Silicon Valley adage of fail fast not feasible in fintech: Zerodha CTO

In a Q&A, Kailash Nadh dwells on the complexities of building fintech products and ensuring engineers fit in culturally

Online stockbroker Zerodha was reeling under tech outages in 2018 and 2019. But they receded when the pandemic struck in 2020 and millions of new users came to the platform. The company’s chief technology officer, Kailash Nadh, spoke with Deepsekhar Choudhury about the complexities of building fintech products, ensuring that engineers fit in culturally, and more. Edited excerpts:

Zerodha had quite a few outages before the pandemic. But they fizzled out in mid-2020, even as there was massive user growth. What went on behind the scenes?

Ironically, the issue reduced exponentially when we saw a massive user growth -- we had two million customers in January 2020, and we have nine million today. When the pandemic struck, we did not think that we would open 10x more accounts or process 5x more trades in a matter of weeks.

Luckily, we were prepared. Most of these issues arose out of dependence on vendor systems, and by that time we had already built the tech in-house to handle 90 per cent of the back-end tasks ourselves.

How did you tackle the dependence on vendors for the Order Management System (OMS) and Risk Management System (RMS)?

When you open the trading platform and pull out your holdings and check your balance, the data comes from the core OMS/RMS piece, and 95 per cent of the brokers use vendor-based products, as it is an exceptionally complex thing.

These vendor systems were built for handling, maybe, 10,000 people logging in simultaneously and pulling their portfolios, but not for a scale like 100,000 that we are seeing today. That’s why we built parallel high-speed systems that store snapshots of all the data, so that when a user wants to check the portfolio, it shows up in around 15 milliseconds. So, we are no longer dependent on the vendor OMS/RMS for 90 per cent of the load.

Fintech startups in India struggle with data protection and privacy issues. What is Zerodha’s framework to deal with such concerns?

Most of the leaks happen because of elementary human mistakes -- you can have the most sophisticated software, but if a developer has accidentally misconfigured it, then security goes for a toss. That’s why we have built a holistic framework for data protection, including a bug bounty programme, incorporating principles of cybersecurity in all code that is written, then reviewing the code on that basis, and running disjoint networks so that there is no system-wide vulnerability.

Another important pillar of cybersecurity is restricting access to data -- an employee can see only what he really needs to do the job. Just because you are the CTO or CEO, you don’t get access to everything.

Tech startups don’t generally design for edge cases so as to ship products and features faster. But you seem to be more conservative with timelines. Why so?

We actually slow down when required. This Silicon Valley adage of “build fast, fail fast” does not work in a critical industry like fintech. For any feature or product that has the potential of creating edge cases, especially financial features, we sit down and brainstorm until we have a heavily objective spec for what we’re supposed to build.

Then we test it for a very long time -- sometimes weeks, sometimes months. For instance, we were 95 per cent done with our internal OMS a year ago, but we have been testing and tweaking for the remaining 5 per cent since then. We are very close, but don’t keep a timeline for the launch of these things.

Tech companies are finding it hard to retain talent, but your engineering outfit has remained attrition-free. What is the secret?

There are 33 of us in the tech team, including me. Only two have left for personal reasons, and we had to let go of around five people over a decade. We rarely hire more than one person a year, who is generally a fresher. Due to this pace, we can look for certain qualities -- like attitude towards other people and life -- in a developer, apart from their coding skills.

My interviews are really personal and philosophical -- there is no white-boarding, where they are asked about algorithms. Also, we never sell dreams of changing the lives of a billion people. Many parts of the work could be boring, but it is satisfying at the end of the day to solve the problems we are working on. I am unable to quantify it specifically, but it is a sum of all those factors that has kept us together.

You have been vocal about the importance of free and open software. What initiatives has Zerodha taken in this regard?

We have launched a host of open-source software. For example, ERPNext, which we funded, is an extremely critical open-source software -- we ourselves would not have been successful without it. Another project I personally work on is ListMonk. Brokers have to send millions of e-mails to customers -- and we had exhausted the performance limits of all open-source software to do this.

That was three years ago. So, I ended up building ListMonk for our use and then made it open-source, so that other organisations can also send millions of e-mails or newsletters at a really fast pace and low cost.