Why Sachin Bansal can’t resist building tech in-house to boost Navi’s fortunes

Bansal, who previously co-founded e-commerce giant Flipkart and was the original posterboy of India’s startup ecosystem, is building most of the technology stack for Navi in-house. These include LLM apps, chatbots, a lending management system, and an app platform to speedily launch new products and services.

While this can be challenging and “slightly slows down” the development of new technology, “the flexibility we get is unmatched”, Bansal said in an interview with Mint.

After Bansal exited Flipkart in May 2018 following Walmart Inc.’s acquisition of the company, he pocketed a little over $1 billion from the sale of his shares. Over the last five years, the computer engineer from the Indian Institute of Technology-Delhi has funnelled a significant portion of that wealth into building Navi, which Bansal plans to take public shortly (he had dropped plans for an IPO two years ago).

Of Navi’s 2,000-odd employees, about 500 are part of the company’s technology team, which comprises more than 350 engineers and about 70 data scientists. “We hire the best computer science grads from IITs and pay them well,” said Bansal.

The executive chairman and CEO of Navi started the company with an ambitious goal—“to make finance accessible to the masses and small businesses”. And he believes that while financial services such as lending, insurance, mutual funds, and banking have improved in the country in recent years, there remains much scope for enhancing these.

“Banks are also not the most customer-friendly institutions, and they have high cost of transactions,” said Bansal, insisting that Navi can reduce costs using technology, “opening up completely new ways of doing things”.

Building key components of the technology in-house is helping Navi speed up the feedback loop, Bansal said. It’s an “iterative approach” and “we have introduced a consumer-internet way of building products in finance for the first time”, he said.

For instance, Navi has built an in-house communication and marketing platform, a co-lending and direct assignment platform called Navi Lending Cloud, and is building its own data platform, too. “Whatever we do needs to be scalable—for a few millions and not for a few thousands,” Bansal explained.

Navi also leverages GenAI tools but has opted for “fine-tuning the best-available LLMs to solve customer problems” and not reinvent the wheel, Bansal explained.

Fine-tuning an LLM involves using a pre-trained model (such as GPT-4, LLaMA-2, Claude-3, or any proprietary or open-source LLM) and training it further on a domain-specific dataset. 

Navi, for instance, uses LLMs for customer chatbots, “where they naturally lend themselves”. It is also fine-tuning LLMs for use in collections. “When it comes to customer follow-ups, the first point of contact when paying EMIs (equated monthly instalments) is the LLM chatbot. A human steps in only if the chatbot fails in the task. This  has driven huge efficiencies in the system, and resulted in enhanced customer experience too,” Bansal said.

According to him, customers like the fact that the bot can communicate in Indian languages, including Hindi, Tamil, Bhojpuri and Marathi. 

Navi also uses LLMs for data annotation “to extract patterns from text and images too”. Data annotation is the process of tagging or labelling data to help machine learning algorithms understand and classify the information they process. 

The next step, said Bansal, is “to drive sales through the bot”, and “the vision is to help anyone take a loan without even using the app—just using Whatsapp”.

Bansal is hoping these moves will boost Navi’s revenue, most of which currently comes from lending. Going forward, he expects most of the growth in terms of consumers to come from the unified payments interface (UPI)—a space now led by Walmart-owned PhonePe with a 46% market share, followed by Google Pay (36%), and Paytm (13%). 

“We have about 6 crore (60 million) Navi app downloads, about 1 crore (10 million) monthly active users, more than 20 lakh (2 million) active loan seekers, and close to 10 million people registered with us for UPI,” Bansal said.

The Indian fintech sector is growing at a fast clip. The industry’s market size, which was $50 billion in 2021, is pegged to touch about $150 billion by 2025, according to Invest India. However, while the market opportunity is big, funding has not kept pace. 

India, which is ranked third globally in terms of fintech startup funding, saw just $2 billion investment in 2023, according to data intelligence platform Tracxn, compared with the $5.4 billion it raised in 2022 and $8.4 billion in 2021. 

The trend is continuing, according to Tracxn, with domestic fintech companies witnessing a 57% drop in funding in the January to March quarter of 2024—they raised a total of $551 million as compared with $1.3 billion investment in the same period in 2023.

Navi Finserv group, a wholly owned subsidiary of Navi Technologies with a non-banking financial corporation (NBFC) licence, raised about ₹495 crore in FY23 and ₹481 crore in FY24 through secured, rated, listed, and redeemable non-convertible debentures. Last month, the company raised another ₹525 crore by way of NCDs. 

Bansal, who owns a little over 97% equity stake in the company, is also reportedly in talks to raise $200-400 million for Navi Technologies at a valuation of $2 billion. However, he declined to comment on any such move.

In September 2022, Navi Technologies received approval from the Securities and Exchange Board of India for an initial public offering of shares to raise ₹3,350 crore. 

As per the draft red herring prospectus (DRHP) that Navi filed in March 2022, ₹2,370 crore of the IPO proceeds was to be invested in Navi Finserv Pvt. Ltd and another ₹150 core in Navi General Insurance Ltd, with the rest of the amount allocated to “general corporate purposes”. 

But the IPO is yet to see the light of day. 

“At that time, we were a purely lending company. Now we have a lot more to talk about. Our lending business, too, is more mature. And we have built a digital and physical story,” says Bansal, who did not commit to a time frame for the IPO but hinted it could be in the “next quarter or so”. 

Navi has also grown inorganically, having acquired five companies till date, according to Bansal. 

One was a tech acquisition, while the rest were for banking, NBFC, and mutual fund licenses. But these weren’t without hurdles.

Bansal bought Chaitanya India’s parent company Chaitanya Rural Intermediation Development Services for about ₹739 crore in 2019. But in May 2022, the Reserve bank of India rejected Chaitanya India Fin Credit’s application for a banking licence, following which Bansal sold the company to Ananya Birla’s Svatantra Microfin for ₹1,479 crore in August 2023. 

“We have parked the idea of applying for a banking licence for now,” said Bansal. “RBI took some time to understand the strengths and weaknesses in the fintech sector. As their understanding deepens, RBI has seen and given us feedback. Just as RBI took a while to regulate the microfinance sector, which now has fewer grey areas to work with, we believe the fintech industry will go through a similar uncertain period before it settles down,” he added.

Bansal did not disclose the company’s revenue but according to its latest filings, Navi Finserv reported a net profit of ₹172 crore for FY23, swinging from a loss of ₹67 crore in the preceding financial year. The unit had posted a net profit of ₹97.5 crore in FY21. 

Operating revenue in FY23 jumped to ₹1,283 crore from ₹457.1 crore in the year prior.

Bansal insists Navi is “now in very good shape. It’s a year of consolidation because of the uncertainty around digital finance that is facing the sector—so there’s a bit of a slowdown. We, and the whole industry, are likely to get back on the growth path soon.”

Original Source