Daybreak - How an Indian fintech is trying to find its mojo by not being a fintech

Episode Date: May 24, 2023

Not long ago, being a fintech company in India meant having a promising future. Because people would always needed to make payments which is why it was assumed that building better products around these needs would ensure good business.But it was not how things panned out. And the story of Instamojo, a promising fintech company is testament to that.After 11 years of being in the business, it has decided it does not want to be a payments company anymore. 

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganesh, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get alert, as soon as we release our first studio. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Six years ago, when the Ken met with the CEO and co-founder of Instamojo, Sampad Swain, he told us something that spoke volumes about the arc of the fintech story in India. I won't survive like this, he had said. At the time, time, InstaMojo, which called itself a payment solution company, had grown to have about

300,000 registered merchants for its customers. It was a time when online payments had become all the rage post demonetization. The fintech sector had a bright and promising future. The number of merchants were organically growing on Insta mojo and in turn, so were customers. But the platform had to find a way to make them stay. So the focus was on increasing InstaMojo's wallet share from 30% to 70% by 2020. Otherwise, the company could easily become irrelevant. We have to understand at this point that customers could leave as easily as they had come. But six years later now, InstaMojo does not want to be a payment gateway anymore.

The fight in FinTech is now all about big volumes, a whole lot of cash, and close to zero margins. It is not easy to keep up. So Instamojo decided to undergo a transformation, even though it still kind of focuses on increasing wallet share, but not by being a payment company. So it transformed into a full stack provider of digital solutions for D2C or direct-to-c customer businesses,

the kind that offers solutions to manage the pre-checkout, checkout, checkout, post-checkout activities of micro-execrocesses. and small merchants. But the important question here is not about what it became. The question is, why did a fintech company see no future in remaining a fintech company? Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Da Sharma, and I don't chase the news cycle. Instead, thrice a week on Mondays, Wednesdays and Fridays,

I will come to you with one business story that is worth understanding and worth your time. Today is Wednesday, the 24th of May. Back in 2017, there were a little more than 50 million small and medium businesses, and almost a third of them were online. Even then, most of them were using bank transfers, because at the time, accepting digital payments needed a lot of work. And unlike cash, it cost the merchant money. But it was not like there were no other modes of payments.

In fact, the number of options to pay digitally had grown quite a bit. But the last thing any merchant wanted then was to lose a customer because he or she did not find it easy to pay. And that is when payment gateways came into the picture. They helped a business accept payments in all possible ways, from wallets to net banking to cards, and businesses counted on their gateway partners to add more payment solutions as new ones came up.

It was here when InstaMojo realized that it could make a difference. The platform was targeted at people like tuition teachers, handicraft makers, bakers, soft toy makers, people who were not digitally very savvy. So InstaMojo was targeting businesses that were in their early stages. These were companies that would give their bank account details to customers to get paid because they didn't have any other ways to accept all kinds of payments. InstaMojo solved that problem. It generated payment links that businesses could send to their customers via email, SMS or even WhatsApp.

It also helped them deal with the reconciliation of those payments. Most of these merchants were budding entrepreneurs with less than 10 people under their employment. The fintech platform was designed for these kind of businesses that typically did about 1,000 transactions a year. But as these businesses began to grow from seeing a few digital transactions a day to over 10, InstaMojo had to find a way to keep them on. It was around this time when Sampad Swain, the company's CEO, realized something about the tailwinds that were helping fintechs in India. There was something more about their nature that was not so obvious.

Stay tuned to find out. The online payment tailwinds were acting more than just a wind beneath the wings of fintechs. They were in fact turning out to be more like a hurricane. Swain told us about how the broader dynamics were changing. On one hand, COVID brought on a bunch of merchants wanting to go online and UPI brought on a large number of customers. But as the markets grew, margins became smaller and smaller.

Not just that, the value of a company that just operates as a payment gate, simply allowing a digital transaction to happen is limited. All that they were doing was to give customers a set of APIs to integrate and process payments. So essentially, what happened was that the gateway business got commoditized to such an extent that merchants began squeezing players on the margins. But what Swain did not anticipate was that the market would actually reward players who had volume but no margins.

Many other fintechs in the same boat chose to add lending to their list of businesses. But Swain did not see value in the lending model, which basically meant that he did not see a future for InstaMojo as a fintech anymore. So what did the company do next? Stay tuned to find out. So three years ago, InstaMojo became a D2C tech company that offered SaaS solutions to small and micro merchants, helping them sell directly to customers. It wanted to go from being a business like payments processor Stripe to one like e-commerce

platform Shopify. This meant helping merchants with their marketing tools and reach. This was in addition to its pre-existing payment checkout services. InstaMojo also added logistics and support activities to this cocktail. And even though it made this pivot three years ago, and launched the platform a year later, Swain told us that he was not ready to talk about it until now. He told us that InstaMojo has gained 2,000 paying clients over the last year and a half.

With that, the company was able to add e-commerce to its revenue stream. But of the nearly 50 crore rupees that Insta mojo expects to post as revenue in the year that ended in March 23, 80% is still coming from payments. Only 20% is from e-commerce. So the goal now is to grow revenue to 100 crore rupees while also being profitable. And for that, it wants to onboard about 400,000 new merchants over the next year. Instamojo's journey has been difficult,

especially because fintechs all around it became unicorns overnight. Sween told us that he keeps step. telling himself that hopefully this pain of building not for volume but for margins will make sense at the end of the day. He gave us the example of the Stanford Marshmallow experiment which tested children's capacities for delayed gratification. Each child was offered a choice between one small but immediate reward and a bigger reward if they waited for a period of time. Swain says he is the kid who waited. Daybreak is produced from the newsroom of the guest. India's first subscriber-focused business news platform.

What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host, and today's episode was edited by my colleague Rajiv Sien.