Mobikwik DRHP Breakdown | Edition #41 - 17th Oct, 2021
The MobiKwik IPO prospectus breakdown you didn't know you needed. Also, India got a new bank and a new payment gateway and the link between Indian actors and crypto
Hi Insiders, Osborne here.
Welcome to the 41st edition of Fintech Inside. Fintech Inside is the front page of Fintech.
MobiKwik was granted approval to list on the Indian stock exchanges. It expects to go public sometime before Diwali at a valuation of $1.5-1.7bn. In today's edition, I breakdown MobiKwik's IPO prospectus and understand the business in detail.
There's also news on a new bank in India, a new payment gateway in India and Indian film actors getting on the crypto train.
This week we had 10 Indian startups raising $157mm ($100mm was raised by one startup, two undisclosed). Asia (ex. India) had only 3 fintech startups raising $~10mm.
Globally, MoonPay, a 3-year old cryptocurrency payments startup in US, is raising $400mm at a $3.4bn valuation in its first VC funding. Harry and Meghan have boarded the fintech train by becoming partners in ethical banking firm Ethic. G7 finance officials endorsed principles for central bank digital currencies. Coinbase asked US Congress to create crypto regulator. Tesla officially launched its real time driving based insurance.
If you’re an early-stage fintech startup founder raising equity or debt, I may be able to help - reach out to connect@osborne.vc
🤔 One Big Thought
IPO Prospectus Breakdown | Mobikwik - The cockroach fintech startup that refuses to die
For some reason I was unable to find any breakdown of Mobikwik's draft IPO prospectus. So I decided to solve my own problem. Here's a short summary of the 411-page draft IPO prospectus - for your reading pleasure.
Disclaimer: This post is purely intended for educational purposes. It is not investment advice and should not be construed as such. Please consult your investment advisor for such things. Further, this post is me cherry picking sections of the DRHP. Please read the DRHP for full context. I am not directly or indirectly a shareholder in MobiKwik.
Founded in 2009, MobiKwik was a pioneer of the payment wallet in India. It claims to be the first to launch a payment wallet in 2009 and then among the first to launch a payment gateway in 2011 and a BNPL product in 2018. It's easy to forget that between 2010's to 2015's online payment was extremely cumbersome. MobiKwik's open loop wallet allowed a level of convenience that was unmatched for digital, instant payments. There was fierce competition with Paytm, also a wallet at the time, but Paytm diluted its wallet offering in favour of UPI post UPI's launch in 2016. The entire financial services sector was sure that MobiKwik's moats would be wiped out with UPI - and it did. But MobiKwik stuck to its guns and continues to use the wallet as a core part of its business. With RBI's recent suggestions around credit on UPI, it seems that the wallet might make a comeback, giving MobiKwik some advantage. In the twelve years since founding, MobiKwik has raised $165-200mm and was last valued at $1bn and en ESOP buyback. The company now received SEBI (securities regulator) approval to float its IPO, hopefully before Diwali (4th Nov), where the company intends to raise $201mm via fresh issue at a valuation of $1.5-1.7bn.
What does MobiKwik do again? MobiKwik is a payments startup offering 3 core products.
ZaakPay (Payment Gateway): The core engine on which MobiKwik runs. Zaakpay is used by MobiKwik itself, as a customer, and by other businesses as well.
MobiKwik Wallet (Wallet): Wallet is the consumer-facing business that offers an open loop, prepaid wallet for payments, bills and others. Wallet has 101.4mm registered users and 41.6mm KYC'd users as on 31st March, 2021. 77% of its registered users were acquired organically in FY21. MobiKwik issued 1.1mm MobiKwik Blue American Express Cards.
MobiKwik Zip (BNPL offering): MobiKwik Zip is a BNPL offering with two sub-products, Zip - interest free BNPL with credit limit up to INR 30K ($405) and repayment within 15 days, and Zip EMI - an interest-bearing, equated monthly repayment credit line with limit up to INR 100K ($1,351) with tenor of 6/12/18 months. 22.25mm users have been pre-approved for MobiKwik Zip as on 31st March, 2021, and MobiKwik Zip users repeat rate was 79.2% in FY21. As on 31st March, 2021, there were 11,351 (+363% YoY) merchants which registered at least one BNPL transaction.
Non-core offering (cross sell): MobiKwik wants to capitalise on this massive user base by cross selling other financial products. It started offering mutual fund investing options through its acquisition of ClearFunds in 2018. MobiKwik already facilitates $53.5mm (+38% YoY) in annual AuM. It's second cross sell offering is insurance for which is received an IRDAI (insurance regulator) corporate agent license.
MobiKwik has a total of 101.4mm registered users in its network and 3.44mm merchants, including over 3.37mm physical stores, 73K online merchants and 283 billers. It focuses a lot on data analytics on transactions generated throughout its ecosystem to fortify its BNPL offering. It employs 666 employees (50% permanent) and 29.4% of its permanent employees were women!
What's the market size for MobiKwik? It's a large market. MobiKwik's business is driven by consumption growth, digital payments and credit growth.
Digital Payments: Online transactors and Online Shoppers have grown tremendously since 2016. Between 2018-2021, Online transactors grew 1.5x to 250-300mm and Online Shoppers grew 1.6x to 140-160mm. This growth is driven by P2M transactions. Use cases like ecommerce, food delivery, e-grocery, OTAs and other services led to significant growth in total user base for mobile payments in India. Further introduction of Bharat Bill Payments System (BBPS) is an emerging use case that scale to $5.9bn in annual payments (Mobikwik was among the top 6)
Mobile Wallets: Within mobile payments, mobile wallet payments is expected to grow (by value) 3x between FY21-26 to reach $60-70 billion.
BNPL: India's BNPL market is expected to grow at 65% CAGR from $3-3.5bn in FY21 to $45-50bn in FY26. BNPL user base as well is expected to grow to 80-100mm (from 10-15mm in FY21) compared to 70-75mm for credit cards.
MobiKwik is hoping for growth coming on the back of:
Under-penetration: India is credit starved, registering only 3.5% credit card penetration, compared to 21% in China and 65+% in UK, US, Japan and others. Household debt to GDP as well is 11%, compared to 28% in Brazil, 55% in China, 60+% in Japan, US and UK.
Steady consumption growth: The Private Final Consumption Expenditure (PFCE) has been growing steadily, from $1.2tn in 2015 to $1.6tn in 2019. PFCE is further expected to increase to approximately $2-2.5tn by 2025.
Growth of consumer internet market: India is expected to have 1bn internet users by 2025. 800-850mm are expected to have smartphones and 700-750mm are expected to be online transactors. These internet users are expected to generate a consumer internet gross transaction value of $300bn!
How was MobiKwik's financial performance? Covid was not so kind to MobiKwik. The consolidated GMV declined 30% from $2.9bn in FY20 to $2.0bn in FY21. Consolidated operating revenues declined 19% from $49.9mm in FY20 to $40.9mm in FY21. Total consolidated revenues declined 18% during the same period. 49% of the $40.9mm in FY21 came from its consumer wallet business, 37% came from its payment gateway business and the rest from BNPL. It is a loss-making business, registering -34% EBITDA margins and -38% PAT margins. Total loss increased in FY21 to $15.0mm from $13mm in FY20 and $20mm in FY19.
At a product level, MobiKwik is making a meager 8% gross profit. It's consumer business accounts for majority of the profitability. Consumer payments revenue as a % of consumer payments GMV is pretty strong at 1.87% and payment gateway revenue as a % of payment gateway GMV is at 1.41%. Both performance indicators have been steadily increasing since 2019.
During Covid in FY21, when there were sever lockdowns, MobiKwik's GMV took a big hit.
Who is MobiKwik competing with? By virtue of MobiKwik's business, it's competing with several large and small businesses in virtually each of its business verticals. It's definitely not easy for MobiKwik but it seems to be taking a more structured approach of creating an Apple-like ecosystem for financial services. Paytm didn't seem to do to well on this in the past.
What does the future look like for MobiKwik? MobiKwik's entire focus is on increasing its digital payments footprint but more importantly doubling down on BNPL. BNPL will be a key role in driving MobiKwik's profitability as it can only make 1.0-1.5% margin on payments GMV. To enable this, it will have to constantly use transactions data and fine tune its MobiScore. Everything else will be in the hands of the market. The payments sector is still as hot as it was 5-7 years ago. The jury is still out there on who's won the payments sector, we still have a long way to go. If RBI has its way, wallets might become "sexy" again, making credit on UPI available with wallets only. The business has shown resilience in the past and survived severe market competition. It's no doubt that MobiKwik will continue to build a meaningful business and grow at a decent pace. The first fintech startup to IPO is always reason to cheer. Wishing the folks at MobiKwik great success in the public markets!
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3️⃣ Fintech Top Three
1️⃣ BharatPe now owns a (small finance) bank
The joint venture of Centrum and BharatPe was granted the final license to launch a small finance bank in India. The new small finance bank is named Unity Small Finance Bank. The license approval is subject to Unity SFB acquiring crisis-hit PMC Bank. The same day the license was given out, BharatPe announced the appointment of Rajnish Kumar, the former Chairman of SBI Bank, as the Chairman of the Board of BharatPe.
What is a Small Finance Bank (SFB)? A SFB is a niche type of bank created by RBI to further financial inclusion. It can operate like a standard bank by providing deposits, savings and credit products but 25% of the branch network in a fiscal year will have to be in unbanked rural areas (<9,999 population). As per RBI, the SFB, will have to facilitate "supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations."
Takeaways: This is big for the fintech sector. A 3-year old startup, forming a JV and receiving a banking license is massive, several financial services veterans/firms have tried. Ashneer Grover, founder of BharatPe, has always maintained that in India, a business can never make money on payments and his plans were to lend to the merchant and its customers. With this banking license, BharatPe will be able to lend with potentially the lowest interest rates for merchants out there. As per news reports, BharatPe intends to position Unity SFB as a merchant focused bank which plays well into its mission. The appointment of Rajnish Kumar is a master stroke - builds confidence with RBI and is great brand to have on your side when you want to raise low cost debt from the global markets.
BharatPe has 7.5mm merchant network using the payments platform and processes $10bn of payments annually. Payback, a loyalty and rewards platform acquired by BharatPe, has 130mm retail users with annual merchandise value of $8bn. PMC Bank has 1.6mm account holders. That's a lot of customers to work with and lend to.
But this could very well be RBI's reaction to save the $1.35bn in deposits of account holders of PMC Bank. RBI has always done everything in it's power to save a bank in the past. Everything. RBI put PMC Bank under moratorium in Sep, 2019. There were potentially no other suitors to acquire this bank and so RBI might have been desperate here. This in no way takes away from BharatPe's ambition and strategic moves. It's probably wise of Ashneer as founder to hire the best and smartest people from financial services to run the show.
Side Note: Ribbit Capital, fintech solution partner to Walmart and early investor in BharatPe, now indirectly owns a small share in an Indian Bank and directly in Indonesian Bank - Bank Jago.
2️⃣ Pine Labs entered the hyper competitive Indian online payments market
Pine Labs, a POS payments company, launched Plural, an online payment gateway product. Plural has three products - Plural Checkout, Plural Gateway and Plural Console. Plural has been in stealth for some months now and already processes $150-200mm in monthly payments. Merchants like Croma, Cred and Reliance Digital have already been using the product.
Takeaways: This is a really smart move for the company to capitalise on existing merchant base. Omni channel payment acceptance is a very compelling offering. Pine Labs has a lofty goal of processing $25bn in online payments within 18 months. It's relatively easy for a company offering POS payment acceptance to transition to online as opposed to an online one extending to offline POS payments. But that's not to discount the extremely competitive payments markets in India. After PayU India acquired BillDesk a few weeks back, India's payment market was sort of a duopoly between PayU and Razorpay. (I didn't consider Paytm, PhonePe and Mobikwik because they have a consumer focus and are not true merchant payments gateways).
By now owning the omni-channel checkout real estate, Pine Labs will find itself in a position of leverage with merchants. Pine Labs is known to have largely enterprise customers. In India and Malaysia, Pine Labs has 140K merchants, 350K POS terminals and processes $~30bn. The challenge is that Covid forced businesses to integrate payment gateways for online payment acceptance and that was probably won by PayU or Razorpay. Will Plural really be able get these businesses to use the platform? Time will tell but businesses, especially large ones, typically have multiple payment partners to keep pricing in check and to ensure redundancy.
3️⃣ Indian film actors are boarding the crypto train!
Indian film actors Amitabh Bachchan and Ranveer Singh have signed on as brand ambassadors of CoinDCX and CoinSwitch respectively. Amitabh is, however, having second thoughts now. Actor Salman Khan announced the launch of BollyCoin, a Bollywood focused NFT marketplace. Lastly, actor Suniel Shetty invested in in NFT marketplace Colexion's latest funding round..
Takeaways: Diwali season has always been great for India. Actors, startups, cricketers - everyone capitalises on it. Amitabh and Ranveer are among the first Indian actors to become brand ambassadors of crypto startups. It's obviously great for the crypto ecosystem as they actors will help bring these startups to the masses (outside of crypto Twitter). The most interesting update is that from actor Salman Khan - launching an NFT marketplace. The whitepaper on BollyCoin makes for a great read. This startup, in partnership with the Salman Khan's and his brothers' production houses will mint audio and video clips, movie stills and posters into NFT's for the masses to bid on and own. On similar lines, Colexion is another startup with the same premise that raised funding from actor Suniel Shetty. Salman Khan has a mass appeal like no other, which to me, will help sensitise people regarding NFT's. We could effectively take the success or failure of BollyCoin as an important indicator of the future success of "collectible" NFT's in India. If Bhai's clips don't sell, I don't know what will.
Looking for the news digest? Read all the week’s fintech news and updates in India and SEA over at This Week in Fintech - India and SEA Edition. You can also find our US, Global and European coverage.
🏷️ Notable Nuggets
4 key stats from Finder’s report on digital banking adoption
The financial wellness war – Malaysian banks vs digital banks
Re-Imagining Acquiring: How should bank acquirers respond to the rapidly evolving acquiring market by VISA.
The rise of Algo trading platforms & everything you need to know by Zerodha
Decoding Card-on-File Tokenisation: All You Need to Know by Razorpay
Global payments 2021: Transformation amid turbulent undercurrents by McKinsey
👋🏾 That's all Folks
If you’ve made it this far - thanks! As always, you can always reach me at connect@osborne.vc. I’d genuinely appreciate any and all feedback. If you liked what you read, please consider sharing or subscribing.
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