SUMMARY
From the blessing of Indian fintech unicorns, CRED took the top spot in marketing expenditure, followed by PhonePe and PB Fintech
Among fintech soonicorns, Navi racked up the highest marketing bill, followed by KreditBee and Rupeek
Nine fintech unicorns spent an amount equivalent to more than 50% of their revenue from operations on advertising and marketing
While some companies try to hide their advertising spending by burying it deep in their financial statements or not reporting it as a separate entry, advertising and promotion are often considered necessary parts of doing business.
Startups competing with major established players and, in some cases, trying to induce new habits in customers, for instance in the fintech sector, need to spend on advertising to attract and gain customers. It is difficult, if not impossible, to build a business without doing so.
India’s fintech ecosystem is fiercely competitive and is home to some of the world’s most valuable startups in their respective fields. As such, fintech startups spend exorbitant amounts of money on advertising and promotional activities to woo customers and drive business in a sector where monetisation opportunities seem to be limited and companies operate on thin margins.
According to Inc42’s data, the top 28 Indian fintech startups – 13 unicorns and 15 soonicorns – spent INR 5,495.16 Cr (around $671.96 Mn) in the financial year 2021-22 (FY22) on advertising, promotions and other marketing activities.
On average, the fintech startups reported advertising and promotional expenses of INR 196.26 Cr ($23.9 Mn) in FY22.
For more context, the selected 28 startups posted a collective revenue from operations of INR 19,908.92 Cr ($2.43 Bn) in FY22 and a collective loss of INR 13,017.50 Cr ($1.59 Bn). Only three of the 28 unicorns and soonicorns are profitable – Zerodha, Razorpay and Money View.
While there are 22 unicorns and 33 soonicorns in the fintech sector, only 16 unicorns and 23 soonicorns have filed their financial statements for FY22 so far. Of them, many did not have a separate entry for marketing spending clearly in their statements, taking them out of this analysis.
The analysis excludes 27 fintech startups since they have either not reported their financials (16) or have not reported their marketing spending (11).
Fintech Unicorns’ Marketing Expenses In FY22
Kunal Shah’s CRED was the biggest spender on advertising and other promotional activities in FY22, racking up a bill of INR 975 Cr. The payments major’s FY22 ad spend jumped three times YoY from INR 324 Cr in FY21 on the back of its multiple IPL endorsements and sponsorship deals.
The invite-only payments unicorn was followed by payments decacorn PhonePe at INR 866.20 Cr and listed insurtech giant PB Fintech, the parent company of PolicyBazaar and PaisaBazaar at INR 864.45 Cr, against FY21 ad expenses of INR 534.9 Cr and INR 367.84 Cr, respectively.
Interestingly, Zerodha spent the least on marketing, a mere INR 1.07 Cr, even though it earned an operating revenue of INR 4,963.74 Cr in FY22, the second-highest among the fintech startups during the year. Zerodha made more profit than any other fintech startup in India at INR 2,094.39 Cr in FY22 and yet spent the second least amount on advertising of all of the startups selected for this analysis.
As mentioned in the ecommerce edition, a look at advertising expenses as a percentage of revenue from operations – the ad spend-to-revenue ratio – gives a better idea of the scale of spending on advertising.
The ratio paints a drastically different picture for the top three fintech apps. CRED’s ad spend-to-revenue ratio stood at 247.78%.
In other words, the payments unicorn spent as much as 3.5 times the amount it earned via its operations in FY22 on marketing. In simple terms, the unicorn spent INR 2.47 on promotion to generate INR 1 in revenue in FY22.
The same ratio for PhonePe stood at 52.62%, while it was at 60.67% for PolicyBazaar.
There were nine fintech unicorns, which spent an amount equivalent to more than 50% of their revenue from operations on advertising and marketing. Apart from the aforementioned startups, this category also included the likes of neobank Open, OneCard, slice, Groww, CoinDCX and BharatPe.
The ad spend-to-revenue ratios of the fintech startups also show that as the size of the business grows, the need for heavy spending on advertising decreases. Economies of scale saw the likes of Paytm, Razorpay and Zerodha spending far less on advertising and marketing compared to their competitors.
It also shows that in certain verticals, there are platforms that have moved past the need to advertise aggressively. For instance, Zerodha spent only 0.02% of its revenue on advertising, while Groww spent nearly 73%.
However, a key exception to the rule is PhonePe. The Walmart-owned decacorn is valued at $12 Bn right now, more than double Paytm’s market cap, and commands nearly four times the market share in UPI transactions. Even so, it spent almost twice as much on marketing in FY22 compared to its rival.
How Much Did Fintech Soonicorns Spend On Promotion In FY22?
Among fintech soonicorns, IPO-bound Navi Technologies reported the highest marketing spending in FY22 at INR 223.03 Cr. It was followed by lendingtech startup KreditBee at INR 157.33 Cr and gold loans startup Rupeek at INR 130.30 Cr.
However, none of the fintech soonicorns beyond the top three spent over INR 100 Cr on marketing, advertising and related activities. ZestMoney was the closest to the INR 100 Cr mark, with advertising expenses of INR 97.80 Cr in FY22.
Again, the narrative changes significantly when the ad spend-to-revenue ratio is taken into consideration. For one, the free-spending Navi and Rupeek spent far more on advertising and marketing than they made in revenue from their operations.
The Sachin Bansal-led fintech soonicorn’s ad spend-to-revenue ratio stood at 164.12%, the highest in the soonicorn club. Rupeek’s ratio stood at 133.78% during FY22, having spent INR 130.30 Cr on advertising versus INR 97.40 Cr in revenue.
INDmoney and Niyo were among the boldest in terms of ad spending in comparison to revenue from operations. While the former’s ad spend-to-revenue ratio stood at 534.30%, the latter’s was at 172.15%.
INDmoney and Niyo were also the two startups with the lowest revenue from operations. The trend of low-earning startups with very high ad spend-to-revenue ratio was also observed among unicorns, where Open and OneCard, the fintech unicorns with the lowest revenue, also had the highest ad spend compared to their operating revenue.
Overall, the top fintech startups in India expended over half a billion dollars on marketing and promotional activities in FY22. However, marketing spending is not something that yields a return on investment immediately. A fintech startup that spent on advertising in FY22 would only see the returns in FY23 and beyond.
From a customer acquisition point of view, fintech is a far more habit-dependent segment compared to other segments.
While a person might use multiple foodtech or ecommerce startups, they might use only one or two payments apps. For niche fintech segments such as investment tech or insurtech, there is no point in using more than one app.
For fintech startups that built a niche customer base, which is growing organically (like Zerodha), marketing spending is expected to get trimmed in the quarters to come.
At a time when funding has fallen considerably over the past few quarters, Indian startups have been reprioritising their expenditure to extend their runway. As startups scramble to find a path to profitability and sustainable growth, marketing will likely be the first business expense on the chopping block.
