Inc42 UpNext: How MobiKwik Broke Free Of Discounts To Build Its Super App Future

To celebrate India’s rising startups, Inc42 is profiling a new soonicorn every Friday in the Inc42 UpNext: Unicorns Of Tomorrow series. For the next few months, we will be speaking to founders and cofounders at these potential unicorns and shining light on their journeys and growth stories. This time, we take a look at fintech startup MobiKwik.

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Cashback and discounts — the two primary factors behind value-conscious Indians finally taking the digital payments plunge. But are fintech companies and startups even thinking of profits or is it just a mad race to acquire more and more users? That’s the question that many fintech players have been faced with over the past year. 

Over a decade old in the fintech space, even MobiKwik’s team pondered over many such questions about running a sustainable business and cutting down the reliance on discounts which make up a big part of expenses. The changes it put in place led MobiKwik to achieve operational breakeven in FY2019 along with earning gross revenue of INR 184.6 CR. This was a significant leap from the company’s INR 69.29 Cr revenue in March 2018. 

“In late 2018, we had this reckoning that if we can’t figure out how to make money on our current 60 – 70 Mn user base, how will we ever make money on, say, 100 Mn users?” – Upasana Taku, cofounder of MobiKwik. 

The answer came from looking at banks such as HDFC and Kotak, which have relatively fewer account holders in comparison to public sector banks such as SBI, but in terms of valuation, both are worth billions. So one of the steps MobiKwik took to achieve this bank-like sustainability, Taku told Inc42, was by shifting the cultural focus of MobiKwik growth from deals and discounts to a more sustainable, but far less attractive, assured rewards system. 

Ending The Culture Of Discounts

According to Taku, the culture in the payments industry today is such that people feel it’s mandatory to spend 3% of their revenue on incentives. This thinking had also percolated into MobiKwik’s team, which has over 300 employees now. “We would constantly get arguments that there’s market pressure from competitors and so we also have to have the best deals,” she added. 

But we decided to go a different direction with our points-based loyalty program — ‘Supercash’. Users can avail 5% saving on any transaction against their Supercash collection. This decision did face a lot of internal pushback with some teams saying that points-based incentives will wipe out MobiKwik’s customer base because competitors are giving out hard cash. “But we decided to go with it, anyway”, said Taku.

This move was backed by the company’s analysis of its customer base, which showed that less than 3% of MobiKwik’s users were latching onto each and every deal. Other than that, users were equally divided between the ones who took advantage of some discounts and the ones who had never used any coupon or discount deal. 

“We took the call that we don’t need this 3% because their attention is anyway poor. Today, they are on our platform, tomorrow they will go wherever there’s a better deal”, added Taku. 

This approach is said to have increased the company’s retention rate by about 23% along with a significant jump in average revenue per user and the number of transactions per user. 

Gurugram-based MobiKwik — founded by Bipin Preet Singh and Taku in 2009 — claims to have over 110 Mn users and 3Mn merchants today. In October 2018, MobiKwik added multiple financial services to its platform including credit, insurance, gold loans, and mutual funds. This was in addition to bill payments, B2B payments gateway, and digital payments services. Is MobiKwik getting ready for the super app battleground?

MobiKwik’s Fintech Super App Play

Out of its wide service portfolio, the credit business is said to be making the most revenue for the company. MobiKwik claims to have disbursed 1.2 Mn loans, amounting to $152 Mn. The company is targeting the middle-income users of India who are underserved by the existing bank ecosystem. The loan size ranges from INR 2.5K to INR 5 Lakh.

The company claims to have developed its own machine learning model which generates a credit score (Mobiscore) for users, based on which the creditworthiness of users is estimated. The factors considered by the MobiKwik algorithm include the user’s age, monthly spending, vehicle ownership, and payment pattern. 

By gaining access to the user’s SMS inbox, MobiKwik is also able to track if a user is running late on bill payments and whether they are paying a late fee on their bills or credit card. In addition to this, the size of the user’s electricity bill gives them access to the user’s full address and also aids the estimation of the user’s house rent and cost.

Offering an ecosystem of financial services is not a new thing in the payments space. Both PhonePe and Paytm have been trying to increase customer retention and revenue by expanding the service portfolio. 

Taku said that MobiKwik has made offline merchants advocates for the credit product. MobiKwik is giving referral commission to merchants against every conversion made on MobiKwik credit. She added that competitors such as PhonePe and Paytm have not built up the credit offerings to the extent that MobiKwik has done. 

“We are enabling our merchants to become sort of our distributors to the extent that it also becomes a new stream of revenue for them. It’s a new engagement tool for them. And it’s also a tool for them to increase their ticket size.” 

The credit product is also said to have increased merchant retention for the company. 

In terms of competing with the plethora of digital lending companies, Taku said that none of these players has access to the volume of customers that MobiKwik is able to acquire organically every month. Taku also feels lending rivals are usually solving for a single use-case whereas MobiKwik’s credit offering can be seen as a general credit card which is compatible with all kinds of user needs.  

Although payments and credit are the two major pillars of MobiKwik’s growth, the company does have plans to add more financial products to retain its customers.

Going Beyond Unicorn And Eyeing Decacorn Valuation 

In the background of Paytm’s recent decision of adding transaction fees on loading money from credit card to digital wallet (above a monthly limit), Taku said, “I’m not a big believer in charging consumers for loading money from their credit card. If I want to use the credit card for my spending then I should be allowed to do that. I would try to ask the merchant to pay more for a credit card user because the spend of the user is riskier, but not the consumer.”

In terms of targets, the company is said to be on track for $70 Mn in revenue for this fiscal and aims to reach a $100 Mn revenue mark in the next four to five months. “The unicorn valuation would happen soon but our aim is to achieve long term valuation,” Taku said noting examples of WeWork’s recent saga as a cautionary tale to say that private market valuation is not the end goal. 

“Our dream is to reach a decacorn valuation in the public markets, where a common retail shareholder is willing to buy our share at a fair price. And this is something that we will have to learn from the stalwarts of financial services.”