Financial Convergence Is The Way Forward: Digital Payments Company ItzCash MD Naveen Surya On Selling 80% Stake To Ebix

“When I started ItzCash (in 2005), the only product that worked seamlessly in a converged way in payments space was the credit card. Even debit cards at that time were still not accepted seamlessly. In fact, ItzCash made its entry into the digital payment space even before net banking was in vogue,” begins Naveen Surya, Managing Director of  Mumbai-based payments solution firm ItzCash. The digital payments company recently sold 80% stake to US-headquartered Ebix Inc. for a high-profile $123 Mn (INR 800 Cr).

ItzCash has been an early mover in the Indian digital payments space, with a network of 75,000+ physical retail outlets, processes approximately 600,000 transactions/day, and is eyeing approximately $2.16 Bn (INR 14,000 Cr) in payment volume in 2017. And this acquisition is the validation of its central theme of operation – convergence.

Interestingly, the sellout began with the quintessential question – how does ItzCash drive the convergence of financial services in its next avatar? That and, of course, the basic one – how does  the 10+ year old company provide an exit to its investors including Matrix Partners, Lightspeed Venture Partners, and Intel Capital.

Naveen reveals, “We began the process six months ago to find a partner. The key focus was providing an exit to our existing team of investors who have been with us for 6+ years.  So, while we were talking to Ebix in that direction, Robin Raina (Ebix CEO) also touched upon convergence – a theme which he also had driven to create the entire suite of insurance tech solutions.”

Right from a consumer to lead generator to broker to reinsurance – for all industries within insurance – Robin had created a platform where he understood how one converges a particular value chain and takes advantage within that industry. And that has been the basis on which ItzCash has also been building its businesses.

So while it acted as a binding glue, what further worked in the deal’s favour was that it would help ItzCash join the missing pieces in the financial convergence space.

Local Financial Convergence, Global Financial Play

Naveen explains, “So, digital convergence has been the base for us in the last 10 years – how do you get one customer to digitise their money and use it seamlessly across digital and physical, in any type of transaction. Our target has been the mass India – be it in local or urban areas, as long as they have connectivity. Still, this real 70%-80% mass population is excluded from financial services. They don’t have proper access to formal credit or adequate insurance coverage; they don’t have adequate products where they can say invest into mutual funds or participate in securities trading. So, all those pieces were missing.”

And that’s where the realisation set in – to go deep down the convergence funnel. Having cracked the payment problem, which is the base in the funnel of financial services, it was a natural choice for ItzCash to move into delivering extended financial services to the same customer. So, in its quest to drive financial service convergence, it all became clear. ItzCash would create a financial exchange where a customer’s financial needs are met in a very simple way – be it through physical channel or be it a digital channel, a PHYGital network like itself.

On the other hand, Ebix has extensive domain expertise in the entire insurance gamut. The Nasdaq-listed company provides on-demand software and ecommerce services to the insurance, financial, e-governance and healthcare industries, processing policies worth $100 Bn on their platform across the globe.

ItzCash, meanwhile, was toying in the insurance space by helping insurance companies, NBFs, and MFIs collect their EMIs. During demonetisation, it also helped them in electronic disbursements.

Naveen surmises, “We were already them helping them collect and disburse, so now was the time to look at if we could help them sell, as well? Also, with Ebix’s $100 Bn portfolio, we realised that, with their global presence, would also afford us a chance to start expanding and participating globally. It may be a slightly long-term play but let’s say we do a payment service for some of their clients globally, say even 10% of the $100 Bn, it is a huge opportunity.”

And, as if these common factors were not enough, there was the personal one. Robin is an Indian who has risen through the ranks literally from the managerial position to the chairman position.

Today, he owns a minority percentage of the company. So for a foray in a market which will grow in two digit growth rates continuously in the next 20 years, Ebix’s resources and Robin’s abilities – all added up to a perfect fit for ItzCash’s next 10-20 year journey.

R to L: Ravi Singh, Chief Business Officer; Bhavik Vasa, Chief Growth Officer; Daykin Creado, CTO; Naveen Surya, MD; Devesh Pandya, CFO

Hence, starting from the idea of a comfortable exit for ItzCash’s investors, it became a $123 Mn (INR 800 Cr) deal, giving ItzCash a total enterprise value of approximately $150 Mn.

Payments, Insurance, Investments: What ItzCash Focussed On After Cash Infusion 

Currently, ItzCash focusses on payments, remittances and corporate solutions. Along with the oldest ItzCash card launched in 2005, the company provides several prepaid cards such as temporary payroll card, transport and petro card, salary cards, and corporate disbursements, among others. These prepaid cards can be used at any offline or online touch point where third-party payments are accepted. The company also has partnerships with Visa, RuPay, and MasterCard and banks such as HDFC, IDBI, and DCB.

With Ebix taking control, ItzCash will now venture into insurance, healthcare, and investments. Insurance tech will be another area of focus. However, Naveen maintains that core focus on payments will remain, with the company aiming to add more use cases and layers to its services.

He says, “We will continue to focus on payments and bills payments. Payments is driven by use cases. So, as new use cases unfold, we keep on participating in them. As existing use cases grow for instance utilities (still less than 10% of utility bills are digital), so payment will remain a large bucket and we will continue to pursue it.”

However, he adds that in payments, the challenge is – though the market is large, the unlocking is happening at its own pace. And one can’t race over that curve. Even if one tries, they will only lose more money.

Within payments, Naveen reveals that ItzCash is the largest co-branded gift card with HDFC as the issuer. Here, large corporates are incentivising their employees, clients, and channels. Also, it claims to be the largest seller in an aggregated inventory of any vouchers – physical or digital. It has a relationship with every retail brand be it BigBazaar, Amazon, Flipkart.

Going forward, ItzCash will keep on adding layers to its services. For instance, it designs specific solutions for corporates, digitising everything. One such case was Airtel, which partners with ItzCash for reimbursement cards. Since Airtel’s fleet on street team was still manually submitting reimbursements, ItzCash digitised their process of claiming reimbursements by investing in Finly. Finly is an expense management platform, both web- and app-enabled, that allows one to scan claims, create a new expense report, take a picture of one’s receipts and file it digitally.

Naveen believes that many interesting solutions like Finly can be layered within ItzCash’s scheme of things. He says, “We believe, for many next generation businesses which are looking to expand beyond the top 10%, we are the partners for them as we have access and reach.”

Also, traditionally ItzCash has always been on the issuing side while it accepts money through physical channels and through its cards. Now it is on a path where it will accept payment through debit cards and credit cards, to become the default terminal for all its partners. So, for instance, during demonetisation, it rolled out about 30,000 PoS machines. Hence, PoS terminals will be another focus area going forward. Yet another focus area would be remittances, which constitutes 40% of its business. ItzCash’s plan is to add international remittances, both inward and outward.

The ItzCash Journey: 10 Years In Fintech

From 2005 to 2017, ItzCash’s journey through the payments and fintech space is replete with milestones. Naveen recounts that one of the biggest turning points came when it added payments for utilities and railways. That decision gave them the scale needed for the next level of growth.

In the first five years, the next milestone was the decision to add corporate services by partnering with banks. Consequently, ItzCash was the first company to partner with Visa, Mastercard and the likes, doling out cards which worked both in the digital and phygital world. Adding money transfers to its portfolio was another game changer.

Then again, it was also one of the early companies to raise private equity. To date, the firm’s early investors have poured in around $51 Mn in the company. Ashok Goel, a serial entrepreneur and Vice Chairman and Managing Director of Essel Group company – Essel Propack – is currently the Chairman at ItzCash. With this deal, the investors have got almost 3x-5x returns.

So, from hitting $6.18 Mn (INR 40 Cr) of payments volume in the first year, rising to $464 Mn (INR 3000 Cr) in the fifth year, and hitting $2.1 Bn (INR 14,000 Cr) last year, ItzCash’s journey has been more about focussing on value creation than valuation. So much so that Ebix was ready to buy the full 100% stake when talks began. But the Essel Group chose to keep 20%, for ItzCash is on the road to hitting profitability as Naveen and his team make sure that they keep on creating value by making financial metrics work.

Last year ItzCash grew by 35%, a number it is looking to surpass rapidly this year. This has much to do with the changing fintech landscape and increasing number of digital payments.

The Indian Fintech Landscape Through The Last Decade

When questioned about the changes he has seen over the years, Naveen says he buckets them into changes in infrastructure and in the number of entrepreneurs. As he mentioned earlier, ItzCash made its entry in the digital payment space even before net banking was in vogue.

“So from that perspective, the number of products and overall connectivity has drastically changed. From being web-centric, payments have changed to being mobile-centric. So, there has been a sea change in the infra part – you have a lot more products, you have an easier way to do things. Today, you have interoperable products which were not earlier possible.”

This sea change applies even to the regulatory landscape. When ItzCash started, there were no regulations in place. The company saw the first set of regulations come into place in 2009, to the current ones regulating online banking and digital payments and the ones still in pipeline which will be released by RBI in July 2017.

Recounts Naveen, “Earlier, it was about allowing certain consumers to pay about INR 10K digitally, for certain categories.  From there, it moved on to allowing all services up to INR 10K a month. Three years back, it moved on to allowing money transfers. Today, nonbanks contribute 40% to IMPS transactions.”

Still, regulatory challenges remain with regards to parity between physical and digital cash. For instance, he notes that while in banks one is not asked any validation for cash below INR 50K, for digital cash, players have to validate a user’s phone number even for INR 10K. However he believes that these chinks will be ironed out as KYC with Aadhaar is incorporated.  With more and more digital infrastructure being put into place with UPI, IMPS, and NPCI, regulation will allow more mass adoption and participation.

He remembers that, when he started, there were hardly any entrepreneurs in payments. Billdesk, CCavenue and ItzCash used to be the three large players back then. Now one can count at least 10 large players within payments itself. He adds, “Fintech beyond payments was non-existent. But now, the next wave in fintech is already happening. A shift is happening from content aggregation to transaction aggregation.”

However, despite the rise in number of players, payments is still a big opportunity. Naveen mentions that, till date, upto 66 Prepaid Payment Instruments (PPI) licenses have been granted. Yet the fact of the matter is that, in India, 90% of all payment transactions are done in cash.. He does caution that despite the increase in intellectual power and number of people on the innovation side, one needs to find a unique proposition rather than depending totally on tech features for a payment product.

Democratising Digital Payments: Going Beyond The Top 20% Overserved Customers

Post the acquisition, integration between Ebix and ItzCash will be more on the back end side, the tech side, and in the books. There won’t be any direct product integration, given that the products are in different domains.

Having said that, ItzCash will continue to offer its services in an integrated layer, always depending on the DNA of a cross-sell. Because, this is what it has been trying to do in the last 10 years as it penetrated the underserved 80% mass in the country.

Naveen explains, “This underserved 80% mass is not one segment but made up of seven-eight segments. It has a middle class housewife, a younger middle class student, blue collared workers, and mom and pop businesses. And again, they are not poor people. But for everyone – be it regulators, government, or policy makers, India comprises just the top 10% and bottom 10%. Consequently, they completely ignore and misread this 80%. But the Hindustan Levers of the world have cracked this market and thus grown in scale.”

In this direction, ItzCash has been trying to make headway by addressing the different needs that this segment has. For instance, most of its earlier customers came for DTH recharges, then the new set came for train tickets. The next set flocked to it because if their need for a trusted party for money transfers, given they did not have the social profile to walk into banks.

Hence, over a period of time, ItzCash has built a portfolio of services, each contributing over 15%-20% to its overall revenues. With Ebix, insurance and financial services will be further added to this portfolio.

All in all, the overall goal will be to become a complete solution provider to the 80% mass population. The same ItzCash outlet that’s accepting money can also be a reimbursement point. The same outlet can also give the consumers a digital product if they don’t want to carry cash. By the end of year, its plan is to ramp up its distribution network of 75,000+ physical retail outlets to almost a 100,000 touchpoints.

Hence, it’s understandable when Naveen mentions that it is difficult to comment on what the actual growth rate will be post the acquisition except the fact that it is going to be very rapid.  One look at the last 12 years of ItzCash’s operation and there is no doubt that it is ready to play for the high stakes in digital payments and fintech- as high as business transactions worth $2.3 Bn (INR 15,000 Cr).