Will 7,000 Cr Perfios Help Underwrite India’s Credit Revolution?

Perfios raised $229M at a valuation of $900M, deepening its expansion in North America and Europe. 

Street Cred(it)

V. R. Govindrajan was part of India’s first wave of tech entrepreneurs.

Born to a schoolteacher father and a homemaker mother, he completed his engineering and landed in the USA to pursue an MS in Computer Science.

He then spent nearly a decade rising the corporate ladder at behemoths such as Digital Equipment Corporation (DEC) and IBM.

By then, America’s IT industry had become a global economic order’s mainstay. However, an era-defining movement was brewing in India’s nascent tech ecosystem.

Infosys’ story and Wipro’s shift from edible oils to computing had spurred many young Indian professionals to abandon the comforts of their jobs—most dove headfirst into entrepreneurship.

Govindrajan was among those to be bitten by the bug. He moved to India and teamed up with S Parthasarathy to set up Aztec Software in June 1996.

Debasish Chakraborty was among the company’s earliest hires, joining the company in April 1997 as a General Manager in the R&D department.

An alumnus of IIT Kanpur and Kharagpur, he had spent the previous ten years at Wipro and IBM, alternating between Bangalore and the USA.

In its early days, Aztec followed the proven template of building in India to sell in America. The model brought with it challenges involving scale and intense competition.

Despite early promise, India and its fledgling computing talent were yet to earn their storied reputation. Client pitches often began with helping them locate India on the global map, literally and figuratively.

Aztec adjusted to market realities and soon switched to serving as an extension of its customers’ in-house teams. In the process, it created an Outsourced Product Development (OPD) category.

In October 2000, just as the dot com bubble was nearing its imminent burst, the company listed on the bourses with a Rs. 52 crore public offering.

By early 2008, Aztec had grown to over 2,200 employees and had a clientele spread across North America, Europe, India and Australia. 

Govindrajan’s story, however, had only just begun.

Stressed Credit

Come the Global Financial Crisis, a wave of consolidation had begun in the mid-tier IT space in India. 

The effects were immediate – a rising rupee, a slowdown in the US, and a dip in global IT spending. The time was ripe for Aztec to find a partner on the services front to complement its product-side capabilities.

MindTree came in calling for an acquisition, having spotted the natural synergies and driven by its billion-dollar ambitions, valuing Aztec at $90M.

Govindrajan and Chakraborty, also a part of the senior leadership, sold their stakes and exited MindTree. 12 years later, they experienced what today’s savvy entrepreneurs would call a ‘liquidity event’.

The hard-earned riches demanded elaborate upkeep, conscious decision-making, and proactive management.

Perfios Funding Rounds to Unicorn
Perfios’ Funding Rocketship

Like anyone who has ever managed anything more than loose change, the duo sought a tool that provided a single dashboard of their finances. 

An ‘aggregator’, you said?

This was when internet access in India was predominantly through a dial-up connection. Nandan Nilekani was still at his corner office at Infosys; the Aadhar revolution was yet to be conceptualised, and interoperable interfaces meant little more than alliteration.

The only way for Govindrajan and Chakraborty to fix the gap back then was to create the solution they sought. While they were far removed from the world of finance, they were proven masters at product development, offering a starting point.

In a tale reminiscent of many a startup journey, they set out to solve the problem they had faced – using technology at scale.

The company’s objective was to enable retail individuals to consolidate and manage their portfolios and debt in an automated manner.

Govindrajan and Chakraborty chose to stick to their strengths and build a minimum viable product instead of raising capital immediately. A working prototype was ready to be taken to the market in under four months.

Personal Finance One Stop (Perfios) v1.0 was born.

On Borrowed Time

Perfios soon scaled its MVP and launched MyFinance, a cloud-based Personal Finance Management solution, in 2008.  

It aggregated financial data from disparate sources – bank accounts, credit and debit cards, mutual funds, insurers, lenders, and so on – to create a 360-degree view of a user’s financial standing.

Perfios early days visuals
A Finance Manager you didn’t know you needed

In an unassuming effort to create an ‘ecosystem’, Perfios added an accompanying product for Wealth Managers called MyClients in 2009.

A first-of-its-kind product serving a genuine need should have found takers by the dozen. This, unfortunately, wasn’t the case.

All the co-founders’ nous acquired while scaling Aztec was built on working with corporates in India and abroad. They had underestimated the fickle, discerning, passionately tight-fisted Indian retail customer.

Perfios had followed a freemium model with MyFinance. A base version was offered for free to enable potential users to try the platform before inducing them to pay between Rs. 500 and 5,000 for worthwhile add-ons.

However, like the bane of curated research and other boutique services in India, Perfios’ biggest competition was not a similar or an adjacent offering. Instead, the prevalent mindset was that a webpage should load free of cost, the code and the output notwithstanding.

Govindrajan and Chakraborty realised that if to build was human, to monetize was divine, particularly on the Indian internet, with just 93 million users.

By 2011, MyFinance reached a conversion rate of 4 percent. Of every 100 free users, four signed up for the paid features. The number did appear paltry. But it was also the global benchmark for comparable services.

The 4 per cent standard was far from the scale required for Perfios to thrive. The only viable way to grow the business was to acquire a continuous flow of new users, only to see an overwhelming majority always keep their purse strings.

(Under)Writing On The Wall

Govindrajan and Chakraborty could not have been blamed for empathising with Sisyphus.

The Greek mythological character was eternally condemned to repeatedly roll a heavy rock up a hill, only to have it roll down again as it neared the top. Perfios felt a lot like it. 

Perfios learnt that in a freemium business model, you must spend billions in customer acquisition if you want to make billions in premiums. 

What do you make in the end? Zilch.

‘Growth at all costs’ and ‘scale before generating revenue’ were yet to gain widespread acceptance as business methods. Perfios had neither the appetite nor the inclination for an unending pursuit with an unpredictable outcome.

Govindrajan and Chakraborty had wanted to create something bigger than Aztec, with the paydirt they hit at their first venture. But it seemed that the answer lay elsewhere. It was now time for a ‘pivot’.

By 2012, the need for products that make personal finance easier and more accurate for a large population was clear for all to see. 

As a country with low levels of financial literacy and a widespread lack of social security, it was vital for individuals to be up to date with their personal finances and retirement goals. However, finding paying customers and executing this product profitably at scale was very difficult.

Indians got their financial advice from a variety of sources. 

The friendly neighbourhood uncle, the relative who is an insurance agent, and the CA who does the income tax advice at the end of the financial year were all common sources of financial advice.

Picking up on the theme, the founders of Perfios decided to branch out to serve these distributed centres of financial advice, rather than remain end-consumer-facing. 

Old Customers, New Money

They started to work with CAs, wealth managers, and independent financial advisors to sell their existing products. 

However, finding volumes at a profitable scale without burning cash proved to be difficult here too. Finally, in 2014, the founders of Perfios decided to complete the pivot. They had prior experience selling to corporates and companies and it is this segment they turned to when they decided to pivot.

An enterprise customer has a higher means and willingness to pay. Perfios used the same suite of products to target B2B clients. Converting from personal finance datasets Perfios now decided to target digital lending systems

The difficulties faced by the different stakeholders, such as banks and borrowers in the lending process could be solved by the suite of products that Perfios offered. Govindrajan and co were convinced they could simplify the lending process.

After working on a PoC for 12-18 months, they added an analysis layer on top of the original product and took it to banks and financial institutions. The data was being aggregated in a similar way as before. However, the analysis it was doing was more of what an underwriter or a credit manager would be looking for.

There was no such product currently available in this market and it took a lot of evangelisation. They had to convince the financial institutions that they needed this product to simplify their lives. 

Additionally, the push from the government and the early fintech revolution helped Perfios get their initial clients. Fintechs were happy to ally with Perfios to differentiate them from traditional bankers and NBFC.

By 2016, before it raised its first round, Perfios had already got  50-60 customers with the largest financial institutions in the country, including NBFC, banks, and fintech as its clients.

Perfios raised $6.1 million in 2017 in Series A to fuel its expansion

May You Always Live In Interest(ing) Times

Data was growing exponentially. 

The increasing adoption of technology and data science in credit decision-making presented a significant opportunity. Perfios was on the right track to success.

Indian credit industry had 2 significant problems brewing- longer turnaround time and low accuracy in the credit-decision process. Perfios claimed to solve both of them.

Driven by macroeconomic tailwinds, banks and NBFCs sought a core technology platform that aggregated and analysed financial data. The analytics techniques found applications in credit assessment, monitoring, fraud detection, and banking data aggregation.

Perfios struck the iron when it was hot.

Positioning lower TAT and increased accuracy and efficacy as their USPs, Perfios partnered with over 200 banks, NBFCs, and fintech companies globally.

Perfios boasted of a strong client base. Marquee banks like Axis Bank, AU Small Finance Bank, HDFC Bank, and Deutsche Bank partnered with Perfios after realising the potential of the technology.

Leading NBFCs like Aditya Birla Capital, JM Financial, Edelweiss, and Bajaj Finserv integrated the software into their credit decision-making processes. Notable fintechs, including Paytm, CapitalFloat, InCred, and IndiaLends, demonstrated their faith in the potential of this technology.

On the profitability front, the bar turned green when Perfios registered a profit of Rs 4.4 Crores on a topline of Rs 43.6 Crores in March 2019. The founders realised they were all set for the next phase of tremendous growth.

Perfios profit and loss, financial statements, growth trajectory over 4 years
Flying to a billion dollars

In November 2019, Perfios closed the raise of a Series B round of $50MM. This round saw participation from large PE investors led by Warburg Pincus LLC. Existing investor Bessemer Venture Partners infused more capital by participating in this round.

This round saw the exits of some of the early angel investors. Primary capital secured in this round was focused on three key areas: investing in technology to develop new offerings; international expansion through MENA and Southeast Asia regions; and potential acquisitions.

All this served as validation for Perfios that they were heading in the right direction.

The first step that Perfios took after closing this round was acquiring the IP rights and other assets of digital lending solutions provider FintechLabs Technologies. Based in Noida, the company sold digital lending management software to 40 clients (banks, NBFCs, online marketplaces) across 10 countries in India, Southeast Asia, and the Middle East.

This integration improved the tech for Perfios and opened the Southeast Asia and MENA region gates for them.

Cash And Carry

Third-party credit underwriting was still a white space at the start of the current decade. 

However, a few competitors were raising their heads – from established players like CreditVidhya to new entrants like Crediwatch. But Perfios dominated the market, with a self-proclaimed 90 per cent market share.  

Perfios’ first-mover advantage played out in two key parts as a category-creator in its segment.

The first was that the banking is an industry that works on trust.

Perfios had established its credibility by serving marquee names across banks like Axis, HDFC and NBFCs like Aditya Birla and Bajaj Finserv. This allowed Perfios to significantly expand its client base to 270 domestic financial institutions by the end of 2021. Perfios’ value proposition was clear – it reduced turnaround times for credit decisioning processes from one week to one hour.  

The second advantage Perfios had was the deep expertise in understanding pain points for financial institutions and developing data-driven solutions to resolve them.

Perfios became the only player supporting bank statement analysis for over 1,700 formats across national, co-op, and rural banks. Data extraction processes were refined to an extent where even paper-based statements, printed by dot-matrix printers or photocopied, could be extracted accurately.

Catering to various financial institutions, Perfios built a repository of 175,000 analytical rule engines to implement machine learning and neural network algorithms to categorise transactions, derive risk metrics, and determine credit default probabilities.

For machine learning algorithms, large datasets mean better predictive powers. Leveraging this trait, Perfios developed a tool to assess the creditworthiness of previously unbanked customers without credit histories by analysing income and spending patterns.  

Perfios ended FY 2022 with a run rate of processing over 20 million monthly transactions, translating to a revenue of INR 136 Cr. 

In four years, Perfios more than tripled its revenue. Their EBITDA margin improved significantly, demonstrating a chance of increasing returns to scale. 

The SaaS company had blown up. 

Having established its dominance in the third-party credit underwriting space, Perfios sought to identify the next levers for its growth.

Perfios found them in product diversification and international expansion.

Perfios acquired Mumbai-based Karza, a fintech platform specialising in onboarding automation, risk and fraud analytics, and business intelligence services, vastly expanding its product portfolio.

It now wanted to replicate its success with the Indian banking ecosystem internationally. Having seen early successes by landing key clients such as Malaysia-based RHB Bank Bhd, Perfios was present in over 18 countries across Southeast Asia, the Middle East, and Africa.

Present Value

While doubling down on what’s working, Perfios is also trimming down on what did not – it shut down its first product, the Perfios finance manager, in August 2023.  

It entered the ‘soonicorn’ trajectory with its latest fundraising round valuing it at $900 million. Perfios is on track to earn $100 million in revenue in FY 2024.

Flush with capital, shedding the last vestiges of the past, building an international footprint, and an expanded product portfolio. Perfios considers this the first step in its evolution to a multi-product, multi-domain global SaaS company and jumpstarted the journey through a re-branding exercise.  

In the long term, Perfios aims to diversify from its focus on credit analytics to providing tech and data-driven solutions for end-to-end customer lifecycle management for clients across the BFSI sector.

To this end, it has launched diverse products and services.

Karza’s ‘Klookup’ tool uses recursive search algorithms traversing public domain data to trace and identify individual/enterprise contact details. Perfois will use it to enter the loan collections space. It could also be used by banks, asset management firms, and insurance companies to trace ownership of unclaimed deposits, investments, and insurance policies.

Perfois now also offers automated legal checks for over 3,500+ courts and tribunals in India, allowing it to fulfil due diligence, risk, and compliance requirements for banking and private equity firms.

Through ‘PerSeive’, Perfios promises to mitigate fraud, waste, and abuse for health insurance companies by onboarding and analysing medical records and claim documents.  

Its low-code platform ‘Integreat’, launched in 2018, has now evolved to offer multi-party use cases, allowing customers to build applications targeted towards invoice discounting, P2P lending, and customer onboarding.

It further boosted its product expansion spree by acqui-hiring Fego.ai in September 2023, an open finance platform that allows businesses to embed financial products within their applications using plug-and-play APIs. It’s also an account aggregator offering financial intelligence services.

Today, Perfios has over 300 customers, of which 250 are in India. It derives about 50 per cent of its revenue from banks, 30 per cent from NBFCs, and 20 per cent from fintechs. Unlike conventional wisdom, it is a software company that makes money from Indian customers. 

Perfios has set the scene for its next phase of growth. 

Pricing To Extension

Though Perfios is already a clear market leader within its space of third-party credit underwriting in India, its potential for further growth is still limited.

The problems that Perfios is solving, are staggering in their scale.

Using alternative data points like investment spending, EMI contributions, e-commerce spending and utility bill payments to generate alternative credit scores, Perfios (and its competitors) can bring a huge segment of previously unbanked businesses and individuals (without credit histories) into the banking fold.

This would mitigate a credit gap worth a staggering USD 530 billion for medium and small enterprises in India alone.

Its new levers of growth could be its entry into the underserved spaces of unclaimed assets recovery and insurance fraud mitigation

Estimates peg unclaimed bank accounts, investments, and insurance policies to amount to USD 10 B. The insurance industry loses approximately USD 6 B in fraud every year.

While it establishes a foothold in these whitespaces, Perfios’ future roadmap includes establishing a foothold in the U.S., further geographical and product expansion through inorganic opportunities (perhaps funded by subsequent VC rounds), and an eventual listing on the public bourses within the next three years. 

Perfios has been a long journey since 2008, but it has proved multiple things. Being quiet and building is possible. Selling software to India is possible. Building a $1Bn company just by doing this is possible. 

As it sets its sights globally, the company is on track for an even bigger decade. Perfios could help not just underwrite India’s credit revolution, but the emerging world’s.

Writing: Bhoomika, Nilesh, Nikhil, Shreyas, Vishal and Aviral Design: Chandra and Omkar