India has a fascination for gold. The households in the South Asian market are estimated to have a stash of over 25,000 tons of the precious metal, whose value today is about half of the country’s nominal GDP. But much of this gold has been sitting idly in lockers in big metal wardrobes for generations.
For generations, Indians across the socio-economic spectrum have preferred to stash their savings — or at least a part of it — in the form of gold. In fact, such is the demand for gold in India — Indians stockpile more gold than citizens in any other country — that the South Asian nation is also one of the world’s largest importers of this precious metal.
They use this gold not only as a savings instrument, which protects them from the ups-and-downs of the financial market, but also as an asset against which they could get credit. However, selling off your gold in the form of jewelry or otherwise has a stigma attached to it — one is so broke that they had to pawn off their last asset of financial security.
The other challenge with keeping gold in the house is that it’s not safe.
Indiagold, a young startup that is attempting to help people put this gold to use, said on Friday it has raised $12 million in its Series A funding. The new financing round was led by Prosus’ PayU — which typically only backs later stage deals — and Falcon’s Alpha Wave Incubation (AWI) fund. Better Tomorrow Ventures, 3one4 Capital, Rainmatter Capital and existing investor Leo Capital also participated in the round.
Indiagold — founded by Nitin Misra and Deepak Abbot, two former executives of Paytm — is building a gold-focused digital alternative credit platform. The startup is using gold to determine the credit worthiness of its customers, and providing APIs to banks and other lenders who are trying to reach this untapped market.
The startup today has two major offerings: It has made it very easy and affordable for people to keep their gold in a safe locker; and it’s enabled them the option to take a loan against their gold reserves.
Once a user has signed about Indiagold, the startup’s agents come to their house, inspect and weigh the gold and put it in a tamper-proof bag, which also has a RFID sticker attached to it. Then they put the bag in a steel box, which the customer locks with their fingerprint, and the agent livestreams their journey as they leave the premises to the designated vault location.
The idea is to make it very simple for customers to put their gold in a locker. Traditionally, because of the emotional stigma attached to the yellow metal, most people have hesitated to do anything with the gold jewelry they own. When they engage with the agent who is locking the gold with their biometric in front of them and showing them the live feed of the journey to the safe locker, a trust is established.
“This whole business is built around trust,” said Gupta in an interview with TechCrunch. “Unlike a norm in some circles of the startup ecosystem where you are expected to break things and move fast, we have to spend as much time with customers to build that trust,” he said.
Indiagold also offers their locker at a much affordable price — just a few dollars a year, as opposed to hundreds taken by banks. And unlike banks, Indiagold backs the customers’ gold by insurance.
Customers have access to Indiagold app where they can see realtime value of the gold items they have put in the locker. This is when the startup’s second offering kicks in. In the event these customers need to take a loan, the startup facilitates a line of credit to them within 30 seconds.
Tapping on gold as a loan collateral is a very large market in India. “Despite the large gold reserves held by Indian household, the gold loan market has barely scratched the surface. The gold collateral (166 tons) held by Muthoot Finance is less than 1% of the estimated gold reserves in Indian households (~25k tons). This is because gold is seen as a family heirloom and passed along generations,” analysts at Bernstein wrote in a report to clients earlier this year.
If the changing consumer behavior wasn’t a big enough task already, Indiagold this year has grappled with several other challenges. The devastating second wave of the coronavirus wiped 70% of its business within days, said Misra and Abbot. “We have gone through a lot in this short journey,” Misra recalled.
But by first half of this month, business had climbed to an all-time peak, he said.
“Indiagold’s unique doorstep gold loan and gold locker products not only offer unparalleled customer experience but also enable it to offer credit at more affordable rates. The traction Indiagold has seen in a short time is a testament to its superior product capabilities and the deep experience of its pedigreed founders. We believe the gold loan market is ripe for disruption and are thrilled to back Indiagold’s founders,” said Navroz D. Udwadia, co-founder of Falcon Edge Capital, in a statement.
The startup, which is currently operational in the National Capital Region and Indore, plans to expand to 10 cities by the end of the financial year. The duo founders said they are also broadening their product offerings. In a statement, PayU said it will explore ways to collaborate with Indiagold on some product offerings.
A handful of startups are beginning to explore the gold opportunities in the country. Bangalore-based Jar is helping young users start their journey of savings by investing in digital gold.
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