Fable Fintech is not yet a Unicorn, but the 7-year-old start-up has built a strong moat by emerging as the largest cross-border payment processing solution to not only top banks in India but even those operating offshore.
While traditional IT services players such as Infosys, TCS, Wipro, besides Oracle and IBM provide custom-made products for banks, the implementation tends to be long-winded, owing to integration capabilities and Fable created an easy-to-integrate solution for banks.
With a client roster of 35 banks, Fable has thus far raised $9 million, valuing it upwards of $25 million. The last round of funding was in June 2021, when the Mumbai-based fintech, started by Naushad Contractor and six others, raised series A capital from a clutch of investors, led by one of India’s most prolific but reticent stock pickers, Ashish Kacholia. A mid- and small-cap specialist, Kacholia, as of September 2021 quarter, holds over 1% stake in 26 stocks, cumulatively worth ₹1,700 crore. Though there could be stocks where his holding is less than 1% and, hence, is not publicly available.
Interestingly, for someone who has made a name for himself in the public market, investing in Fable is a tale in itself. As it turns out Kacholia, who is a top private banking client at ICICI Bank, expressed his interest in investing in a couple of unlisted companies. Since the bank was a client of Fable, the connection proved to be providential.
“Ashish is a very, very down-to-earth guy. One of the reasons I did accept money from him was his amazing humility despite his stature,” Contractor tells Fortune India.
In a rare media interaction, the founder of Lucky Securities reveals to Fortune India as to why he chose to invest in the cross-border remittance Saas startup. “In any software product company, be it Majesco where I have invested in the past, once you have a demonstration effect, then it helps in scaling up the business very fast,” says Kacholia.
For instance, Fable has snugly fit into the huge cross-border remittances market by offering a white label solution that banks can easily incorporate into their existing IT architecture. “We are not challengers to Swift, Ripple, Visa Net and MasterCard Net. Instead, we are making these solutions more efficient for our customers,” Contractor tells Fortune India.
That’s where Kacholia believes Fable’s edge lies. “Once you are able to provide a unique solution, have a large established client base, particularly in the software industry, it's far easier to replicate the same success with other clients. Secondly, there are economies of scale in maintaining and upgrading that software for that entire cohort of customers,” feels Kacholia.
While in the past, the Mumbai-based investor has dabbled in software companies, including Birla Software, Majesco was the first product company that Kacholia had invested in and made a killing. Without revealing details, Kacholia says, “I had a fairly significant investment in Majesco and made a fairly successful exit. Though not in a similar space, as Majesco was in insurance, the biggest draw for me into Fable was that nine out of 10 India's largest private banks are its customers. That is a tremendous demonstration that the company's product is established, it is scalable, and is delivering what it is meant to do,” reveals Kacholia.
“I spoke to a couple of Fable’s clients to find out what gives them the confidence to select Fable versus any large supplier. But, actually, there isn't a larger supplier of this kind of software. It is a niche market and anybody else will find it very difficult to replicate Fable’s success,” adds Kacholia. Not surprising that Contractor points out: “We've not lost a single customer in six years.”
Strict anti-laundering and KYC regulations mean that doing business with banks is not easy. “Banks are very cautious about whom they want as their partner. So, the fact that they had nine top banks was good enough for me, and also the valuation at which we invested,” adds Kacholia.
According to the World Bank, India received over $83 billion in remittances in 2020 and which is likely to touch $87 billion in CY21. In the current calendar year, inflows are expected to grow 3% to $89.6 billion. However, Fable is not limiting itself to India but exploring overseas markets. The reasons are two-fold: the humongous size and better margins.
“There are very large corridors of remittances across the world such as the U.S.-Mexico corridor, U.S.-Latin America corridor and within Asia, the remittance corridor from Japan to the rest of Asia and Singapore to the rest of Asia. Besides, the remittance corridors within Europe,” points out Kacholia.
For Contractor, looking beyond Indian shores makes for a stronger business case. “This year, our platform has processed $15-16 billion worth of transactions and it’s not a joke. But the issue with Indian banks is that they don't give you revenue, they give you recognition,” remarks Contractor.
With the recent fund raise, Fable has ramped up its overseas presence with sales personnel based in the U.S., the U.K., the U.A.E., Vietnam, and Kenya. “Our aim is to reverse the current mix and generate 70% of our business overseas and 30% from India. From the funds raised we want to tap the global markets where I'm able to sell the same product for 3-4x of the Indian rate,” explains Contractor.
For instance, the average margin of Fable’s offering in India is 25-40% compared with its average overseas billing. Currently, in India, the company gives its customers the flexibility of paying 50% as a one-time cost and, and balance as annual maintenance charge (AMC). “Without the annuity, the business doesn’t make sense and the important aspect is to be able to actually support the bank as per their requirements,” adds Contractor. The other model is to where clients are billed a higher one-time cost, of which 20% comprises AMC.
Besides other geographies, the company is looking to build on its presence in the U.S. and Canada. “We've got a few solid leads and are working on them. Also, we are working with companies such as the ACI, IBM, and Finacle, trying to piggyback rather than compete with them since they don't have competing products,” mentions Contractor. Instead of chasing the big banks in the U.S., Contractor is adopting a different strategy. “We want to first get the 10 small banks and establish our product. Then it becomes easier to sell to the big guy,” believes Contractor.
For now, Kacholia believes Fable has a strong narrative going in its favour. “No bank will want to replace Fable in a hurry, unless we screw up in a big way. I don't see that happening as Fable is constantly innovating and investing ahead of the curve,” believes Kacholia.
Though Fable has a competitive pricing, Kacholia does not believe it’s a race to the bottom. “Definitely not, I think we are trying to deliver value to the customer and pricing is what the market will bear. We have a reasonable pricing model, and we’ll see how these models evolve with time,” opines Kacholia.
Since product companies have to make the investment upfront and constantly invest in new technologies, capital infusion in the near term is due for Fable. Kacholia is more than willing to cut the cheque. “I certainly look forward to doing that.”
Looks like Kacholia has found his next multibagger.