Fintellix: Leaving for America

October 2014. Fintellix co-founder and COO Anup Pai was waiting with his wife and daughter at the U.S. Consulate General’s office in Chennai. Things weren’t going to plan. Pai’s visa interview had hit a wall because his application stated something unusual as the purpose of visit: “Indian company setting up a
U.S. subsidiary”.

U.S. visa officials are at home with the H1B applications that Indian IT services firms file by the thousand every year to send employees to America for onsite work. Pai’s motive raised the hackles of the 50-year-old American lady interviewing him. “What exactly does your company do?” she demanded. “And what do you want to do in the U.S.?” The answers date back to 2006.

That’s when Fintellix, Pai’s Bengaluru-based banking software company that expects to do $10 million (Rs 63 crore) in revenue this year and employs 250 people, was born. It was called iCreate Software until last year, but was rebranded for the U.S. foray, lest the ‘i’ make it look like an Apple clone. Also, ‘Fintellix’ has echoes of ‘financial intelligence’, which rings true to the company’s mission of mining and harnessing data for banks and financial institutions.

Pai has seen the entrepreneurial journey in every hue, including thinking about a sellout a few years ago when iCreate was a profitable $2 million consulting partner to local banks. It focussed on business intelligence and analytics back then, whereas its flagship now is a compliance and risk management software with analytics as a rich value-added layer. Pai is known for connecting the dots, but more for being impetuous—this is a good trait when you need to jumpstart businesses or firefight, but not when you want to build a global company. So in 2009, he brought in Vivek Subramanyam, a batchmate from National Institute of Technology Surathkal, earlier a rising manager at Cognizant, as CEO.

Subramanyam’s mandate was growth. Within a year, the company had raised Rs 15 crore from venture capital firm IDG Ventures, which was also an early-stage investor in Myntra and has backed Yatra with growth funding. The firm’s managing partner T.C. Meenakshisundaram had one vital question for Pai and Subramanyam: Did they want to go global? IDG had already tasted success following this route with its portfolio company Manthan Systems, a retail analytics venture founded in 2004, which boasts clients such as Walmart and McDonald’s in the U.S. The duo said ‘yes’ to Meenakshisundaram, though neither was sure how. And here was Pai, trying to convince the incredulous visa lady that he was taking his fledgling company to America.

AI BELONGS TO a growing tribe of Indian software product company founders making a beeline for the U.S. There is Druva, the pioneer among this lot, which helps overseas enterprise clients protect critical business data. Its founder Jaspreet Singh left Pune for Mountain View, California, in 2011. Sanjay Parthasarathy, Microsoft veteran and founder of Indix in Chennai, just moved to Seattle after four years in India. He is taking a catalogue platform of around 800 million products in 7,000 categories to American retailers. There is also ScaleArc, a traffic management software maker, which started in Mumbai. Its founder Varun Singh moved to Santa Clara, California, in 2013, and hired former Juniper Networks and Citrix sales maven Justin Barney as CEO.

“If you are a small company selling enterprise software applications out of India, the cloud helps you sign up customers without the need to talk to them,” says Jishnu Bhattacharjee, managing partner at Nexus Venture Partners, an investor in Druva. “But when big accounts come up, you need presence overseas. It is not possible to grow fast remotely.”
Ashish Gupta of rival VC fund Helion Ventures concurs, citing the example of Rajesh Padinjaremadam, president of Helion-backed RapidValue, which is taking traditional ERP systems (SAP, Oracle, JD Edwards, Microsoft Dynamics, and custom-built systems) onto mobile devices. Seclore, another Helion-funded venture, has made waves for its digital rights management software. Its co-founder and CEO Vishal Gupta moved from Mumbai to Silicon Valley this March. “We already had full-fledged sales, marketing, and business development operations and about 15 customers in the U.S. before I moved,” Gupta tells me over e-mail.

What this new techie diaspora is doing is using the cloud to take software products where no Indian company has gone before. Druva led the way. Its first two client wins in the U.S., each fetching around $100,000, were critical, because they demonstrated the buy-in for its product. To grow from there, Singh overhauled Druva’s leadership. “The volumes go up swiftly in the cloud business. I needed to rethink people, processes, and cash flow seriously. I had to build a new management that had seen scale before. This was a big transition,” says Singh.

This meant hiring local talent for key roles. Singh hired Peter Amirkhan, who had been worldwide sales vice president at server company SeaMicro (acquired by AMD), as chief revenue officer. He also got Mahesh Patel from cloud telephony company RingCentral, where he had been instrumental in its 2013 multi-billion-dollar IPO, and Wynn White from cloud business intelligence company Birst to head marketing.

Strategic partnerships with Amazon Web Services and a bunch of other local partners helped Singh understand how to talk to the American market. Lastly, he built separate sales forces for mid-sized clients and large enterprises.

“There was no precedent for us,” reflects Singh. “No global software product was built from India. How do you plan for scale?” Singh says the answer lies in the cloud’s democratising hand in tech purchases: Rather than pitching only to that one CTO or CIO, who had veto powers in technology-buying decisions in the past, the cloud allows software as a service (SaaS) ventures to reach out to multiple function heads across the organisation.

“If it was just CIOs or CTOs, a SAP, Oracle, or IBM won easily. Now, the other business functions are not afraid of technology anymore because the cloud has made things so much more accessible,” says Fintellix’s Subramanyam. In cloud circles, the strategy is called “land and expand”: Win one business user or department, and expand in the rest of the enterprise. At construction and high-performance materials manufacturer Saint-Gobain, for instance, online marketing on Google and Amazon Web Services helped Druva reach out to specific departments. It first got the buy-in of customers in Saint-Gobain France, then Germany, then Britain, before winning the global account covering more than 19,000 users.

Bhattacharjee of Nexus says marketing and lead generation is crucial. “Suppose you want to sell to a big bank. You need to first persuade its account executives or marketing folk to use the product. If such business users see value in the product, adoption starts happening,” he explains.

But above all else, products must hone a ‘do-it-yourself’ proposition. The value has to be ease of use, rather than giving away a product that’s a cheaper version of your competitor’s. “You have to control the sales process very closely,” says Singh. “The product experience has to be world-class.”

Of course, it’s all much tougher than it sounds, as Capillary Technologies, a Bengaluru-headquartered retail CRM venture, found in 2014. “The cost of sales and servicing is much higher in the U.S. You need significant scale before you can break even on local costs,” says Aneesh Reddy, co-founder and CEO of Capillary, and one of Fortune India’s 40 Under 40 entrepreneurs. Less than 10% of Capillary’s revenue comes from the U.S. and Britain. “For us the growth is in Asia,” says Reddy. “There is much more competition in the West.”

Fintellix stands out from the other U.S.-bound companies because it is fighting three daunting battles at once. One, the U.S. banking market has traditionally been the graveyard for Indian software makers. Take Finacle, a 14-year-old, $300 million core banking tool built by Infosys, used in 56,000 branches of 183 banks in 85 countries. It is one of the few recognisable software brands to have ever come out of India, but remains a laggard in the U.S. Even software product companies like iFlex Solutions (which originated at Citigroup and was acquired by Oracle Financial Services Software for $909 million in 2005) found traction in Africa and Europe, but America proved elusive.

The truth is, Finacle and iFlex were born in the desktop era, when on-premise installation was the norm. This made local giants like Oracle and IBM hard to beat. But with cloud taking software to the user’s browser, the field is open again for software makers anywhere in the world.

The second battle for Fintellix is that banks per se have been resistant to the cloud. The industry, and regulators, are famously finicky about where data resides. For long, data had to be stored and protected within banks, not at a remote data centre. The good news: Banking regulators in the U.S. are a lot more open to the idea of the cloud than in India, so long as the data centres reside within the country.

The third battle is to generate enough demand for its analytics upsell, which accounts for almost 20% of Fintellix’s revenue. Investment in analytics is something many companies postpone without a second thought, because it involves tedious data gathering and mining. “Right now, buying behaviour is restricted to ‘I want to solve my problem,’” says Pai. “We believe it will evolve into a larger view.”

Pai and Subramanyam argue that banking has moved into a new era because of cost pressures and users moving online. The Finacle model of growth—which depended on banks expanding their branches— is passé. As digitisation spawns new kinds of financial institutions (think mobile wallets), banks will be pushed to build their analytical capabilities, gain deep insights, and offer highly tailored services to retain customers.

That’s why Fintellix sees the potential of using analytics to expand the bankers’ world view in the Internet age. “Internal data is only 30% of the total data that bankers and regulators base their decisions on,” says Pai. But increasingly, data from sources like social media, which reflect people’s buying behaviour and aspirations, are important factors driving strategy. “Nobody is tapping into all this yet. We want to be the company that helps banks make better decisions based on such data,” Pai adds.
Fintellix is not new to this kind of niche thinking. In India, it learnt early to position itself as a company that can help banks meet increasingly stringent regulatory reporting norms. As regulators upgrade their systems, they want a lot of data to drive monetary policy and other economic policy decisions. This requires banks to submit automated data—not manually compiled data. The pipe is becoming bigger and bigger in India, as new central bank regulations put pressure on banks and financial institutions to invest in software.

The company has so far ridden three compliance regimens mandated by the Reserve Bank of India (RBI): automated data flow in 2010, reporting of non-performing assets in 2012, and risk-based supervision to enable RBI to supervise 85 banks, each of which has different business models and risk profiles. Fintellix’s clients in the compliance segment have gone up from six in 2010 to 38, and include Bank of America Merrill Lynch, HDFC Bank, ICICI Bank, and Citibank.

In the U.S. too, Fintellix has been quick to spot a compliance opportunity—ALLL (Allowance for Loan and Lease Losses)—which is a reserve that a financial institution must maintain in relation to the estimated credit risk within its assets. American regulators, such as the Federal Reserve System, the Federal Deposit Insurance Corporation, and the National Credit Union Administration, require every financial institution to document a systematic and “consistently applied process” for determining its ALLL pool.

“Riding the regulatory compliance wave is very important because these opportunities won’t exist beyond a point in time,” says Subramanyam. “When a central bank wants to get something done, it also states a deadline. We need to capitalise on this window—fast.” Pai says Fintellix’s compliance and risk management software account for nearly 60% of its revenue.

HOW IS FINTELLIX HEDGING ITS BETS? To answer that question, Pai and Subramanyam tell me about a breakfast meeting in Bengaluru five years ago with Jagdish Sheth, marketing guru at Atlanta’s Emory University, organised at the behest of IDG Ventures. Sheth, who is on the board of Wipro and has advised companies like AT&T, 3M, and Sprint, asked them a counterintuitive question: Do you realise that the U.S. is the largest emerging market in the world?

“Sheth made us realise that just like India has a lucrative albeit relatively small developed market, the U.S. has an emerging market that is largely unaddressed,” says Pai. The lesson came good last April, when Subramanyam was in New York to meet bankers and attend a regulatory event. “I figured that the unaddressed ‘emerging’ market in the U.S.,” says Subramanyam, “includes 25,000 community banks, of which 6,000 are highly likely to include technology in their discretionary spends.”

Community banks are small banks and credit unions, which function rather like the bottom-of-the-pyramid cooperative banks in India and have assets ranging from under $1 billion to $10 billion. Many are located in out-of-the-way towns. To meet the head of a community bank in Wyomissing, Pennsylvania, for instance, Pai has to take a train from New York where Fintellix has an office, to Princeton, an hour away. He then rents a Chevy from Hertz to drive 20 miles to the one-street borough of Wyomissing, with a population of less than 15,000. The closest place that is well known is Pennsylvania’s
Amish Country.

This is virgin territory: While the Finacles and iFlexs were compelled to look at large banks for scale because only they had the money to spend on expensive on-premise installations, federal regulation after the 2008 meltdown requires banks of all sizes to comply with norms like the ALLL. This is what Fintellix is eyeing.

In March, Fintellix launched a credit portfolio management solution for community banks and credit bureaus, which includes credit portfolio analytics, credit classification and provisioning, stress testing, and portfolio review and monitoring. “There is a tectonic shift happening in the lending business in the U.S., with the ALLL calculation moving from incurred losses [‘look back’ method] to expected losses [‘look forward’ method]. This is part of the Fed’s efforts to bring better risk management into the financial system. Given that our solution supports the expected losses method, we believe our entry is well timed,” says Pai.
Also in March, the company became a member of the American Bankers Association and began conversations with over 100 banks. “We are in discussions with over 30 for a software purchase,” says Pai. “However, most bankers are waiting for the final guidelines on the expected losses method to come through from the Fed in September before making a purchase.”

Then in June, the company announced a strategic partnership with Ardmore Banking Advisors, a Pennsylvania-based firm with a 24-year track record of providing credit consulting and solutions to community banks. “As part of the deal, we will migrate Ardmore’s 46 software customers to the Fintellix cloud,” says Pai. Meanwhile, it is conducting a campaign to educate banks on ALLL provisioning.

“Cloud solutions can do for these small banks what e-commerce has done for customers sitting at home,” says Subramanyam. “Earlier, they could not have ERP or CRM software, or exchange servers, of their choice. They were all prohibitively expensive, and complex to set up and run. Now, they can access best-in-class solutions on a browser because of the cloud.” The push is there from the federal regulators, Subramanyam says. “They have put up the superstructure for cloud-based solutions. The market in the U.S. is large, and regulators are cloud-friendly,” he adds.

This ratio—cloud friendliness: market size—is critical for Fintellix in identifying which markets it wants to be in. Australia is cloud-friendly but not a large enough market. India is a huge market, but not cloud-friendly. “We will keep tracking other markets,” says Pai. “When we have some scale in the U.S., we will make a case with the RBI to make the system more open to the cloud. It’ll be a big boost to the smaller banks for whom technology is a large overhead.”

At the moment, Fintellix’s competition in the regulatory reporting software market includes Wolters Kluwer FRS Global and Axiom EPM. What’s stopping the big IT services players from jumping in? For one, the product business is off-focus for most IT companies and accounts for less than 5% of their revenue. Further, the needs of their large customers soak up most of their management mindshare, making it difficult to fish for smaller prospects, like obscure community banks.

“History shows that large companies tend to grow in evolutionary cycles, staying committed to what has got them so far, and taking leaps using M&A,” says Subramanyam. “[But] products have the advantage of leveraging new areas compared with services, which have to grow in a linear fashion after the initial breakthroughs,” he adds.

But there are signs that the giants are waking up to the gravy train: In early July, Infosys announced it wants to take Finacle to community banks using Verizon’s cloud services. Fintellix is hoping that Infy will not go after the compliance niche and rather compete for juicier core-banking deals with local incumbents like Jack Henry Associates, D+H Financial Technologies, and Fidelity Information Services.

Meanwhile, it is securing its trenches. Given that the banking business is all about trust—Naren Santhanam, co-founder and CTO of Fintellix, says the most critical part of any deal is to convince banks to share sensitive data—Fintellix is partnering system integrators who have existing relationships with community banks. “We won’t sell directly, but through local distribution,” says Subramanyam. A local advisory firm selling to CFOs of credit unions in California, for instance, will pitch and sell the Fintellix ALLL product. Eventually, it also wants to target midsized banks. Even some large financial services companies like American Express Global have evaluated Fintellix.

THOUGH THESE ARE VERY EARLY days, Pai is confident that his company is on to something big. “What I don’t know is: Who will be the fastest to solve the next big problem?” He is betting on other cloud SaaS providers.

Take Chennai-based Freshdesk, which took the battle to online customer support leader Zendesk in San Francisco in 2010. “The whole dynamics of customer support was changing, and continues to change,” says Girish Mathrubootham, co-founder and CEO of Freshdesk. Apart from the SaaS wave, the Freshdesk team noticed that customer support was fast evolving beyond phone and e-mail. And customer-support channels like call centres were not adequately capturing consumer sentiment.
Mathrubootham’s bet was that Freshdesk could serve as a multichannel platform where in addition to addressing customer grievances, brands could become part of customer conversations on social media and online forums. More recently, it has developed a solution that allows companies to resolve customer problems on mobile. “Working on smartphones requires prompt authorisation, opening, and signing of documents, and taking a customer’s call without compromising on the user experience,” says Mathrubootham, who continues to work out of Chennai. But to deepen Freshdesk’s local expertise in the U.S., he appointed Dilawar Syed as president of North American operations. Syed has led SaaS and enterprise software in Silicon Valley’s top names including Yahoo, Siebel Systems/Oracle, and SAP. Another key appointment has been Francesco Rovetta, ex-eBay Mobile, who leads alliances and distribution for Freshdesk in the U.S. The company has scaled to 40,000 customers, including biggies like Cisco and 3M, in less than five years, and earns nearly half of its revenue from
the U.S.

Fintellix is in no hurry to amass numbers. It is hunkering down for the long haul, and says it will definitely hang in longer than Capillary, which gave its U.S. play just over a year. “Anything between two and five account wins in the U.S. will be enough to jumpstart us,” says Subramanyam. “Going from five to 100 will be about execution and how quickly we can sell the story.” Meanwhile, the domestic compliance business will continue to be its mainstay.

Some of that unhurried thinking comes from Pai’s career as a seasoned banker with tonnes of international experience: He was in Poland with ANZ in 1997-98, and West Asian and Pacific countries with FNS Software in the early 2000s. He remembers a piece of advice an ANZ colleague and mentor gave him: “You can be in love with technology and keep fleeting from computing language to language, yet becoming obsolete in no time. The other path is to build depth in an industry. That will help you learn faster, execute better, and stay relevant.”

If Pai can stay true to this, he would have ensured that future product founders from India have much smoother visa interviews.