KarmaLife aims to empower India’s non-salaried blue-collar gig workers with its financial solutions

1. Please tell us about KarmaLife.ai. When was it founded and what problem are you trying to solve?

KarmaLife is a mobile-first solution that empowers blue-collar workers to access low-cost, highly-relevant, and easy-to-use financial services across their full spectrum of needs. Today, our services are intermediated through employers and aggregators of aspiring but underserved worker segments. These include many new-to-credit users, who regularly earn, spend and have recurring financial needs, but are left out of the formal financial ecosystem and have to rely on expensive and inefficient alternatives.

Non-salaried gig & contract workers, which comprise 85% of India’s workforce, have volatile cash flows and are subject to financial & health-induced shocks. A very large fraction of them cannot even sustain finances paycheck to paycheck. Further, they do not have access or comfort with financial tools like credit cards, in large part because traditional financial institutions fail to build the right products for them. This subjects them to significant financial hardship and psychological stress, which impacts their livelihoods, health and aspirations.

KarmaLife was founded in March 2020 by Rohit Rathi, Naveen Budda and Badal Malick, who bring a strong mix of technology and business leadership experience.

2. Please brief us about the products/services/solutions you provide to your clients and how do they get value out of it

We have built credit-on-tap solutions optimized for these workers, their needs, and habits. All debates on financial inclusion ultimately point to the single problem of how to underwrite or assess risk for this segment. For a solution provider like us, this represents a Catch 22. You cannot underwrite without data, but, on the other hand, you cannot capture data without a base product that engages users. Today we offer two kinds of liquidity solutions:

1. Earned Wage Access: This is a line-of-credit against accrued earnings so workers can cover daily expenses like fuel and food or even sudden unplanned expenses, especially since most workers tend to live paycheck-to-paycheck. For workers with steady earning histories, KarmaLife can also extend these credit lines against forecasted future earnings, which helps workers address larger recurring expenditures like rent, EMIs, insurance premiums, or mini-emergencies.
2. Installment Based Loans: Once workers stay with the platform and show strong repayment behaviors, they are able to access multi-month, installment-linked loans to cater to larger and lumpier expenditures ranging from smartphone purchases to training courses to vehicle repairs. Overall, this suite of products comprehensively addresses the problem of short term liquidity faced by a majority of workers. For our liquidity products focused on working capital and essential purchases, we offer “purpose” or “end-use” driven use cases, wherein the credit facility can only be used for specific purposes like an ebike rental or rent at a co-living facility.
3. Digital Liquid Savings: For workers that are able to generate a financial surplus, we have introduced a digital savings product that gives them attractive interest rates (almost three times that offered by banks), without any minimum contribution requirement and with the ability to liquidate funds 24-hour notice. This complements access to liquidity by allowing workers to build a wealth-generating corpus that can be easily accessed in emergency situations.

We have also begun to experiment with micro-insurance, wherein extremely relevant covers like personal accident, health, and hospital care are offered in sachetised and affordable packages, and with assisted claims processes. This caps workers financial risk exposure from adverse health events, a key reason for them to enter debt traps.

3. How KarmaLife.ai is invested in empowering India’s 400 mn+ non-salaried blue-collared workers by combining data, technology, and trust?

According to latest reports, India will generate 90M digital gig jobs over the next decade, which conservatively translates to over $200B in annual wage processing. This will be concentrated in sectors like logistics, home services, retail, construction, and manufacturing. Since worker payments are often lagged against work done, or even delayed given complex principal client – employer relationships, workers face acute and unmet shortage. This presents a massive opportunity to provide liquidity linked to future earnings.

Given how widespread these needs are, we see EWA becoming the next wave for financial services in India. However, a key difference is that earnings-linked credit can be scaled in a sustainable and inclusive manner as it is safer, cheaper, and more efficient, especially when compared to predatory forms of payday lending. With recent investments in digital infrastructure, we now have enabling tools required from digital KYC to seamless payment rails to automated collections that allow for seamless experience at low cost-to-serve. EWA has been growing in mature markets like the US at 75% CAGR, and there is no reason not to expect similar growth in India, where wage delays are even more prevalent.

4. How can data and AI be used for financial inclusions?

The recent COVID pandemic has disproportionately harmed lower income segments, thereby depleting savings, creating debt traps, and compounding wealth and income inequalities. In this context, small ticket liquidity is a burning need for these populations and is unfortunately priced very high.

With constrained access to affordable credit, most of our users are comfortable giving informed consent to lenders to gain specific access to their financial or personal data, if it can help them in this regard. With user-permissioned work and payout data, as well as digitally generated behavioral data can help in establishing and building a credit history from scratch for the new-to-credit or credit invisible population. It is now documented that alternative data can be transformed into 1400+ features that, with high levels of efficiency, can predict useful individual and group level characteristics, a user’s personality traits, conversion propensity in marketing campaigns, and socio-economic conditions, including health, education and standard of living.

5. Explain to us about your flagship product – Dhara and how it works?

KarmaLife’s Earned Wage Access provides seamless credit-on-tap to workers acting as a buffer for recurring cash shortages. Its product design has ensured workers can access such liquidity instantly in time of need,that they understand the value proposition, and that pricing is simple and affordable.

Our EWA supports workers across various payout cycles – weekly, fortnightly or monthly. Eligible workers can digitally self-onboard through a simple 3-minute process requiring them to authenticate themselves, understand and sign the loan agreement, and complete a regulatorily mandated KYC. This can be done either through the KarmaLife mobile app or a web-app, which can be seamlessly integrated with the Partner app itself. The worker can link a bank account to which the needed level of credit can be instantly drawn.

KarmaLife dynamically sets limits based on accrued or forecasted earnings, which allows for sustainable levels of credit that can be more easily repaid from future earnings. So while a worker can see an increase or decrease in level of credit based on work performance, the endeavour is to progressive increase credit limits based on demonstrated responsible financial and work behaviors that in turn also supports building/strengthening of worker credit scores.

For use of credit in a given cycle, we charge a nominal subscription fee that is flat, transparent, and charged only when credit is used, without the complexity of interest rate calculations. This fee is typically much lower than any available market alternative for this form of unsecured credit. Loan repayment schedules are aligned with worker cash flows and automatically deducted from employer payouts, with the ability for arrears to be rolled-over to subsequent cycles when the worker faces extenuating circumstances. KarmaLife also ensures complete financial transparency and responsive support to users for any issues related to KarmaLife credit access or financial transactions.

According to a third party impact benchmarking survey conducted by 60 decibels in 2021, 76% of KarmaLife users reported reduction in stress levels, 78% reported feeling more in financial control, 82% reported improvements in quality of life, and 85% said they could not easily find an alternative. Our data shows that 80% of expenditure is on essential purchases including rent, groceries and fuel.

KarmaLife’s EWA solution has also demonstrated tangible benefits for partner platforms in the form of 20%-30% increase in worker productivity, as well as 30%-50% higher worker retention. Partners are able to offer valuable financial benefits without any risk liability or major overhead cost, and can access new worker insights to better manage their business.

6. What does your technology and business roadmap look like for the rest of the year?

We are building a new paradigm in small-ticket finance for non-salaried blue collar workers. Most of our users are young, hardworking and responsible individuals who are steady earners and spenders but yet, remain credit Invisible (i.e., have no records of a traditional credit score). So, during times of crisis, while running short on cash, they are forced to rely on expensive non-traditional lenders or ask for financial help from friends and family, which results in escalated financial or emotional stress.

In such difficult times, Karmalife enables these workers with access to flexible credit-on-tap credit, which in turn helps manage cash flows. The overall experience is also tailored to their needs with key features like digital onboarding, payout-linked repayments, and flat usage-based fees (without any interest or hidden charges).

We have a very strong data-driven culture with most of our business decisions being anchored in data. In particular, we have developed the following data-based features for best user experience:

1. KarmaScore : This is our proprietary risk score driven by digital data. It’s in line with conventional credit scores but what stands it apart is its exclusivity for KarmaLife users as it is graded on our financial products. This score helps us during the initial user onboarding process as well as estimates user-level risk on a continuing basis for future credit cycles by considering credit usage, repayments and other financial behaviors. We use several machine learning algorithms to help us achieve this with transparent and consistent scoring rules. This enables financial inclusion of workers who would otherwise be left outside the traditional credit ecosystem. And finally, it helps build credit history for new-to-credit or credit-invisible populations with the financial product that is closely aligned to their needs, aspirations and cash flows.
2. Dynamic credit allotment: We dynamically assign credit limits based on user performance at the workplace or past repayment. So a user’s credit limits can change, i.e., increase or decrease based on the latest information that is captured. To this, we apply several predictive machine learning algorithms. This allows us to build in natural incentive structures that reward users who have shown good “financial Karma” with higher or more flexible credits in future cycles, and at the same time manage downside risk. Overall, it instills and reinforces positive user behavior on the platform, creating a financially responsible user base.

We plan to extend our product offerings to longer tenure products, and other financial products to users in coming months. Also, we have an automated deployment model, and we plan to double down on that. We are the only company in India who has working experience of all payout cycle(weekly, fortnightly and monthly)

7. What is the edge your company has over other players in the industry?

Our model is designed-to-fit to employer and aggregator needs. We enable employer HR teams to use our platform seamlessly, offering a true digital ‘plug and play’ offering which does not require onerous HRMS integrations. Instead, we enable data handshakes via APIs or automated csv file transfers. We have also invested heavily in creating a low overhead operations model which leverages existing data, is configurable to existing Partner ops (e.g., payout cycles), and does not consume extra bandwidth. Further, our user onboarding experience is also seamless and delightful, resulting in industry-topping user conversion and credit utilisation rates. Our transaction processing and reconciliation processes are fully automated and foolproof, which has built confidence with our Partners, which also represent listed, global companies with strong diligence processes.

Another unique feature for the industry is our alternative-data driven risk scoring model wherein we are able to dynamically underwrite and cover gig & contract workers, across different compensation models and payment cycles, which defines the level of real time risk associated. Starting with the most challenging customer segment, and tackling their associated challenges of high churn and seasonality, allows us to cover the full spectrum of a Partner’s worker base – including gig, contract and even on-payroll workers – with personalized financial wellness benefits. Our low NPA rates undermine the economic viability and scalability of our model.

As we expand coverage by starting with very small ticket, short duration credit products linked to earnings, under a viable financial model, which allows us to get in quickly and offer progressively deeper credit products over time.

Overall, our key differentiating factors include:

1. Applicability to diverse client base. Offer both web-app and mobile app solutions optimised for blue/grey/gig segments
2. Low overhead integration and operations model for employer-intermediated solutions at speed and scale
3. Diversified financial platform not just salary advance solution. Offer EWA, LOC, & 3-6 mo loan-based liquidity products, 8-9% liquid savings & gold-based savings. Insurance to follow shortly
4. Proven metrics with large Gig and Flexi-staffing platforms with 40% monthly activation rates, 80% cycle on cycle utilisation, 20-50% churn reduction impact
5. Tailored tech and data to support best-in-class CX and sustainable risk engine (e.g., instant access, AI/ML based data automation, dynamic limit setting)
6. Transparent, user friendly pricing (i.e., flat fee based on total cycle usage vs transaction based pricing)