlier move to become a co-founder at Walnut, there was already a strong working relationship among us. My association with Hari and Devang further solidified our connection. We had worked together before coming together to launch the company.

My involvement in the UPI steering committee further fueled our understanding of the evolving financial landscape. Sitting in the steering committee during the early stages of UPI, witnessing its growth from a few hundred thousand transactions a month to a significant force, made it evident that consumer interfaces were shifting away from banks. The discussion during the Tapzo times and the integration of the SDK inside i-mobile highlighted the recognition that certain aspects were not our strengths. UPI, in particular, made it clear that mobile platforms would play a significant role in financial transactions. The profound impact of UPI was evident in how even non-tech-savvy individuals, like my mother, transitioned from never using a debit card to adopting UPI for transactions.

This paradigm shift in consumer behavior and distribution power was the catalyst behind identifying the problem we aimed to solve at OneCard. That's the genesis of how OneCard came into existence.

Ankur Joshi:

That's truly intriguing, and it's a remarkable journey you've undertaken, right? Often, it's only in hindsight that we discern the steps taken and connect the dots, not while immersed in the journey. The fact that the five of you had an extensive working relationship over a considerable period and then joined forces again to start up is a compelling narrative. You touched upon three crucial elements: risk management, the cost of capital, and customer experience concerning OneCard. I believe you commenced with the third point—delivering a seamless and appealing customization.

I must say I'm highly impressed with the recent advertisement that was released.

Rupesh Kumar:

The interesting aspect is that most of it is crafted in-house by our team. Even some characters in the ads are our employees. It's a delightfully fun process.

Ankur Joshi:

That's incredible. Truly incredible. It's a fantastic ad. You addressed the other two aspects, the cost of capital and risk management. Today, OneCard operates atop multiple banks, and you're among the few fintechs that banks express immense satisfaction working with. How did this relationship and partnership evolve, and what's your rationale behind it? Additionally, are there any plans to secure capital, not just for growth but for running your own books and independent risk management?

Rupesh Kumar:

A very intriguing question because, again, if you revisit those three principles I discussed—risk management, we don't have a say in it; it's within the banks' purview. They decide and execute the policies. Of course, we provide input on how to enhance convergence, identify areas of improvement, but the ultimate responsibility lies with the bank. The reason for collaborating with banks goes back to the second point. Starting with a higher cost of capital would entail dealing with riskier customers due to the necessity of higher pricing. While working with banks presents its challenges, given the intricate structure, we were clear that maintaining a low cost of funds was imperative.

This led us to opt for a full-stack approach because our initial strategy involved partnering with banks lacking a credit card business. Imagine approaching a bank without a credit card system and proposing to start a credit card business. It would be challenging. So, we decided to go full stack, beginning in August 2018. Anurag and I brainstormed and initiated the credit card management system development. We explored various vendors but soon realized that building from scratch would be more efficient.

We took our time, secured patient capital, and commenced work in October 2018, starting from ground zero. Our objective was to have everything needed for a credit card business when approaching a partner bank. We'd offer them a comprehensive solution, running the program, and in return, they'd share a portion of the portfolio revenue. Risk management and KYC would remain their responsibility. This approach was the genesis of why we collaborate with banks, leveraging their low cost of capital. To enable this partnership, we needed a complete stack of capabilities. When engaging with smaller banks, we assured them of having everything in place, minimizing their upfront costs. We'd operate as a TSP, furnishing technology and documentation. That's the essence of our collaboration with banks, and we ensure seamless communication and support, aiming for a relationship where the banks never have to question anything, with us meeting all their needs. We put in considerable effort to achieve this.

Ankur Joshi:

Interesting and very, very smart as well. Now when you think about a credit card as a business, do you think it's a zero-sum game right now? Because I know there is a lot of untapped potential in India, but today do you think banks are competing for the same customer? And then there's the market information which we keep getting that. Usually, customers have four or five credit cards, right. Are you fighting, probably for the 3rd, 4th card, is that happening? And if that is happening right, acquiring a customer is a problem statement in itself, then engaging with that customer and then making sure that the customer is transacting using your card is a completely different problem to solve.

Right. So how are you tackling both of those problems?

Rupesh Kumar:

Again, a very interesting question. Looking at the market, let's begin with the population. Everyone starts with the population and narrows down to specific segments. We have a substantial population of 1.2 billion people, with 800 million being adults. Notably, 500 million individuals have already engaged in borrowing, indicating a significant economic activity. It's clear that people are familiar with the borrowing process. Our society is well-aware, and even excluding microfinance, around 400 million people have a credit history. Essentially, 400 million is a sizable target population with borrowing and repayment experience. Applying additional filters based on income levels and leverage preferences, our hypothesis suggests that, as of now, there are approximately 100 million people who should possess a credit card. Currently, considering the existing number of cardholders, not the total number of cards, we're at around 40 million. Even without factoring in the potential increase in the working population or GDP per capita growth, the addressable population for credit cards is 100 million.

Envision the GDP per capita rising from 2500 to 4000, 6000, and 8000. Drawing a parallel with China's trajectory, going from less than 100 million cards to a billion, the growth potential is evident. Discounting certain variables, the trajectory is clear. A credit card is a consumption product, and its adoption aligns harmoniously with GDP per capita. If you conduct a regression analysis of GDP per capita and credit card penetration, a robust correlation emerges. Therefore, the driving forces for credit card growth are the rise in GDP per capita and an increasing workforce. The initial 100 million potential cardholders could well expand to a range of 200-250 million.

When we discuss these figures and extend the timeframe, it becomes apparent that the current credit card market, dominated by six to seven banks controlling 82-85%, leaves ample room. In a vast and diverse country like ours, there's space for five or six more players. Reflecting on historical instances, when banks like Yes Bank and Kotak Bank emerged, questions arose about their ability to attract deposits. Today, they are significant players in their own right. Our perspective is clear – we harbor no insecurities. Our confidence lies in executing our strategy: building a robust product, establishing a distinct distribution network, implementing effective risk management, collaborating with banking partners, and ensuring compliance with regulations. This approach assures us that success will follow. That encapsulates our thinking on this matter.

Ankur Joshi:

What's next for OneCard, and which are the significant problems you're currently addressing?

Rupesh Kumar:

Before launching OneCard, we introduced a product called "OneScore." This was conceived as a credit education product. During our research for OneCard, we engaged in consumer research, interacting with people outside walls, asking about their bank cards and credit card usage.

The primary reasons for not using a credit card were the fear of over-leveraging or overspending and concerns about undisclosed charges and interest rates imposed by banks. Two years before OneCard's launch, we decided to address this by introducing OneScore as an interim solution. Recognizing the potential for mistakes when using a credit card without proper education, we aimed to teach customers about credit scores. Many individuals entering the workforce, and even some who had borrowed before, lacked understanding about credit scores.

Personally, I wasn't aware that my credit score changes every month before delving into this. We aimed to rectify these gaps with OneScore, promising customers a straightforward experience—no spam, no calls. This commitment remains intact; we have never called our customers. Initially anticipated to attract 2-3 lakh customers, OneScore exceeded expectations, boasting 12 million downloads today. Our core objective remains ensuring borrowers understand their financial health, regularly checking their credit scores to avoid potential traps.

Moving on to OneCard, our goal is to incorporate additional banking partners into the platform. We have an extensive roadmap, including the introduction of various features and exciting products. Recently, we introduced a product that we are proud of, organically discovered through customer interactions. Many customers expressed their inability to obtain a credit card due to a lack of a credit score. Unable to alter the risk policy set by banks, we explored the idea of a secured card. Despite skepticism, we collaborated with SBM Bank, one of our partners, and the product took off. Though not yet a large-scale product, it elegantly addresses a customer problem by providing a card identical to unsecured products. The app, our main product, remains consistent across both secured and unsecured products. We focus on educating customers on credit management, gradually increasing their credit line as they repay. Starting at 100% of the FD as the credit line, it progresses to 120%, 150%, and eventually 200%. This seamlessly aligns with OneScore, allowing customers to witness their credit building up alongside their score. The approach stems from our company's name, FPL Technologies, standing for "first principles labs." We tackle customer problems from the ground up, as demonstrated by our discovery of this specific issue. By underwriting and upgrading customers, this product ensures a sustainable revenue stream over multiple years, presenting no challenges.

Ankur Joshi:

A couple of things. Firstly, that's a beautiful feature you have. I actually experienced it with a cousin of mine, and she was thrilled. At 19, with no credit history, she felt like an adult, a sentiment many young adults can relate to. Especially for recent college graduates entering their first jobs, banks often deny credit cards due to their status as new credit customers. This journey allows them to experience a sense of adulthood. The second point, which you've modestly not mentioned but is a significant differentiator, is the card itself. It's exceptional, with a premium feel that transcends age—whether a 21-year-old or a 50-year-old businessman, everyone has the same impressive card.

Rupesh Kumar:

Indeed, that's a valid point. When we were deliberating on the product launch, our main product is the app, providing various ways to service and engage customers. However, conveying that it's a good app without a tangible experience is challenging. Credit cards, unlike need-based products such as car or home loans, are lifestyle products. You don't wake up thinking, "I need a credit card." It's a product you don't need unless someone tells you about it. To cut through the clutter, we considered how to make the product stand out. If the product isn't need-based but lifestyle-oriented, it should look like a lifestyle product. Hence, the concept of the metal card emerged. Despite economic implications and cost considerations, the metal card positioned the product in the customer's mind as a distinctive lifestyle offering. It garnered downloads, allowing us to showcase a unique experience, different from the norm. It became a crucial aspect of our product strategy.

Ankur Joshi:

Very interesting point. Now, coming back to your ICICI days, it feels like déjà vu for me, having been a banker and then venturing into startups. Many bankers dream of or contemplate such a move. You've successfully made that transition, a significant feat considering your long tenure and senior position in a bank. While it's not uncommon for someone with a brief banking stint to start a venture, your journey is distinctive. What advice would you offer to current bankers entertaining thoughts of starting their own ventures? Please encompass both the positive and negative aspects, acknowledging the challenges of startup life.

Rupesh Kumar:

Firstly, you must be passionate about the problem and the opportunity you see. Fortunately, Anurag had already left the bank, so I could witness their efforts, providing some support. I've always been passionate about tech, having worked on i-mobile and built Pockets from scratch. Observing the growth of UPI in the UPI Committee, I realized the rapid pace of change. With the launch of the iPhone and the subsequent shift from Symbian OS to smartphones, I saw the world evolving. UPI further transformed how people use financial services. This motivated me, and with Anurag's encouragement, we embarked on this journey. The positive aspect was having like-minded people around, but there were challenges. Leaving behind ESOPs at ICICI and the doubts during the initial two years when progress seemed slow. It's a rocky journey, but with perseverance, one can overcome challenges.

Ankur Joshi:

Absolutely, maintaining passion and perseverance is crucial. Emotional and financial tests are inevitable during startup lows. Having a strong support system is essential, be it co-founders or a reliable team.

Rupesh Kumar:

Indeed, a startup revolves around people. The team is the primary product. Our team builds everything else.

Ankur Joshi:

It's been a pleasure chatting with you, Rupesh. One last question before we conclude the podcast: What is the kindest thing anyone has done for you? It could be from any period of your life.

Rupesh Kumar:

I recall an incident in school where, being tall, I was assigned to collect tickets for a paid event. When I confronted a few individuals trying to enter without tickets, I got physically attacked. A senior approached me afterward and, despite not having physical strength, advised me to get up. He shared a valuable lesson, stating that encountering challenges, both physical and mental, is part of life, and the day you realize there's no help around is when you become a man. While not a conventional act of kindness, it was an act of kindness in showing the way. Since then, I've gained confidence that you can overcome challenges with passion and determination. This lesson stuck with me since grade 7 or 8.

Ankur Joshi:

It's a beautiful lesson about resilience and mental strength. Thank you for sharing that. I've truly enjoyed our conversation, Rupesh. Best of luck with OneCard—a fantastic product. I wish you continued success.

Rupesh Kumar:

Thank you, Ankur. Always a pleasure talking to you. Bye.

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