The lending bet: why we started with the problem, not the loan

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Lending is where a lot of financial services businesses eventually end up. The reason is fairly obvious. It is a very hard business to build, but if you can pull it off, it can also be a very profitable one. We have seen that repeatedly through history and across markets.
The way we looked at lending at Better Capital was slightly different though. We did not come from a traditional banking or lending background. Our lens was much more consumer tech, product and distribution first.
So instead of starting with, say, we are going to offer personal loans and then figure out how to acquire customers for them, we started with a different question. What is a real problem we can solve for a customer that naturally puts us in front of someone who may eventually need a loan?
That became quite central to how we thought about lending.
The idea was that if you solve an important problem first, you acquire the customer through a genuinely useful experience. By the time the lending opportunity shows up, the customer already knows you, you understand a lot more about them and the context in which they need the money, and you should be in a much better position to serve and underwrite them.
We believed that could create a very interesting flywheel. Solve the problem, build the relationship, understand the customer and then make credit available when it is actually needed.
OTO is a good example of this.
You could describe OTO as a two wheeler financing company, but that misses a large part of how the experience was built. If you were looking to buy a two wheeler, and increasingly an electric two wheeler, OTO helped you discover and understand the options. It also did something that was pretty unusual when it started. With a click, you could schedule a test ride at your home.
So OTO entered the customer’s journey well before the financing decision. You came to explore what you wanted to buy, got a great experience, took a test ride and moved closer to making a purchase. By the time you needed financing, OTO already understood a meaningful part of your buying journey and had built a relationship with you.
The financing then became a natural extension of the experience rather than the starting point.
Khatabook is probably an even cleaner example of this idea.
Khatabook started by solving an extremely simple but important problem for small businesses. It gave merchants a digital ledger to keep track of the money they were owed and the credit they extended to their customers.
Over time, millions of merchants started using Khatabook to run an important part of their business. That relationship created something very valuable. Khatabook understood these businesses, how they operated and increasingly the financial behaviour around them.
Lending could then become a natural extension of that relationship.
Instead of acquiring a small business owner because they clicked on an ad for a loan, you already had a customer using your product to run their business. You had solved something useful for them first. And because you understood the customer better, you had the potential to build a much stronger lending business around that relationship.
Khatabook has done very well with this approach, and I think it captures a lot of what we originally believed about how technology companies could enter lending.
Rupeek approached the opportunity from a completely different direction.
Gold loans have existed forever in India, but the experience of getting one was quite broken. You had to physically go somewhere with your gold and go through a process that could be cumbersome and, for many customers, simply not a great experience.
Rupeek asked if that experience itself could be completely reimagined. They built an at home model and made the entire journey dramatically simpler.
Again, the idea was not just to offer another gold loan. It was to solve the experience around getting a gold loan in a way that nobody had really done at scale. That experience itself became the wedge, and Rupeek went on to build what I think is one of the strongest new brands in gold lending in India.
Jai Kisan takes the same broad idea into rural India.
Farmers, retailers and small rural businesses have very different financial lives from the urban salaried consumer that a lot of traditional fintech was initially built around. Their cash flows are different, their businesses work differently and the context in which they need credit is different.
So if you understand that customer, their business and the ecosystem around them deeply enough, you should be able to build financial products that work much better for them than a generic lending product ever could.
That is what made Jai Kisan interesting to us. The starting point was not simply that rural India needs loans. It was understanding how these customers actually operate and then building credit around that reality.
IppoPay is another version of the same thesis, focused on very small businesses.
For many of these merchants, the starting point is payments and managing the basic financial activity of the business. If you can become a trusted financial partner there, over time you understand the merchant and their business much better.
And once that relationship exists, lending becomes a logical extension. You are not meeting the merchant for the first time when they need money. You already understand something about how their business works and can potentially support them with credit in a much more informed way.
IppoPay has been scaling well in this segment, and I think there is a lot of opportunity ahead as they deepen that financial relationship with these businesses.
So OTO, Khatabook, Rupeek, Jai Kisan and IppoPay look like very different companies.
And that is really the point.
Two wheelers. Small business ledgers. Gold loans. Rural commerce. Payments for micro businesses.
What connects them is not the type of loan.
It is the way they get to the loan.
Start with the problem. Find a way to be useful to the customer before asking them to borrow. Build the product and distribution around that problem. Understand the customer and the context in which they operate. And then, if credit is a natural part of solving that problem, you have an interesting opportunity to build lending around a relationship that already exists.
None of this makes lending easy.
The last five to seven years of digital lending in India have had plenty of ups and downs. Regulation has evolved significantly as the ecosystem has dealt with mis selling, data privacy, aggressive recovery practices and many of the other problems that appeared as digital lending scaled.
Companies across the ecosystem have had to change structures, processes and sometimes large parts of their businesses to adapt. There has been a lot of pain along the way.
But much of that was necessary. The regulatory framework is considerably clearer today, companies understand the boundaries much better, and the ones that have made it through this period have had to build with a lot more discipline around compliance and customer protection.
The first generation of digital lending companies in India has already shown what is possible. But I think there is a lot more to come.
Credit is such a fundamental financial need across consumers, small businesses, farmers, commerce, housing and almost every part of the economy. There will continue to be very large lending businesses built in India.
Our lens on where some of the most interesting ones might come from has remained fairly consistent.
When I look at a new lending company, the first question I find myself asking is not, what loan are you offering?
It is, what problem are you solving before the loan?
The fourth of a five-part series by Vaibhav Domkundwar examines the lending thesis behind investments in OTO, Khatabook, Rupeek, Jai Kisan, and IppoPay. The piece explores how these companies started by solving a specific customer problem and built lending as a natural extension of the relationship. The final part will explore another key microtrend and lesson from Better Capital’s investment journey.

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