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MINKO: DEVELOPING A NICHE FINTECH LENDING BUSINESS MODEL

Neeraj Amarnani and Arpita Amarnani wrote this case solely to provide material for class discussion. The authors do not intend to
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In October 2022, Sanket Shendure, co-founder the financial technologies (fintech) company Minko
Platforms Pvt. Ltd. (Minko), was on a flight to Goa from Bengaluru, the IT hub of India. From his window
he saw the landscape change from the Deccan Plateau to the green stretch of the Western Ghats and the
Goan coast. The change reminded him of the dynamic evolution of his company. Minko had started out in
2018 as a digital payments business that served the underbanked population of migrant labour, but had
pivoted during the COVID-19 pandemic to become a promising digital lending venture. The company
presently focused on lending to small retail grocery stores through an invoicing platform that collaborated
with the distributors of fast-moving consumer goods (FMCG) who supplied these grocery stores. Minko’s
business had been good: lending volumes were encouraging, defaults had come down, and the company
was planning to further expand its business.

He knew, however, that he was about to have a difficult discussion with his fellow co-founders and
company management to decide which of two competing customer segments Minko should focus on
serving. On the one hand, Minko could continue its existing lending pattern of financing the invoices that
distributors raised on retailers in the grocery businesses, which was a low-value but low-competition
business. On the other hand, the company could engage directly with super stockists higher up in the
distribution channel and finance the invoices they raised on distributors, which would be a more lucrative
market with better average revenue per user but more competition to contend with.

In addition, the Reserve Bank of India (RBI), which regulated banking and non-banking lenders in India, had
issued a set of digital lending guidelines the previous month. These guidelines imposed restrictions on popular
fintech lending practices, especially with respect to the guarantees digital lending companies gave to lending
partners to mitigate partners’ credit risk and help them rely on the digital lending companies’ credit models. This
development could have a major impact on Minko’s business model and had been weighing on Sanket’s mind.

AN OVERVIEW OF THE FINTECH AND LENDTECH SECTORS

Fintech referred to those ventures that used technology to design and deliver financial products and services
to customers. Over the past decade, many new business models had evolved that used technologies like
artificial intelligence, machine learning, blockchain, cloud computing, robotic process automation, natural
language processing, and more to customize various financial products and services and to improve
customer experience and engagement.

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According to PricewaterhouseCoopers LLP, there were four categories of fintech ecosystems. 1 The first
category consisted of existing, well-established financial institutions including large banks like Bank of
America Corporation and Citigroup Inc. The second category consisted of big technology companies like
Amazon.com Inc. (Amazon), Alphabet Inc. (Google), Meta Platforms Inc. (Facebook), and Apple Inc.
(Apple) that had started offering financial services. The third category consisted of technology companies
that were responsible for providing infrastructure to facilitate certain financial services, such as Mastercard
Inc. The fourth category consisted of disruptors—companies that focused on developing innovative
technologies and processes that would disrupt existing markets.

Over the previous decade, the global fintech sector grew at a very fast rate and had attracted considerable
investment. The amount of annual investment had sharply risen from US$4–9 billion2 in 2010–12 to $165–235
billion in 2021–22 (see Exhibit 1 for a year-by-year breakdown). The visibility and use of fintech services also
increased significantly over this period. According to Ernst & Young Global Ltd., global fintech adoption rates
increased from 16 per cent in 2015 to 64 per cent in 2019, with both India and China having the highest adoption
rates at 87 per cent3. Despite the COVID-19 pandemic, the fintech sector also witnessed increased revenue in
recent years, growing from around $128 billion in 2018 to over $300 billion by 2022 (see Exhibit 2).

Fintech could be further divided into subsectors on the basis of financial services provided, such as paytech
(digital payment services), lendtech (digital lending services), wealthtech (digital savings and investment
services), insurtech (digital insurance services), regtech and risktech (technology-driven regulatory,
compliance-management, and risk management services), and so on. During recent years, each of these
segments had seen innovations in their products, services, and processes, as well as in areas such as service
delivery, customer engagement, personalization of offerings, lowering of costs, and smaller ticket sizes.

According to Inc42 Media’s State of Indian Fintech Report, Q4 2022, the Indian fintech sector was growing
at a compound annual growth rate (CAGR) of 18 per cent and was expected to reach a value of $2.1 trillion
by 2030. Among its subsectors, lendtech was considered to the most lucrative market with a CAGR of 22
per cent4 (see Exhibit 3).

In India, the non-banking financial company (NBFC) sector had been at the forefront of developing digital
lending technology and services. Banks also started to adopt innovative digital lending strategies. The two
most popular forms of lending in this digital segment were balance sheet lending (BSL) and marketplace
lending (MPL), which was also known as platform lending. The difference between these two forms of
lending was the source of funds and the ownership of risk. In BSL, the lendtech companies were the lenders,
which meant that they provided the funds and carried the credit risk on their own balance sheets. In MPL,
the lendtech companies matched lenders and borrowers and did not carry the risk of credit on their balance
sheets. There were various types of players in the lendtech market, including peer-to-peer (P2P) lenders,
marketplace aggregators, fintech platform lenders, and buy-now-pay-later lenders (see Exhibit 4 for an
illustration of India’s digital lending ecosystem in 2022, as classified by the RBI,5 demonstrating that
lenders existed within both the regulated and the non-regulated areas of the lendtech sector).

1
PricewaterhouseCoopers LLP, What Is Fintech?, accessed September 3, 2022, https://www.pwc.com/us/en/financial-
services/publications/viewpoints/assets/pwc-fsi-what-is-fintech.pdf.
2
All dollar amounts are in US dollars.
3
Ernst & Young, Global Fintech Adoption Index 2019, accessed December 22, 2020, https://www.ey.com/en_es/ey-global-
fintech-adoption-index
4
Inc42, State of Indian Fintech Report, Q4 2022, accessed June 1, 2023, https://inc42.com/reports/state-of-indian-fintech-
report-q4-2022/.
5
Reserve Bank of India, Guidelines on Digital Lending, accessed October 8, 2022,
https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=12382.

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THE COMPANY’S GENESIS AND EVOLUTION

Minko was founded by cousins Sanket Shendure and Sanmati Shendure. They belonged to the third
generation of a business family that, among their various enterprises, had had interests in the distribution
of FMCG products for over 40 years (Sanmati had overseen the sales function for this business for over 15
years). When Sanket and Sanmati first launched the business that would become Minko, Sanket had
recently graduated with a bachelor’s degree in computer engineering and was pursuing a master’s degree
in business administration.

THE BEGINNING: MINKSPAY

Sanket and Sanmati founded their company in late 2017 as a digital payments fintech firm under the name
Minkspay. The major objective of their business was to help migrant workers within India transfer money to
their families using the digital payment infrastructure that had recently been put in place by the Indian
government. Given migrant workers’ variable employment locations, documentation statuses, and levels of
income, this group was largely underbanked. Minkspay focused on offering payment services through retail
provision and grocery (or kirana) stores, which migrant workers often visited to purchase their essential supplies.
The company’s network also included a large number of telecom retailers and service providers after the telecom
company Reliance Jio Infocomm Limited launched low-priced 4G data services across India.6 This telecom
launch was, in a way, responsible for levelling the data and internet playing field in India by providing
exceptional value-for-money services and country-wide coverage. As a result, even small grocery outlets and
telecom service providers could have access to data services and the internet at affordable prices.

Minkspay offered its services using the Unified Payments Interface (UPI) platform run by the National Payments
Corporation of India Ltd. (NPCI).7 This platform was based on the Immediate Payment Service technology
developed by the NPCI. Under this service, stores would provide services as a business correspondent to an
existing bank (in this case, ICICI Bank Ltd. and Paytm Payments Bank Ltd.), which allowed the banks to
remotely provide a range of payment services, including withdrawals of small amounts of cash and digital
remittances (a diagrammatic explanation of the UPI platform is given in Exhibit 5).8 Minkspay deployed these
services in the states of Goa, Maharashtra, and Karnataka. Sanket and Sanmati saw great potential in technology-
based payment services given India’s large size and the limited reach of its banking network. As Sanket
explained, “Just as some brands of shampoo have transformed the FMCG business by introducing ₹19 sachets
of product10, we too thought: why can’t we ‘sachetise’ the finance and especially payments business?”

Minkspay gained traction, and in 2019 the company had reached a penetration of 20,000 stores and had
facilitated a cumulative volume of about $100 million in digital payments. The company received $1.5
million (₹120 million) from Mumbai Angel Network in its first round of funding and was preparing to scale
the number of its retail partners from 20,000 to 500,000. Sanket was quite clear on the opportunity the

6
Express Web Desk, “Reliance Jio 4G Services Launched, to Be Fully Free till End of 2016,” Indian Express, September 1, 2016,
https://indianexpress.com/article/technology/mobile-tabs/reliance-jio-4g-service-launch-highlights-tariff-data-voice-calls-3007532/.
7
The Immediate Payment Service and the subsequent development of the UPI by the NPCI helped spur a transformation of
the payments sector in India, providing flexible, multi-device and multi- and cross-platform possibilities for digital payments.
For further details, see “IMPS (Immediate Payment Service): Product Overview,” NPCI, accessed January 20, 2023,
https://www.npci.org.in/what-we-do/imps/product-overview; “Unified Payments Interface (UPI): Product Overview,” NPCI,
accessed January 20, 2023, https://www.npci.org.in/what-we-do/upi/product-overview/.
8
Staff Writer, “How UPI Works,” Mint, April 13, 2016, https://www.livemint.com/Industry/bTGwxmykXhSKX5Vf8050NI/How-
UPI-works.html.
9
₹ = INR = Indian Rupee. US$1 = ₹83.5659 on July 16, 2024.
10
Times News Network, “Sachets: The Next Big (Small) Thing,” The Economic Times, June 29, 2005,
https://economictimes.indiatimes.com/brand-equity/marketing/sachets-the-next-big-small-thing/articleshow/1161484.cms

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company had in front of them: “India’s migrant economy has over 120 million workers11, and as per our
estimates, more than 80 per cent of these belonging to poorly connected rural areas and they account for 80
per cent of the country’s domestic remittance.”

THE IMPACT OF COVID-19

The COVID-19 pandemic broke out in late 2019 and was a significant issue in India by the end of March 2020.
For Minkspay, this was a spanner in the works. At that time, the company’s operations spanned the Indian states
of Goa, Maharashtra, Karnataka, Bihar, and Gujarat. A significant portion of the company’s user base was
migrant labour, and this demographic witnessed massive reverse migrations toward their hometowns and
villages during this period. Soon after the pandemic-induced lockdowns took force in April 2020, the volumes
of domestic remittances across the country decreased by approximately 70 per cent.12 This had a major impact
on Minkspay, and the company’s volumes fell by almost 95 per cent. In order to ensure the company’s survival
through these challenges, Sanket and Sanmati considered diversifying their business model.

THE LENDING BUSINESS IDEA

Sanket and Sanmati were already familiar with the landscape of the FMCG distribution sector, and by
March 2020 they had onboarded more than 20,000 retailers to the Minkspay platform. As they considered
diversification, they decided to find out if these retailers faced any other issues or challenges that they could
address as a fintech entity. Through Minkspay, Sanket and Sanmati had gained insight into retailers’ credit
requirements. They had observed that the number of retailers requiring credit services from their distributors
exceeded distributors’ ability to provide such services. Sanket and Sanmati also realized that a distributor’s
capacity to supply retailers through credit was limited by its available capital. If this available capital were
to be supplemented, it would create a win-win situation for both the retailer and the distributor. Incumbent
formal lenders were averse to working in this space due to the small value of the loans required and the
disproportionately high cost of acquiring customers. As a result, banks and NBFCs were unable to meet the
financial needs of these retailers. However, technology had the potential to manage this at a much lower
cost. This is where Sanket and Sanmati saw an opportunity, and they decided to develop a digital, app-
based platform to provide credit to small retailers.

As they firmed up their plans for entering the lendtech space, they simultaneously made the decision to
withdraw from the payments business. Sanket explained this:

As we saw it, there were two important reasons to completely exit the payments business: First, we
had limited resources as a startup—capital and manpower included—so we did not want to divide our
attention. Pursuing both simultaneously would not allow enough efforts on either.

Second, payments were a low-hanging fruit and an easy entry into this marketplace. It helped us gain
understanding of the marketplace, as well as the ability to build scalable systems and the technical
architecture to deal with this type and volume of transactions—having gone up to about 500,000
transactions in a month. Moreover, the payments business was just one of distribution, where the funds

11
Shilpa Jamkhandikar and Prashant Waydande, “Poor Indians flee to villages as coronavirus measures take heavy toll,”
Reuters, March 21, 2020, https://www.reuters.com/article/us-health-coronavirus-india-migrants/poor-indians-flee-to-villages-
as-coronavirus-measures-take-heavy-toll-idUSKBN2180KL/
12
Amit Nigam, “Bouncing Back to Normal: Domestic Remittances Return to the Pre-Pandemic Level,” Times of India,
November 27, 2020, https://timesofindia.indiatimes.com/blogs/voices/bouncing-back-to-normal-domestic-remittances-return-
to-the-pre-pandemic-level/.

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were owned and managed by banks and the overall system, the technological platform, was that of
National Payments Corporation of India (NPCI), and we, as a company, anticipated reducing margins
from this business. We believed that ultimately this would be a business of scale, with only very large
players sustaining in the marketplace.

THE LENDTECH PROPOSITION

According to the company’s surveys, there were about 1.5 million retailers being supplied inventory by
over a hundred organized cash-and-carry wholesalers. Some of the notable players in this domain included
Flipkart Wholesale, Hiveloop Technology Pvt. Ltd. (Udaan), Jumbotail Technologies Pvt. Ltd. (Jumbotail),
and Metro Cash and Carry India Ltd. (Metro Cash and Carry), among others. These organized wholesalers
did have buy-now-pay-later programs and other credit lines available for their retailers at checkout or
otherwise attached to the sale. However, among unorganized wholesalers—which the surveys estimated
accounted for more than one million wholesalers and distributors serving close to 15 million retailers across
the country—credit was largely provided through the wholesalers’ and distributors’ own funds, thus
severely constraining their capability to provide credit. The company estimated that the resulting credit gap
in the market was in the range of $100–200 billion. This underbanked segment of traders was a major
motivation for them to undertake a foray into the retailer-lending space. To effectively underline and
communicate this shift, the company changed its name from Minkspay to Minko.

Minko’s leadership assessed that the company’s fintech lending business proposition would benefit both
distributors and retailers. Distributors would benefit through increased efficiency and business capacity. By
using this service, distributors would lower their cash collection costs and reduce their working capital
requirements while simultaneously increasing their business through increased sales volumes to retailers
who previously did not have access to credit.

The benefits to retailers would be two-fold. First, they would be able to increase their business volume
because of the greater availability of capital for investing in working capital. Second, they would benefit
from a lower cost of borrowing than they would otherwise have access to through informal sources of credit.
This process of getting first-time credit from the formal lending sector would also give retailers the added
benefit of creating a formal credit score, which would give retailers sustained access to formal lending
institutions (see Exhibit 6 for an explanation of Minko’s flow of service, steps to access credit, and
repayment process).

DEVELOPING THE LENDING BUSINESS

In order to move into the lending business, Minkspay undertook a repositioning effort and rebranded as
Minko. The company’s product was converted into a technological platform that functioned as a
comprehensive invoice generation system for distributors and was designed to seamlessly integrate with
the user’s existing accounting software. To begin onboarding, the retailer would download and install the
Minko app. The app would then provide the retailer with an option of accessing a credit line of up to
₹100,000 and guide them through the process of providing the necessary documents to both establish their
basic creditworthiness and fulfill the Know-Your-Customer (KYC) requirements. This information was
required for Minko’s partner lending institutions to verify the retailer’s credentials and assess and validate
their creditworthiness. The usual timeline for credit approval was approximately 24 hours. On approval,
the retailer would then have to accept the app’s terms and conditions, and then the credit line would be
made available for them to utilize.

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This process was designed to be much more convenient than applying to a traditional commercial bank for
a line of credit—a process that involved a lot of documentation and had a longer approval timeline.
Moreover, banks generally preferred to grant credit only if the amount of credit involved was substantial
enough to help them recover their administrative and acquisition costs (usually to the order of ₹500,000 or
more). Minko’s service was, per the company, “a very apt example of contextual lending, or in the broader
sense, contextual financial services.”13

On the operational front, this required Minko redesign and redevelop their platform. As Rohit Singh,
Minko’s chief operations officer explained, “The Minko.App product was functionally quite different [from
Minkspay], and most of it had to be built from the ground up. While we could use bits and pieces of the
earlier app, we essentially had to scratch the majority of that tech. Since the business had practically come
to a standstill due to the COVID-19 pandemic, it gave our technical team the opportunity to build this app.”

The primary driver behind Minko’s success was its acceptance by distributors. Minko offered distributors
flexibility in determining how to extend credit facilities to retailers. They had the option of either allowing
the credit cost to be passed on to the retailer or absorbing the costs of the credit themselves by providing a
service resembling buy-now-pay-later model. This approach aimed to replicate the streamlined experience
of an e-commerce checkout process. In essence, Minko aimed to provide credit in three taps, rather than
the cumbersome and documentation-intensive approach of traditional lenders.

CUSTOMER SEGMENTS AND REVENUE GENERATION

Minko could provide access to receivables finance that targeted one of two segments within the retail
groceries distribution channel: either the super stockist-distributor trade or the distributor-retailer trade. In
the typical Indian FMCG distribution structure, goods flowed from the company to the super stockist, from
the super stockist to the distributors and wholesalers, and then from the distributors and wholesalers to the
retailers (see Exhibit 7). In India, FMCG companies usually coordinated their sales through a few large
super stockists who then supplied to regional distributors and wholesalers that could provide a better
geographical presence. Super stockists and distributors were usually exclusive to the company and did not
stock competing brands, while wholesalers bought goods from multiple distributors across different brands
and product lines. The distributors and wholesalers then sold these goods in large quantities to retail stores,
including the popular kirana stores. The distributor-wholesaler trade provided opportunities for funding
larger tickets but attracted a higher level of competition. Sanket and Sanmati decided to focus on the
distributor-retailer trade because they had already developed relationships with retailers while operating as
Minkspay and had a better understanding of their processes.

Minko wanted to focus on developing more contextual financial services for the distributor-small retailer
trading segment. The company was not interested in the term-loan space or the large ticket distributor-retailer
relationships that were being addressed by other players in the lendtech market. While companies like Rupifi
Technology Solutions Pvt. Ltd. (Rupifi) and Arthashastra Fintech Pvt. Ltd. (ePayLater) addressed small-ticket
borrowers seeking credit amounts less than ₹500,000, these companies were largely targeting the participants
of organized retail supply chains who were associated with large wholesalers and cash-and-carry chains such
as Flipkart Wholesale, Metro Cash and Carry, Jumbotail, Udaan, and similar players operating in
metropolitan, tier 1 and tier 2 cities. In contrast, Minko sought to address the large but fragmented market of

13
Contextual financial services refers to hyper-personalised, location-independent financial services made possible by
leveraging the suite of technology utilized by finance and fintech companies. See Marko Wenthin, “Beyond Banks: The Rise
of Contextual Financial Services” Solarisbank Blog, accessed July 16, 2024, https://medium.com/solarisbank-blog/beyond-
banks-the-rise-of-contextual-financial-services-c693bbf2c889.

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more regional players. Desiderata Impact Ventures Pvt. Ltd. (Progcap) and Mintifi Pvt. Ltd. (Mintifi) had
business models similar to Minko’s but focused on white goods and mobile phone retailers rather than FMCG
and kirana stores (see Exhibit 8 for the company’s mapping of its competitive landscape).

Once Sanket and Sanmati determined that Minko provided an effective end-to-end experience to their
customers and business partners, the company’s next step was to assessed the credit standing of potential
borrowers and to provide an initial default guarantee to their lending partners that guaranteed Minko would
share the consequences of potential defaults. To do this, Minko developed a proprietary credit assessment
model that was based on retailers’ transaction data and continually updated with retailers’ additional
transaction data. Minko charged a commission from its lending partners of about 30–40 per cent of the
interest earned on the loan. By September 2022, after a year and a half of operation, the business had grown
substantially. From its initial disbursement of approximately ₹1 million in a month, spread over 40 credit
transactions to 25 retailer-clients of multiple distributors, Minko had grown to reach a quantum of ₹100
million in a single month, spread over approximately 6,000 credit transactions disbursed to more than 2,600
retailers. The average tenure of these loans was 30 days and the typical ticket size between ₹85,000 and
₹100,000. Non-performing assets, or defaults, in the first cohort were a high 15 per cent of Minko’s loan
book in the company’s first few months of operating. This was due to a combination of an early-stage credit
model as well as COVID-related business delinquencies. However, by refining the credit model and
improving customer screening and targeting, the company managed to reduce the default rate to less than
a cumulative 1.9 per cent of the total disbursement. Sanket explained, “Being small, nimble and in a super-
niche space allowed us the flexibility to experiment with our credit assessment models and service offering
features, which larger companies would have been unable to tinker with.” Moving forward, Minko aimed
to reach over a million retailers across 15 states over the next two years of operations.

The company revenue model consisted of three streams: The first revenue stream was from distributors, and
included revenue generated through invoice delivery, payment reminders and collection support services, and
software-as-a-service based per-invoice delivery pricing and billing. The second revenue stream was raised
from lenders through a commission of 30–40 per cent of interest charged. Given the unsecured and fragmented
nature of lending, Minko encouraged lenders to work with a flat interest cost of 24 per cent per annum, or 2
per cent per month. Over and above this, the company intended to charge a platform fee. The third revenue
stream was from retailers through an annual service fee and cross-selling other financial services. Of these,
the bulk of Minko’s revenue was generated by its commission from lenders.

CUSTOMER ACQUISITION AND MANAGEMENT

The company focused on two ways of acquiring customers. The first approach was through distributors and
direct contact with retailers. These retailers included both those known to Minko through earlier business
transactions as well as those cold-called for a realistic feel of the market and target customer requirements.
The second approach was through talking to retailers and distributors to understand their funding
requirements, documentation issues, and borrowing perceptions.

CUSTOMER RELATIONS

To assist customers with queries or issues, Minko had both a call centre where customers could speak to a
customer success executive and a WhatsApp support number where customers could use a chat interface to
address their queries. Emails were not effective with this customer segment. Minko had begun working on
building a chatbot to manage their WhatsApp interactions and was actively exploring opportunities to

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expand their financial offerings through an embedded finance approach.14 This approach would mean that
if a distributor sent an invoice to a retailer over WhatsApp, there would be an option within that invoice to
convert it into a credit purchase through Minko, thus allowing retailers to access Minko’s financing without
even installing the app. Sanket rationalized this: “We want to avoid app fatigue that has been setting in with
all customers, and users of smartphones in general. Given the ubiquity of WhatsApp, that would be a
meaningful alternative to establish communication and process the requirements while avoiding reluctance
of the customer to install one more app on their phone.”

CREDIT DECISIONING AND RISK MANAGEMENT

In India, NBFCs traditionally took the lead in lending to small-ticket borrowers. These NBFCs sourced
their funding from banks and bore the default risk for these loans. With the advent of fintech lending and
lendtech companies, however, this dynamic changed. While banks continued to lend to NBFCs for onward
lending, the sourcing and credit decisioning for many small-ticket borrowers moved to fintech companies
that operated on behalf of these companies. Then the NBFC would lend to the borrower.

To provide the lending company confidence in the credit decision, fintech companies needed to have some
skin in the game. This was achieved by fintech companies providing lenders a guarantee with respect to the
initial credit exposure to a client in the range of 10–20 per cent of the loan amount. In exchange, fintech
companies charged lenders a commission calculated as a portion of the interest earned from the loan—for
Minko, this was in the range of 30–40 per cent. This guarantee was referred to as a first loan default
guarantee (FLDG) and became quite popular in the Indian lendtech market. An FLDG enabled lending
companies to rely on the customer acquisition process of fintech companies because fintech companies
were taking on part of the credit risk. However, the RBI, which regulated Indian banks and NBFCs, frowned
upon this practice because it took a portion of the credit risk off the balance sheet of the lender and meant
that this portion of the risk was not reflected by any regulated entity registered with the RBI.

REGULATORY DEVELOPMENTS AND IMPLICATIONS

In order to mitigate the risks associated with unregulated lending (e.g., predatory consumer practices,
exorbitant interest rates, unethical recovery practices, and unrecognized credit exposure), in September 2022
the RBI came out with guidelines on digital lending. The key points of these guidelines were as follows:

1. That registered entities (those lenders registered with the RBI) were exclusively allowed to pay out loans
and receive the repayments into their own bank accounts, with no intermediary involved in the monetary
transactions. All interest, penalties, and any other levies must be direct bank transactions between the
borrower and the registered lender, and no pooling or transfer via third parties was permitted.
2. That the terms of the loans would have to be clearly specified to the borrowers upfront on digital
letterheads of the registered entities—the lenders. No charges apart from those specified would be
payable by the borrower.
3. That the lenders could engage with lending service providers for acquiring and onboarding customers
but would have to undertake due diligence to ensure the service provider’s transparency as well as to
protect client data from potential privacy issues. This included preventing service providers from
storing any client data apart from basic records such as name, address, and contact details.

14
The process or construct of having financial products built into or attached to non-financial products or services is embedded
finance. For more details, see Ishpreet Gandhi and Aashika Jain, “What Is Embedded Finance?,” Forbes Advisor, last updated
June 5, 2024, https://www.forbes.com/advisor/in/personal-finance/what-is-embedded-finance/.

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4. That third parties, such as the lending service providers referred to above, would not be allowed to
guarantee any lending defaults to the registered entities, unless undertaken by proper asset securitization
process that the RBI had separate guidelines for.15

These guidelines effectively curtailed the practice of providing FLDGs that digital lending applications and
lending service providers like Minko utilized to give confidence to their lending partners. The RBI went
one step further by creating a whitelist of digital lending applications that were legitimately allowed to
participate in the lending business in India. Only these apps would be permitted to be listed on the app
stores such as Google Play and Apple App Store.

As a result of these guidelines, fintech companies in the lending space had to take one of two routes—either
become a purely lead-generating service for registered lenders or enter the lending business as a co-lender
after registering with the RBI as an NBFC. As a lending service provider, the company’s regulatory
liabilities and the need for funds were lesser as only registered lenders had to provide funds and comply
with the norms of capital adequacy. This choice would also require the company to forgo the learning and
refinement of the credit models it had developed. As a registered lender, Minko would have to take out an
NBFC licence from the RBI and comply with the stringent guidelines applicable to NBFCs. This route
would also be capital-intensive, as the company would need to provide enough funds to lend and to meet
capital adequacy compliance.

A prime motivation of the company had been to provide a standardized and rewarding user experience for the
borrower that was comparable to the experience of buying products from an established e-commerce platform.
Sanket and Sanmati were thus unsure of how to react to this regulatory development. As per Sanket,

While the retailer actually selling the product on an e-commerce platform could be one of many
registered sellers, the user experience is essentially controlled and managed by Amazon, ensuring the
same purchase convenience and comfort irrespective of the seller of the goods. Minko similarly wants
that the borrower, whether availing a line of credit or a buy-now-pay-later facility on their purchase,
would get the same funding experience, irrespective of who the lender actually extending the credit
facility to them is. That standardized user experience is our intended value creation and motivation.
Being just a lead-generating entity, we will not be able to provide an end-to-end user experience. We
see ourselves as a tech-enabler for non-bank lenders, helping them overcome the limitations of
traditional lending processes not allowing them to reduce the ticket size below a certain threshold given
the cost of customer acquisition and processing in a conventional approach.

Minko’s leadership stood on a cusp of a critical decision between either staying a lending service provider
restricted to lead generation or becoming an RBI-registered lender.

THE CUSTOMER SEGMENT DILEMMA

As the company grew its business, it had the advantage of a track record of successful lending as well a
better assessment of the customer segments it could potentially address.

15
Reserve Bank of India, Guidelines on Digital Lending.

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THE COMPETING ALTERNATIVES

While Minko began developing its lending business, the company had the choice to target one of two
customer segments—either the distributor-retailer relationship or the stockist-distributor relationship. The
company at that time, had focused its business model on funding the distributor-retailer transactions because
it had developed a familiarity with a large number of retailers while operating as Minkspay and because its
existing relationships and knowledge in this segment provided an advantage over future competitors. The
company anticipated that by the time competition arrived, their credit models would have improved and
would provide a large competitive advantage.

CUSTOMER ACQUISITION PROCESS AND COSTS

The process of onboarding a merchant-retailer onto the Minko platform required a degree of manual
interaction to verify the documents, ensure compliance with commercial regulations, and fulfill the lender’s
KYC obligations. This made the company’s customer acquisition cost (CAC) relatively uniform,
irrespective of whether a loan’s ticket size was ₹10,000 or ₹100,000. For Minko, the typical distributor to
retailer loan ticket started at around ₹10,000.

In the alternative super stockist to distributor relationship, the average ticket size would be in the range of
₹100,000. Given the comparable efforts and costs associated with this customer segment, it presented the
opportunity for a significantly higher lifetime value (LTV) to CAC ratio.

Sanket put the dilemma in perspective:

We are keen that in the case of distributor to retailer (ticket size of ₹10,000 and more)—after acquiring
the customer, we “productise” this experience to create scale, and word of mouth referral to other
distributors, so that the ticket size goes up by about 5× to effectively ₹50,000/60,000 from ₹10,000.
This would provide an effective moat, leading to entry barriers to potential competitors, since many
would be keen to compete for the super stockist-distributor marketplace with a ticket size of ₹100,000,
but may not be able to gain entry/make profits in the more modest CAC to LTV trade-offs of the
distributor-retailer marketplace.

Minko’s management recognized that the first option had the potential to bring higher volumes in terms of
the number of customers, even though its LTV to CAC realization would be much more modest. Therefore
the company explored ways to generate additional average revenue per user (ARPU) from the small-ticket
market, which included roughly 8,300,000 kirana stores across the country.16 Sanket continued, “Even if
from this addressable market, the serviceable addressable market is about 20 per cent of around 1.5 million
small retail kirana stores, over the next three years, even at a modest ARPU of ₹100, we are looking at a
potential annual revenue of ₹150–200 million over that time frame.”

Minko had its work cut out in deciding whether to persist in focusing on the distributor-retailer customer
segment or to transition to lending to the super stockist-distributor section of the retail distribution channel.

As Sanket’s flight landed amid some turbulence at the Goa airport, he hoped that the upcoming meeting of
Minko’s top management would go a bit more smoothly than the landing. What would the consensus
opinion be on the regulatory developments and its implications for the company’s business model? What
customer segment choice would the management team want to pursue? These discussions would have major
bearing on the company’s future operations.

16
Hindustan Unilever Ltd., Purpose-Led, Future-Fit: Hindustan Unilever Limited Integrated Annual Report 2021-22, accessed
September 2, 2022, https://www.hul.co.in/files/92ui5egz/production/8a1b3f103408328781a6ebf434b8e5172e4bfc91.pdf.

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EXHIBIT 1: WORLDWIDE INVESTMENTS IN FINTECH COMPANIES (US$ BILLIONS)

238.9
216.8

164.1
148.6
124.9

67.1 63.4 59.2

45.4

18.9
9.0 6.0 4.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Source: “Value and Number of Investments in Fintech Worldwide from 2010 to 2023,” Statista, accessed September 3, 2022,
https://www.statista.com/statistics/719385/investments-into-fintech-companies-globally/.

EXHIBIT 2: GLOBAL FINTECH REVENUE, 2018–2022 (US$ BILLIONS)

310
248
199
159
128

2018 2019 2020 2021 2022

Source: T4 Labs Inc., “Fintech Market Share,” accessed September 4, 2022, https://www.t4.ai/industries/fintech-market-share.

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EXHIBIT 3: FINTECH MARKET IN INDIA

Market opportunity Venture capital Unicorns and soonicorns

Market opportunity $24 billion Total funding (2014

$2.1 trillion 22 Unicorns in India
(2030) to Q3 2022)

18% CAGR Funding CAGR

57% 33 Soonicorns in India
(2021 to 2030) (2016 to 2021)

The most lucrative Active fintech Combined

Lendtech 4,200+ $68 billion valuation of
market (2030) startups in India
unicorns

Market opportunity Funded fintech Combined

$48 billion for Neobanking 660+ $12 billion+ valuation of
startups
(2030) soonicorns

Note: CAGR = compound annual growth rate.

Source: Adapted from Inc42, State of Indian Fintech Report, Q4 2022, accessed June 1, 2023, https://inc42.com/reports/state-of-indian-fintech-report-q4-2022/.

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EXHIBIT 4: RESERVE BANK OF INDIA DIGITAL LENDING TAXONOMY

Digital Lending

Lending by regulated financial Lending by individuals/entities other than

institutions viz., banks and NBFCs banks and NBFCs

Small Business lending Consumer Small Business lending (B2B)

Consumer e.g., invoice discounting, SME
(B2B) e.g., invoice lending
lending (B2C) lending, POS-based lending
discounting, SME lending, (B2C)
POS-based lending

Secured lending: Unsecured

gold loans, vehicle Secured lending: gold
lending Unsecured
loans, home loans, vehicle loans,
lending
loans, etc. home loans, etc.

Balance Hybrid lenders Registered Proxy lenders

Marketplac Fringe
sheet (balance sheet money lenders Non-bank (e.g.,
e lenders Lenders
lenders lenders also (not much non- corporate
(NBFC (illegal
(banks/ participating in evidence about financial cards, buy-
P2P) lending
NBFCs) marketplace) their digital companies now-pay-later
activities)
foray) programs)

Note: NBFC = non-banking financial company; B2C = business-to-consumer; B2B = business-to-business; SME = small and medium-sized enterprises; POS = point of sale;
P2P = peer-to-peer.
Source: Reserve Bank of India, Report of the Working Group on Digital Lending Including Lending through Online Platforms and Mobile Apps, accessed September 30, 2022,
https://rbi.org.in/scripts/PublicationReportDetails.aspx?ID=1189.

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EXHIBIT 5: UNIFIED PAYMENTS INTERFACE ARCHITECTURE AND SERVICES

Note: UPI = Unified Payments Interface; NPCI = National Payments Corporation of India Ltd.; APBS = Aadhaar Payments
Bridge System; NACH = National Automated Clearing House; IMPS = Immediate Payment Service; AEPS = Aadhaar Enabled
Payment System; Ecom = e-commerce; NFS = National Financial Switch.
Source: Staff Writer, “How UPI Works,” Mint, April 13, 2016,
https://www.livemint.com/Industry/bTGwxmykXhSKX5Vf8050NI/How-UPI-works.html.

EXHIBIT 6: MINKO SERVICE FLOW

Source: Minko.App, Minko Pitch Deck, accessed August 31, 2022.

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EXHIBIT 7: STRUCTURE OF TYPICAL RETAIL DISTRIBUTION CHANNEL IN INDIA

Distributors Retailers

Carrying and Super

FMCG stockists
forwarding
manufacturer
agents (or stockists)

Wholesalers Small retailers

Note: FMCG = fast-moving consumer goods.

Source: Compiled by case authors based on discussions with Minko management.

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EXHIBIT 8: MINKO’S COMPETITIVE MAP

RETAIL STORES

Minko
Khatabook Progcap

Mintifi
Bharat Pe OkCredit ePaylater

TERM LOANS CREDIT LINE FINANCING

RupiFi

Udaan Capital
Lendingkart Indifi

CredAble KredX
Traditional lenders
(Banks, NBFCs, etc.)

ANCHOR-DRIVEN SUPPLY CHAIN

Source: Minko.App, Minko Pitch Deck, accessed August 31, 2022.

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