Hemant Chafale, MD & CEO at Trust Fintech Limited talks about early days at the company, on recently getting listed, a changing business model and tech disruptions in the industry highlighting a soon-to-be-launched P2P lending product in partnership with ONDC.
Mubina Kapasi: Trust Fintech, a recently listed company and a very interesting industry as well. It’s IT, but a specialization in BFSI, so a double niche of sorts and years. Here’s Hemant Chafale, the Managing Director and CEO of the company joining us. Mr. Chafale, thank you so much for taking out the time. And you know, you have a very interesting and varied career progression, from engineering to control systems, to implementation of systems in various industries. I want to go back to the beginning. How did you and your co-founders decide to start Trust Fintech? What was the thinking behind the mission of the company?
Hemant Chafale: I am an instrumentation graduate and I started with the Bombay Dyeing, then moved to SR Gujarat and then to Indorama. Indorama Synthetics was my last job where we implemented a distributed control system which is basically controlling the plant operations and doing some programing across those control systems. My elder brother was in the same field and in banking. I was interested in doing something in I.T. So he suggested I start something in banking. Because it was very easy to enter at that time. Very few banks had good systems and he guided me on that. He was earlier working in the BFSI segment only and he guided me initially. Subsequently, he also moved to the US in ’99. So it was a very short time when we could work together. And in that time, the things started, the journey started then in banking, and then the customer’s requirements. We updated ourselves continually to RBI’s compliance requirements. Presently what we have is the resultant of inputs from so many consultants, banking experts, domain experts, RBI, everybody.
Mubina Kapasi: What is your global footprint like? Because in a lot of IT companies, usually the focus is how much are they exporting abroad. Because that’s essentially the key customer base. So let’s talk about your global footprint and what countries you have max exposure to.
Hemant Chafale: Since 2007, we have been working with African countries, then Asian countries like Sri Lanka and Nepal apart from India. And we had some assignments from the US, but not exactly in banking. Those were all tech solutions and product developments. But, recently we have a customer in San Francisco in the US, so for them, we are doing customization for one of the credit unions. My elderbrother has been working in the US for almost 25 years and he has been there in the banking industry, itself. So he is giving a lot of inputs for us to go forward.
Our major focus would be U.S., Canada and maybe, some countries in South America where the application will have required a Spanish conversion. So we’re also doing customization for the Spanish version. U.S, Canada and South America are on the cards.
Mubina Kapasi: Your margins have been rising very nicely. We’ve just been looking at the last couple of years. So what has aided that?
Hemant Chafale: Actually, the development has happened over a period of time. And, now the product is ready. Earlier we were giving applications on premise license basis. Now we have put it on a SaaS basis. Because of RBI compliances, the banks have shifted the entire focus from on premise to cloud. So the cloud automatically is going to come with your monthly rental. So banks suggested to us, why don’t you give us software on rental? That is how in the last five years we have slowly moved to software as a service on a rental basis. So now 70% of the revenue is coming from the rental.
So what happens is that if I ask somebody for a license fee, typically we used to get per branch let’s say Rs 2-2.5 lakh maximum. But now we are able to generate close to Rs 2 lakh on a rental basis. So there’s a huge difference between one time and the monthly rental. And banks also find it easy to pay monthly rent. You shift from license to SaaS on the monthly rental. So the overall margins have increased in rental. Plus we have now received some orders from US. So the development is already happening. And in the US you have a customization, it will be a second project like first in the license sale. License sale is basically whatever software we have the same is issued. A license to use and we have installed it on the AWS. So basically our entire cost of development has already happened over the last few years. Now it is a matter of just installing on Amazon. So Amazon infrastructure is also provided by the client. So for us it is a maximum of one month of resource effort. So the cost has already happened and now the billing is happening. So basically everything is coming now is giving us the top line.
Mubina Kapasi: The shift that you said from rental. Is this something that you are seeing now increase across most of your client base?
Hemant Chafale: Yeah most of the clients now it has increased. And what happens is like rent is something like once your client, if bank is your client, it is almost for whatever. So no banks are forced to change this software. Our first customer is still with us. First customer we signed in ’99. So we have a 25 year relationship. So typically, we are giving good service to them, you’re providing for all requirements of RBI compliance, tax requirements, everything is your priority. And we are updating continuously on the technology side. Banks are also comfortable with you and then, giving you an extra rent. They don’t mind because of that trust, the relationship is built over a period of years. And that comfort is there for the banks. And with the technology change, with digitization, with the new upcoming things for banks also, it is very difficult for the smaller banks to maintain the IT team. It is a big challenge. So when they outsource the entire services to us, they are more comfortable that we are supposed to give them everything as well as IT software support. Then their change requests, all those things we are taking care. So that’s why the banks continue to work with us. Although it is always a five year contract, but it is almost renewed every five years.
Mubina Kapasi: So the customer stickiness is there which is great! Let’s talk about some of the key challenges you feel you face today and up in your business.
Hemant Chafale: We have more functionality than the tier one solutions. That people don’t believe initially. So what we have now is a solution, which is not part of tier one. And we are offering as a complement to tier one. So solutions are fixed asset management, procurement, GST, TDS, then their payroll, HR. So there is some audit and compliance. Then there is recovery management and NPA recovery management. Some of them do mobile apps, internet banking, some of the things which we develop which get compatible with any of the tier one solutions. And we are giving them a public finance management system. We are giving them as an integration with a tier one solution.
So what has happened now? People understand that, yes, these guys have all entire stack which is required. So initially we had a challenge but now there is acceptance like we are giving services to the banks like Bank of India. Then Bank of Maharashtra. So some of our solutions include Cosmos Bank, Saraswat Bank. So some of our solutions are integrated with their tier one solution for banking. So now there is a fair amount of what we can say, comfort working with us. And with that, now we are able to reach out to more cooperative as well as NBFCs.
Mubina Kapasi: Just a more industry perspective from you. I guess you’re betting on two things, right? Financials and IT. What makes you positive in general about the Indian and of course, in your case, global CBS market as well, because that is your market too.
Hemant Chafale: India, since if you look at 2016 onwards, there’s a paradigm shift in entire digitization in India. That shift has more focus towards fintech. It is more focused towards RTGS, UPI, IMPS and QR code based payments. The payment system has seen a big transformation that happened in the last almost seven-eight years. And India is well ahead of global fintech. I will say if we talk about U.S. now, we have a client there and we are working for them. We find that our technology or delivery in terms of digitization is far ahead of U.S. So U.S. still don’t have NFT, they still don’t have UPI, they still don’t have IMPS. Their entire structure is different. And if you say that we can in India, we can transfer money from one point to another point. Any bank in India can do that within a couple of seconds. You know, in the US that doesn’t happen, till today it doesn’t happen. So in terms of technology, in terms of entire architecture, we are well ahead of platforms which are predominantly working in the U.S. So basically that makes us more interesting for credit unions as well as the banks. In that way, we will definitely have an upper hand when we will work in the U.S.
Mubina Kapasi: I think you’ve given me a good segway into my next question. And that is how fast the banking industry has been, you know, adapting new technology? And, you know, tech is one platform that is constantly being disrupted. Now, that is, you know, cloud, big data was there, now AI is coming up, etc.. So how will you ensure that, you know, as a tech company, you are on top of the game with all of these disruptions?
Hemant Chafale: Cloud is basically nothing but the sort of installation. We are on premise now on the cloud, so there is not much change at the cloud part. Natural language processing is coming in a very big way. So you may not require people to respond to your queries. Systems will take care of everything. And since we are on the latest technology and we are continuously updating us, we are definitely ready for AI and our AI based loan origination system is almost ready for release. So it will have a different impact where we have a complete right from the onboarding of the customer to till the sanctioning of loan. You can say complete automated system, which has got integration with your GST, integration with your bank accounts, integration with PAN and integration with Aadhaar, you name it. We have integrations. So the moment you apply for the loan, till you get the sanction for loan, the entire workflow is there. And somebody who is responsible to take actions or the decisions, they can simply do it from their mobile. So even the bank manager or anybody can approve the loan, can disapprove the loan, whatever he feels using any device anywhere in the world. So it is going to bring in big disruption. So now your application too, let’s say, your agreement for loan, if somebody says it can be ready within 2 hours or 1 hour, which is something that is going to have a big impact.
Now we are planning to put it to your automobile dealers, where somebody is reaching the automobile dealer. Within half an hour his loan will be sanctioned. 100% automated. The system will generate the agreement. They can digitally also sign the agreement. No need to physically sign the agreement. So to that extent, we automate the entire process. And it has got all AI components. It will take into consideration the previous history of that particular person as well as machine learning will take care of the algorithms for the historical data for a similar customer, how that pattern has been generated. So it will have more, what we can say, authenticity in loan scrutiny rather than any person doing the loans. So then we also have big value for the banks because credit appraisal is the biggest challenge. People who are doing credit appraisal, they take time. And if you are using AI for credit appraisal, machine learning and AI for credit appraisal, then it is definitely going to give them the best results. And this is going to be generative like you add a number of cases automatically. Your algorithm will be more accurate in giving the results. So just like instant groceries, we also have instant loans in 10 minutes or 15 minutes. See, nobody goes to the bank for withdrawal of money. Nobody goes to the bank for, like, opening a new account. Everything is online. Only one thing was left which was a loan. We have to go to the bank for application of loan and sanctioning of loan, or maybe some documentation. Now you imagine your application and document and everything is online. So there will be a disruption completely. And the Government of India is coming up with peer to peer lending. And ONDC platform, online digital commerce, where this buyer and seller app, buyer app will be from the end customer and seller app will be the banks. And imagine, Amazon, of loan origination. This is happening in the next 1 year. And we are preparing ourself on the ONDC platform. Loan origination is coming up on ONDC very soon. This is also one of the objectives of our IPO.
Mubina Kapasi: I guess you could call this a new age business of Trust Fintech, right? Separate from your core, your CBS business. And I think this is going to be the one that we are going to be really looking forward to. Like you said, you are creating an Amazon, a retail marketplace for loans. It’s going to be very interesting and exciting indeed.
Hemant Chafale: The government has prepared that and we are going to be a partner to that. The government already prepared an ONDC platform and we are using ONDC APIs to deliver the solution to the bank. So basically service providers to all commercial banks.
Mubina Kapasi: You already have some very marquee customers and obviously there are a lot of bigger players as well. So how would you read into the, you know, the competition, for you, and your plans as well, If you could share with us to grow market share in this core CBS business?
Hemant Chafale: Where the competitor in tier one is concerned, we already have a complementary solution which is integrated with their solution. So we are vendors to almost all the banks. We are doing some way or the other, some solution, some service with their existing stack. So we are not really worried about the tier one competition. And in tier two we have replaced almost all the vendors in the last two – three years. Competition wise in India, we are well ahead of competitions. As far as the global part is concerned, we are just entering in the US now but the technology stack which we have is well ahead of the present applications which are being used in the US. So there will be some resistance because in core banking the decisions are slow. In the US also we are going to offer loans which is like a loan origination system, that is a backbone of any bank. Credit is a backbone of any bank and if we are able to process the credit, then we are able to process the loan let’s say in two days or one day time. This is something every bank requires on the topmost priority. We have an AI enabled loan origin system, which is new for U.S. also. You see India has a lot of stringent norms in terms of credit appraisal, but in the US the credit appraisal is much more lenient. And when we talk of creating an internal scoring, we are talking of assessment of the borrower in terms of repayment capacity and in terms of credit worthiness, and when we show them that we have more than two to three million data has been analyzed and we have come up with these algorithms, then they definitely feel that yes this is going to be a must solution. So that’s why we are finding a good connect in the U.S. also, a good response for loan origination. So with the loan origination we will be entering many banks. And we have decided to put it on Azure as well as AWS platform so that the cloud comfort as well as the installation infrastructure comfort is already there for the banks. And then, the different levels of encryption and all is being taken care of by the infrastructure itself. The security part, encryption part is already taken care of. So we are getting good response from the US market.
Mubina Kapasi: So you’ve just got recently listed, could you share with us what was the listing experience was like? What has the journey been like? Has it boosted employee shareholder morale too?
Hemant Chafale: The journey has been excellent. Like last one year before I met Mr. Amit Kumar from MSMEx in one conference, one of my friends who encouraged me to go for a listing. I said we are a small company. Then he encouraged me that this is a separate MSME.
So Mr Amit suggested to me to join the cohort program. So I joined this board. Almost two months of, well, online,teaching and learning program, I got through all the nitty gritties of how we can start our journey of listing. And then, we had a good trust and relationship with Mr. Amit Kumar. Thereafter, he suggested that I go with CCV, a merchant banker and everything. He connected me to Mr Kulbushan Parashar. Parashar came to our office and he said this is a mandate. We said okay fine we are okay with it and everything happened very quickly. Then we had some challenges in name approval because our name has a trust name and trust is in the negative list. Basically, we had some initial challenges, but then once the name was approved, we were very quick in terms of the DRHP filing and RHP filing journey.
Mubina Kapasi: You just spoke about the new product that you are essentially developing, which will be in partnership with the ONDC. That’s one of the reasons why you did the IPO as well. So do you foresee any further funding requirements in the next coming years?
Hemant Chafale: Not immediately. I mean we have sufficient cash flow. The present plan, what we have is going to have another 10 products which can be marketed. Our team will increase, our infrastructure also we are going to build. So the next 3 to 4 years will not be much of a requirement as far as the funding is concerned. Because our margins are good and with the present margins we definitely have a positive cash network.
Mubina Kapasi: So among all of your various products, services, and customers, where do you see major opportunities for growth and how do you plan to just to summarize? I know you’ve already spoken about this in the previous answers but what do you see will lead the revenue growth in the next three to five years?
Hemant Chafale: Basically in India if you look at the Cooperative Banks, what we are more focused on right now but apart from Cooperative Banks there are about 7,000 NBFCs – non-banking Financial companies and RBI has mandated all NBFCs to have core banking in place so that’s another area where we see product with 20% customization, what we are right now doing can easily fit in and the present NBFCs, they are using three four different softwares, one for loan origination, another for loan management then another for loan servicing and then accounting system is different so right now they are not having any homogeneous system. Once we enter a transaction, at one place it reflects everywhere so that right now they don’t have but going forward when we have a system they can have the complete solution. So NBFC is one area second is the loan origin system on ONDC platform. What is core banking in India, we are already doing for banks then the fourth major thing is going to be the US market where we are going to offer our solution to credit unions then other products like UPI switch, then the API aggregator. So all those UPI switch API aggregators are all basically per transaction solutions. Right now we are having all APIs with us in our adapter so we are sourcing APIs from like say NSDL, GST, Cibil. Suppose I’m taking the API from the Source organization and if I’m giving it to the bank. Banks require this API for automation and the billing is done based on the consumptions of API, so here indirectly it is a trading of API but the margins are huge. Banks don’t go directly to the principle because there are a lot of hassles in terms of security in terms of on boarding so the bank wants a single point solution, okay you give me an pan API. API is for pan verification. GST API is for GST verification. Then they require GST returns also. If I ask any borrower to give me a GST return he may give me some other report which is not authentic. But here with his API we are able to download directly from the government’s website so 100% accuracy is there. The time required to take the document is negligible. RBI requires KYC so if suppose I take somebody’s Aadhar then I need to have a CKYC but if I am taking data from other Vault from RBI, let’s say we using OTP so whatever data I get that I need not again verify it. It is already coming from the government database so basically this is another what we can say API adapter and then the UPI transaction as you all know it’s like per transaction there is a one rupee what we can say for switching service provider so you can imagine how many UPI transaction must be happening a day and even if you charge one rupee. So all these things definitely are going to add and everything we have right now is we can say 75% ready. So what we are doing now, with the addition of this 25% changes it will be a complete new product. So we are creating almost 10 different products which can work with any software and every product just as we have CBS as one of our right now Revenue Source. All 10 will have a similar Revenue Source. There can be 10x growth in the next three years.
Mubina Kapasi: Finally, on retention and hiring environment you have roughly around 100 employees in product development that’s 40% of your overall employment base so just very quickly sir if you could tell us what that environment is like because it’s something that’s been hurting a lot of IT companies, the attrition rates?
Hemant Chafale: We have a team like working with us, almost 20 people working with us for more than 20 years. There is trust in the family and we have a good relationship. We are definitely paying them at par with the global industry standards so what happens is if you have good relationship, when your team is working for a long time and as long as you are being paid at par with Global industry standards, people are more comfortable working with us so that is the very plus point and coming to the new people joining us, what happens is if you have a strong team of let’s say 20 – 25 people, people will always follow and people also think why these guys are working for 25 years. With this so automatically now if you look at the next team with us we have more than 40 people who are 10 years plus working with us. Out of 300 people, more than 150 people have been working with us for more than six years.
Mubina Kapasi: I think the future definitely does look very interesting and we look forward to all of the different ways that you will be disrupting the entire Financial Services Market in India.