Dec092021
Posted by:admin
Caspian Climate Conversations | Episode 9
Featuring Sameer Aggarwal, Founder & CEO, RevFin
Sameer is the founder of RevFin, a digital lending platform focusing on financing electric vehicles for driver-owners.
To tune into the recording, please use the available link here: https://on.mentza.com/circles/6555
Please find below a summarized transcript of this interesting conversation:
Hi Sameer, you have been working to solve a very challenging problem- getting autorickshaw drivers, who are an unorganized sector, to access loans. Can you help us understand how you have done that?
Sure, if we look at the problem, in addition to the customer class being unstructured and fragmented, there is a complete lack of data about these customers to be able to make any credit decision. Most of the customers we lend to, have never taken loans in the past and therefore have no credit history, they live in underserved geographies and have very few banking transactions if any. We looked at these problems and tried to identify ways to assess these customers for loans by coming up with some predictor of their financial behavior.
We realized that a financial institution looks at past financial behavior and uses that as a predictor for future financial behavior. In the case of our target customers, we decided to take out the word ‘financial’ from the past and just focused on their behavior as individual human beings to predict their future financial behavior. Consequently, we conducted some experiments where we used psychometric assessment to determine personality and behavioral traits and used that to predict financial behavior. Based on these experiments we built a digital platform and embedded psychometric analysis within that. We also used biometrics for fraud checks and identity checks. This currently helps us generate in-house user data on an ongoing basis rather than relying on third-party data sources for credit information.
I understand that the technology for this assessment was created in IIT Kharagpur. How do you use this technology for deployment at a commercial scale for your use?
About 3.5 years back, we commissioned a joint research project with IIT Kharagpur. We tested this with users in the form of a simple user experience wherein the users were presented with certain situations depicted through images and then asked to respond to certain questions related to that situation. These responses gave insights into their personality traits, which in turn have a direct correlation with financial behavior. Now we have embedded this assessment technology on our platform and any user applying for a loan through our app goes through this picture-based psychometric assessment.
Let’s talk about your customers. Can you explain why a person owning an autorickshaw should be considering an electric one?
Electric 3-wheelers or e-rickshaws are of different types- primarily low speed and high speed. Low-speed e-rickshaw has the highest penetration currently. It costs around INR 150,000 (or $2,000) and a driver can effectively earn INR 25,000-30,000 a month on that, translating into a good return on investment, and a good income source for drivers compared to other daily jobs that they were earlier doing. This is a key driver for the mass adoption of low-speed electric three-wheelers in India. The high-speed 3-wheeler, on the other hand, is a lot more expensive, but the running and maintenance costs for those are low as well.
When you talk about having more income, is it because of the savings on running costs compared to fossil fuel-driven rickshaws?
That is definitely one reason. A more important reason is that the low-speed electric 3-wheelers are not replacing any type of vehicle but filling a gap in the market. The people driving these have shifted from some other professions like working as casual labor where they could earn close to INR 8,000-10,000 a month. Therefore, the earning potential for people who weren’t commercial drivers previously has significantly increased due to these vehicles.
Can you give an example of the commercial use of these low-speed electric 3-wheelers?
These are used mainly for last-mile connectivity. An example for a large metropolitan could be to ferry passengers from metro stations to their homes. For a small town, these are used for going to schools, shopping, etc.
Do you think electric 3-wheelers and electric vehicles, in general, have a big advantage over conventional vehicles from the perspective of pollution?
From a running perspective, the electric 3-wheelers definitely have an edge, both in terms of air pollution and noise pollution, these vehicles are virtually noise-free. However, I would say that the jury is still out on the overall reduction of pollution due to electric vehicles and studies can only show over longer-term how the exact numbers stack up against each other.
Does the customer differentiate between a CNG or a low-speed e-rickshaw?
For the passenger, I think there is no difference in experience once they are inside the rickshaw apart from the fact that the noise is lower. One advantage that these e-rickshaws have is that they tend to be narrower, which means that they can pass through narrow lanes quite easily making them very useful for last-mile connectivity.
EVs are a fairly new product category. How do you manage the product quality risk in making lending decisions?
Generally, we can perceive risk as a kind of uncertainty and decide its occurrence based on long-term trends from existing data. The issue with electric vehicles is that there is still not sufficient long-term data to establish what is the volatility with these vehicles. So, the risk is unknown at this moment which means that the risk could be low or extremely high, or normal.
To overcome this, we have been focusing on conducting multiple experiments and collecting data over the last three years. We have been working with as many OEMs as we can, in as many geographies as possible, and understand what OEMs, what products, what geographies work for this segment. As a result, we’ve come to the realization that there are certain things that are very important for us to reduce the risk in this segment. The biggest thing that we realize is that the reputation of a certain brand in certain geography is a key factor. So, if the product is sufficiently good and it has a good reputation in the market, because of the product quality, after-sales service, or the strength of their dealer network, then the product does extremely well in that market. So, to manage risks for us, it is very important to actually go and build insights into the local market to see how different products are being received in those markets and then to work with those OEMs and dealers whose products are working in those markets.
What about the charging infrastructure? And how is the power quality for charging in smaller towns?
There are two aspects to the charging infrastructure:
- Most of the electric 2-wheelers and 3-wheelers do not require any fancy infrastructure. They can be charged at homes, in the normal 15 Ampere socket. So, to that extent, if there are 200 mn households in this country, there are 200 mn charging points. In smaller towns where these vehicles are extensively used, space is not a constraint as people don’t live in high-rise buildings, and therefore charging itself is not an issue.
- The second thing is that most of these vehicles run anywhere between 70-120 kms on one charge while a driver on average, drives 63 kms a day, so that’s less than what a full charge of the vehicle can deliver. Therefore, there is no issue with mid-day charging and there is no range anxiety that exists with most of these vehicles for most use cases.
On the quality of charge, availability of electricity in most parts of the country is not an issue. In fact, charging infrastructure is more of an issue in bigger cities where there are high-rise apartments whereas, in smaller towns, people can easily charge at their homes.
Will it be correct to assume based on what I am hearing that most of your customers are in smaller towns?
Yes, most of our customers are in Tier 2 and Tier 3 cities. That’s where we have seen mass adoption of electric vehicles today. There is obviously an upcoming segment for electric vehicles in big cities, especially with e-commerce deliveries, etc. but that is still a small segment compared to the low-speed electric 3-w segment that has deeply penetrated the smaller cities, especially in parts of northern India.
One angle for risks is also the institutional support for registration, insurance, etc. Do you think that ecosystem has come into place, especially in smaller towns?
Yes, I don’t see an issue with that. The good thing with registrations is that more of it is becoming online with the VAHAN portal. On insurance, when we started about 3 years back, there were very few insurers in this space but now most insurance companies are issuing insurance for electric 3-wheelers. So, I would say it is as simple or as difficult as any other vehicle today.
At Caspian debt, we are very interested in collaborations that you can form with our other clients. We are financing other electric vehicle companies and we finance a fair number of agricultural companies in small towns where you operate. Are there possible opportunities for partnership or could they be your customers?
We are very happy to partner with Caspian. Caspian has a rich portfolio of clients and I think there are a lot of synergies that we can build with them. I would in fact go a step further to say that a few days back I had the pleasure of meeting some of your other clients at the partners meet organized by Caspian and we are already in the process of partnering with two of them.
Would you like to comment on the quality of batteries? Batteries are a very high component of electric vehicles costs.
Battery technology is still a work in progress and there is going to be a lot more R&D than we will see in the future. We have good fit-for-purpose batteries in the market today. For 3-wheelers, the most popular ones are lead-acid and for 2-wheelers and 4-wheelers, it is lithium-ion.
On a slightly tangential note, an interesting change that we are starting to see is the distinction between the body of a vehicle and the engine of a vehicle, whereas previously we are used to the idea of integrated engines. I think there will be a time in the future where one buys the body of the vehicle and then chooses the battery to go with it. So, a consumer would have the option to choose the battery in her vehicle depending on her needs like range requirement, utilization, charging requirements, etc.
What needs to be done to increase uptake of e-rickshaws in regions where they are not yet popular?
Multiple steps have happened and many still need to happen to increase the uptake:
- Central and state government subsidies on electric vehicles are really helping. More on that can be done.
- After the covid induced reverse migration, many people have taken up e-rickshaws as an alternative source of employment, this was also promoted by state governments through job fairs and schemes.
- Some parts of India have not adopted electric 3-wheelers due to the perceived poor quality. A bit of education and awareness there can help.
- Finally, I think there is a gap in the market wherein there is no secondary market for these vehicles. This is a huge deterrent for someone planning to buy an electric 3-wheeler because a future resale option is not there right now. If secondary market infrastructure for these vehicles can be set up, it will be very beneficial for the ecosystem.
Any final thoughts?
Electric vehicles are very good for the end-users- the economics of the vehicle are very favorable, and the country also needs more adoption from a sustainable development point of view. From a lending perspective, many lenders stay away from the segment because of the perceived risks like r life of the vehicle, the existence of a secondary market, etc. Our experience of the segment has been extremely good, our NPA levels are very low, repayments are very good, even in small towns across India. So, my recommendation to people would be to buy and use more electric vehicles and for lenders to enter the market and make it more competitive and help scale the segment as well.
To go back to Climate Smart Website, click https://www.caspiandebt.in/climate-smart-agriculture/