If you look at vehicle ownership in India, it has been stuck in the previous generation mindset of owning the car or two-wheeler as a long-term asset. Compounded by rigid financing and ownership models, India has seen a significant drop in car ownership, notably among the younger generation. The upwardly mobile younger generation of Indian customers are keen to get to their dream car earlier, without being stuck with it forever. The duration of owning the same vehicle has come down significantly and customers are now seeking faster access to vehicles, low-cost EMIs and quicker upgrades.
Every year in India, more than 3.25 million new cars and 20 million new two wheelers are sold out of which more than 60% are financed.
One of the significant reasons for the recent slowdown of the automotive industry is believed to be caused by challenges in financing vehicle purchases.
However, India is expected to see a similar turnaround where customers value access over ownership and alternative financing models become a more viable and preferred choice, especially among the young buyers.
“Coming from a tier-3 kind of town, the way we pursue commute is very different from the metro places and that has been a lifelong thing as we have evolved. We started off with bikes and CredR was one of my ventures where we majorly focused on the buying and selling of used bikes and during that experience of 2014-17 where we transacted more than 100,000 used bikes in the market, there were particularly interesting insights into the changing consumer behaviour. One being that today, the consumer loves to change very fast. If you talk about the market, on average, individuals are changing bikes within 3 years now which was probably about 5.5 to 6 years a generation back,” says Sumit Chhazed, Founder and CEO of OTO Capital.
OTO Capital has introduced the concept of two-wheeler leasing in India and claims to India's first startup to do so. The company was launched in April 2018 and is based in Bengaluru. It is also operational in Mumbai and Pune.
Sumit adds, “More and more customers are opting for finance now. So almost 75% today opt for finance out of which 50-55% actually get through because two-wheelers are new to credit, some of them are not able to get. The whole mindset of the consumer is why to pay so much today, let’s pay as we use.”
Third interesting aspect is that with the whole rental gig economy coming into place, consumers love convenience now, says Sumit. “While they want a sense of ownership and desire, they want to be away from the commitments that come with it. The models that have been built across various industries, have shifted the consumer behaviour to pursue convenience over hardcore commitment,” he says.
Talking about the financing options for the new-age customer that have failed to evolve with the times, Sumit says, “Even the auto industry from a technology perspective has been evolving. A lot more models are coming into the market and the pace has quickened. But if you see the financing options, it’s still the same stone-age financing options which have existed probably three decades back that are still available today. The vehicles and mindsets have changed but the financing options have remained the same.”
This is where Sumit says, they saw an opportunity and decided to cash in. “With the consumers’ changing behaviour, we identified this as an interesting proposition and consumer needs are not being solved by today’s options. Can we have some alternative which is more flexible, convenient which suits the needs of this millennial generation? That’s how OTO Capital as a venture was born.”
Explaining how the entire process is digitised with absolutely no paperwork, Sumit says, “As soon as a customer walks in and he wants to go for auto financing, he will select his vehicle, his plan and then do his full KYC. So his credit documents, KYC documents are uploaded into the app and within seconds, we will give him the approval. The entire process is digitised, from the KYC, to the credit assessment, to the signing of the agreement.”
Targeting customers in the age group of 23-36 who are young working professionals and first-time earners, Sumit explains they have some liability of the family on themselves. "They are the ones who own a bike. Their average salary is anywhere between Rs 22,000 to 25,000. Now for such a customer, a possibility to buy the vehicle by paying Rs 1000 less monthly, becomes a great opportunity.”
The second set of customers are aspirational as well, says Sumit, adding, “Now, with the same EMI, my monthly instalments are going down by 30%, so I am able to fulfil aspiration of buying an Enfield. Also, these are the set of customers who like to upgrade fast and every 2-3 years, they keep changing.”
By partnering with dealers, corporates and automakers, OTO wants to become alternate option to vehicle loans. The idea is that buyers get a convenient, all-inclusive EMI that includes bumper to bumper insurance and maintenance as well. Customers have the option of buying the bike at the end of the 3-5-year lease period. At the end of the chosen 3-5-year period, users have the flexibility to walk away with no obligation, or lease another brand new bike, or make a simple balloon payment to retain the same one.
“We have various partner banks and they act as a platform. This is a creditworthy earning customer and there is a bike as an asset backing it. Many of the banks want to do this business but today, they cannot compete with the commercial banks like IDFC First, HDFC Bank because if there is no differentiation in the product, it’s all about a distribution game. Now, these banks get an opportunity to get these customers through OTO Capital. We also work with various OEMs, dealers on one side,” says Sumit.
OTO has raised funding from Prime Venture Partners, Venture Catalysts, along with serial entrepreneur K Ganesh and Sameer Sawhney. Sumit says the company has raised two rounds so far. “It’s an interesting combination of automobile, fintech, financial services market. In total, we have raised USD 2 million as of now. Again, this company is very capital-efficient. We have a very small team of 40 people, doing almost 200 transactions a month now. Our economics is pretty sound, and we are scaling up quite fast.”
Currently available at more than 150 dealers in Mumbai and Bengaluru, OTO claims to have already financed cars and bikes worth more than Rs 10 crore in the last 6 months. OTO is adding more than 100+ customers per month and plans to grow 10X by early 2020.
Sumit adds that creating awareness is the biggest challenge and that is the key focus. “We are very confident of two-wheeler as an asset where we can under-write very efficiently, and we just want customers to get to know about us.”