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The anti- disruption fintech pioneer | Raman Khanduja @ Mintoak
201 Plays1 year ago
Mintoak is a fintech SaaS platform doing the exact opposite of what most fintechs are doing- they are helping the legacy banks compete with nimble fintechs by arming them with an agile engagement platform for their business customers. In this conversation, Raman spills the beans on his unique thesis which has turned Mintoak into one of India's leading payment processors.
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Read more about Mintoak:-
1.India’s fintech SaaS platform Mintoak receives $20mn backing
2.Raman Khanduja, Co Founder And CEO, MintOak Innovations
3.Raman Khanduja of Mintoak opens up on its fundraise and more
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Transcript
Introduction to Raman and Mintalk
00:00:00
Speaker
Hi, my name is Raman and I'm the Chief Executive Officer and Co-founder of Windtalk.
Fintech vs Legacy Banks: A Competitive Landscape
00:00:19
Speaker
There is a constant seesaw that happens in the race for domination between startups and legacy businesses. In the fintech space, just a year back, everyone had written off their legacy players like the large Indian banks as dinosaurs, and the future belonged to the fintechs.
00:00:34
Speaker
But legacy banks are far some extent and continue to thrive. That is because in the financial sector, the trust and relationships built by legacy brands are hard to displace with just an app with a slick user interface. Mintalk is a fintech startup that is doing the exact opposite of what most fintechs are doing. They are arming the legacy banks to compete with agile fintechs by arming them with agile engagement platform for their business customers. In this freewheeling conversation, Raman Khanduja, the founder of Mintalk,
00:01:03
Speaker
shares his anti-disruption thesis that has helped him to build Mintalk into one of India's largest payment processors. Stay tuned for this amazing conversation and subscribe to the founder thesis podcast or any audio streaming app to get insights from some of India's most incredible founders.
Raman's Educational and Career Journey
00:01:28
Speaker
So Ravan, you have that perfect startup founder pedigree, engineering plus MBA from IAMCAL. Just take me through like a summary of your career graph till you reach the point of deciding to take the plunge. Interesting. I will have to start from long ago, possibly the last century.
00:01:54
Speaker
when my dad forced me to become an engineer. I mean, I grew up in a small town, North India called Dehradun. And when I was growing up, my 12th standard, we didn't have much of choices. I mean, the only three streams available to people were medicine, services or engineering. Medicine, I couldn't because
00:02:23
Speaker
I didn't offer bio in my grade 11th. My school was in the cantonment and every year there used to be a big contingent that
00:02:38
Speaker
would get dispatched to NDA and so people used to have a lot of aspirations about joining NDA. I unfortunately didn't have one but my friends like they forced me to just join them to write the exam. I wrote the exam
00:02:56
Speaker
didn't clear it first attempt. It was a very simple exam. And then I took it on my ego. After that, twice I cleared it, but they kicked me out of the SSB. And I have huge respect for the service selection board after that. I don't know what they see or what did they see or did not see in me. But I don't think I was ever meant for defense services. So the only choice left was engine. I think, though, that was not my first reference. I wanted to do economics honors.
00:03:26
Speaker
couldn't convince my dad or couldn't explain it to my dad what economic honors meant. So I was sent packing to an engineering college at my engineering from Thapar Institute in Patiala. Academically did very well, though technically I still get goosebumps when somebody asked me a technical question.
00:03:52
Speaker
Incidentally, after engineering got into a job which was hardcore engineering, I started working for a JV that escorts had with a German company called Class. And we were trying to redevelop in India stuff that was originally available in Germany. Did that for a couple of years. Then my nerves gave up, patients gave up.
00:04:22
Speaker
I went to Cal to do my MBA. I thought that's where the world would change after the MBA and thought I had achieved everything, only to realize that that's where things start. And so I had to make a restart post MBA. I started with consulting with Rice Waterhouse for a couple of years.
00:04:47
Speaker
Only to realize consulting was not my cup of tea. Not that I didn't like it, but the amount of travel, that point in time, I wasn't too keen.
Shifting Careers: From Engineering to Fintech
00:04:57
Speaker
I joined American Express. On the analytics side, I was part of the US consumer cards team. I did some interesting stuff there.
00:05:10
Speaker
And then I was based out of incidentally a Gurgaon. 2005 is when they said for me to grow beyond a certain point, I would have had to relocate to New York, which was something that did not excite me. I've been a true believer in the India story from a very long time. I joined a small bank called Centurion Bank.
00:05:37
Speaker
which is now acquired by Bharati, right? No, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no,
00:06:07
Speaker
Rana Talwar who was the erstwhile CEO, Global CEO of Standard Chartered, he came in, he bought the bank, he brought in a new management team and then in 2005 I joined on the card side, tried to do quite a few things. It was an exciting phase where
00:06:32
Speaker
We wanted to grow very fast. So the journey started with Centurion buying the bank musket license. It was a JV initially and we bought the bank musket license. Then we bought Bank of Punjab. Then we bought Lord Krishna Bank. And in 2008, interestingly, when we were contaminating one more acquisition, we got sold off to HDFC Bank. And I went as dowry to HDFC Bank as a part of that acquisition.
00:07:02
Speaker
I worked with ACFC bank for a year. It's an awesome bank, but I could culturally align myself to the bank. So moved out, joined Visa. Visa was a digital payments leader, not just globally, but in India as well. That point in time, I started
00:07:24
Speaker
My initial role was managing the neighboring markets, which was Sri Lanka, Nepal, Maldives, Bangladesh. In 2011, we opened up Bhutan. And then I got pulled into India, Visa India, where I ran business development for Visa India for a few years.
00:07:43
Speaker
Business development means acquiring bank partners. Acquiring bank partners is the first part, but you don't get so many banks opening up every day. But within bank, how do you impress upon those banks to issue more Visa cards? I mean, you have competition. That time, the competition was predominantly from MasterCard and then Rupe was just about coming up.
00:08:10
Speaker
So how do you get a bank? And it was more like managing those relationships, leveraging the innovation that was happening globally to impress the uniqueness of Visa and driving the market shares in that process. And 2017, right after demonetization is when we started with TOC. So it's interesting. As I said, I've always been big on India.
00:08:41
Speaker
And my conviction has strengthened over time. Visa was a good place because you could see not just what's happening at one bank but across the country, the developments.
00:08:58
Speaker
And it's interesting when foreign as the people outside the people from regional and global offices would come and we would present the India opportunity and you could see everybody acknowledged that and that India is a large opportunity. In fact, Visa calls still calls India the largest cash displacement opportunity available globally. Wow. What does cash displacement mean here? So there the amount for Visa, the biggest competition
00:09:28
Speaker
till about six years ago was cash. Ah, okay. Got it. Okay. Cash, Visa used to gain, for that matter, digital payments used to gain at the expense of cash. And the amount of cash that existed in India was unparalleled at that point in time. So which means the opportunity was that much bigger for Visa. And while everybody acknowledged the large opportunity, you could still see
00:09:56
Speaker
or sense that cynicism, people would be like, yes, but we've been hearing this for the last 20 years. But interestingly, we were starting to see things change. Yes, we would present a lot of optimism and sense that skepticism on the other side. But we started seeing things changing right from jandhan to mobile penetration increasing.
00:10:27
Speaker
Given that you had such a large access to whatever was happening, you could kind of see the picture building up. India is a large country culturally as well as geographically very diverse. And hence, one of the things that can solve problems or make somebody materialize an opportunity is technology.
00:10:57
Speaker
And then that's when Jandon started the process, mobiles came in and then we could see data prices going down, access becoming easier and demonetization happened. That's when we said if the next 20 years belong to India and one of the sunrise sectors would be payments.
The Birth of Mintalk: Post-Demonetization Opportunity
00:11:24
Speaker
Why work for somebody else? Why not?
00:11:27
Speaker
create something on our own. And that's when we decided to take a plunge. A lot of people asked us, I mean, demonetization happened and the same global regional folks came back saying like, this is Visa India's day in the sun. Why are you leaving now? And our response was that they would ask, why are you leaving? And we said, why not? And that's how Mentor was born in late 2017.
00:11:57
Speaker
That's pretty much it. Whom did you start with? Like you had someone from Visa only starting with you? Yes, yes, yes. My two partners, Rama and Sanjay, we were together at Visa. So we were a part of the India-South Asia leadership team. I used to run business development. Sanjay used to run operations and Rama used to run products and innovations for Visa across
00:12:21
Speaker
these geographies. We were together for, like Rama and I were together at PISA for almost seven years. Sanjay overlapped with us for five years. Three of us had the same belief, same conviction in the India story. And there was a point when we realized if India story is this big and payments would benefit. And that's a space we thought we knew something about.
00:12:50
Speaker
So we said why not take up lunch?
00:12:54
Speaker
Interesting. So you obviously have a very, very high caliber mature team that understands the payment space. What was the opportunity within the payment space that you thought was underserved? Because by that time, UPI was there for consumer payments, and you already had Pine Labs there for merchant on the merchant side. Bharatpay was not there, but I mean, you had players in each of these. So what did you see as the opportunity area?
00:13:24
Speaker
So interesting, when we, and payments, as you rightly said, is an ocean. It's such a very, very vast segment. And when we were deliberating, we looked at all the opportunities, like is there opportunity on the issuing side? But by the time we were talking about leaving, UPI was still very nascent, very nascent.
00:13:52
Speaker
UPI like in 2017, the monthly transactions used to be less than 10 million. That's where UPI was. So digital payments was pretty much cards. And we had a market which had almost a billion cards, 900 million debit cards. And then if I remember correctly, 30, 40 million credit cards. But still,
00:14:18
Speaker
The penetration of personal consumption expenditure on digital was single digits or early double digits, very early double digits, much lower than not just developed markets like US, Canada, but also if you look at Asia Pacific, much lower than what you see in South Korea, Hong Kong.
00:14:44
Speaker
And one of the reasons was the acceptance side of the infrastructure had a challenge. And that's when we said that too many entities looking on the issuing side of it, the card side of it, acceptance is still underdeveloped and unless and until acceptance.
00:15:07
Speaker
picks up, gains traction, this opportunity will not materialize. And that's where we jumped onto the merchant side. OK. So essentially, you would be competing with the Pine Labs. No, so within merchant side also, merchant side of the story also, we looked at the various problems that existed that time.
00:15:36
Speaker
And yes, the likes of Pine Labs, the world likes of the world were doing something. And we said there's no point replicating what these guys are doing. So we started looking at the problem. One quick question here for people who are not from this space. What is Pine Labs doing? It has a bank tie up and it is selling machines of that bank or what? Yes. Like the issuer of the machine is a bank?
00:16:04
Speaker
They are on the merchant infrastructure side. They work, they partner with banks to deploy POS terminals which accept cards. That's one of the services they offer. They have other offerings as well. In India, POS machines must go through a bank, right? Like there is a bank which is, you need a bank to process the payment. Technically, yes, bank has to sponsor.
00:16:29
Speaker
So bank could either do it on their own or bank would sponsor an entity like Pine Labs or their local likes who can then sign up margins. But yes, as far as RBI is concerned or the payment networks are concerned, they hold the bank responsible. So they license it to the banks and banks are technically supposed to run this business.
00:16:56
Speaker
So, we started looking at problems and one of the challenges was and Ford, she was just about coming in, internet was very sketchy and payments were processed on internet. And we saw and when we were at Visa, we used to see this pretty often, like the drop of rates used to be high on physical payments or proximity payments as used to go when you're on post terminal swiping a card and there's no network.
Product Evolution: Pivoting to Merchant Solutions
00:17:24
Speaker
Transactions, the decline rates were like that time 10 to 15%, which was not a good experience. And we started looking at parallels in other areas, even in telecom.
00:17:42
Speaker
While accessing data was, I mean, because 3G, 3G itself was sketchy at that point in time, but voice used to work seamlessly. And one of the thoughts that came up was if voice is working seamlessly, can we use voice as a fallback?
00:17:59
Speaker
fax has been working for ages. I stay in Bombay, within Bombay data was good but the moment you moved to 10 kilometers outside, Bombay the data the 3G would disappear, you wouldn't even get edge but voice was still there. So we said could we process those fallback transactions over the voice network and we did
00:18:24
Speaker
build that capability where the first option was data on the pause terminal. But if data were to fall, the fallback was voice. So technically saying the transaction drop-offs would minimize if not go to absolute zero because you had 100% network availability. Took us a while to crack that capability.
00:18:54
Speaker
And when we did, we were very excited. We thought like somebody would call us and give us a Nobel Prize for this discovery. And that's when we said like, that will happen whenever it will happen. Let's take it to the merchants because merchants should be more excited. We spoke to about 300 merchants, shopkeepers across Bombay and Chennai, Mumbai or Chennai.
00:19:24
Speaker
And interestingly, the consistent response was, yes, data is a problem, transactions fall off. And this is a good option. I mean, if I get 100% of my transactions going through, that's something I would prefer. The next question from us used to be, would you pay for it? And the unanimous answer was no.
00:19:47
Speaker
They said, if the transactions don't work, I'll simply ask the customer to pay me cash. Why would I pay you separately? And that was a big eye-opener for us. We spent so much time building this capability only to realize that there's nobody willing to pay for it. And we were hoping for a Nobel Prize.
00:20:10
Speaker
But I would say that you built a better mousetrap, right? I mean, I would have looked at it as, okay, let me replace Spine Labs and other such players through a machine which offers you better uptime.
00:20:27
Speaker
And I charge the same as they charge, there is no need to ask for extra money. Just enter the market through a better product. But you still would need to invest in that hardware and the only way to compensate for it, somebody had to pay for it. And if the merchants were not willing to pay you the premium, why wouldn't they take it? Why wouldn't they even shift?
00:20:52
Speaker
Because we, I mean, better product like, you know, I mean, if you get a better product in the same, but yeah, I understand you rejoin. So the thing is, they said, like, why should I pay you a premium for this when I ask my customers for cash and they're happy paying me cash if the transaction doesn't go through. So they had an option.
00:21:11
Speaker
Whenever there is a choice, then the chances of anybody getting a premium that's inversely correlated. What were you selling? Were you selling like, I will install an algorithm in your existing device or were you selling the full device? It had to be a full device because it was running on a smartphone. Those fast devices are like dumb terminals.
00:21:40
Speaker
we created a device on the back of a mobile phone, smartphone. This is one of those like connected through Bluetooth where there is just a number pad. Yes, the dongle along with the smartphone and you could process all transactions, higher transaction success rates. And yeah, we got
00:22:07
Speaker
kicked out of pretty much all the 300 sourcing. You must be smoking something interesting if you are expecting a premium. But what they did was we realized in that process talking to those 300 merchants, their problems were very different. I mean data was just the least of the problems.
00:22:33
Speaker
because as an UPI was just picking up, this is I'm talking 2018. So you had merchants who would accept transactions on a post terminal.
00:22:45
Speaker
Then there would be UPI, QR, which would be connected to the smartphone. If they're collecting remote payments, another app which would allow them to send links and collect payments, then there would be for bookkeeping. They had moved to, there were these apps that were coming up for bookkeeping. They would have a separate app. Absolutely. And then cash.
00:23:09
Speaker
I mean, five or six different modes. And every evening, they would sit and reconcile. They would spend hours just reconciling between cards, UPI, kata, cash. And that's not a good thing because what we also sense was while the general belief is SMEs are starved for capital, the other thing, they have a severe crunch is time.
00:23:38
Speaker
These are outlet small shops where it's like they don't have teams. It's one person doing pretty much everything. And if they have to spend like an hour or two just managing, reconciling digital payments, that's not being fair to their time. And that, that we saw was a big hindrance and that allow that then, um,
00:24:00
Speaker
took us back to the drawing board. We said, can we solve this problem? Can we consolidate everything on a single app because smartphones were gaining momentum? Can we solve it on a single app, a smartphone allowing the merchant to accept all payments? And because it was an app, we could do that much more. I mean, start with
00:24:26
Speaker
giving them an app that would help them accept payments across cards, UPI, Kata, and help them record their cash also solving for their reconciliation. That was a starting point. And then, could you do more on the same app? This merchant, like in India, the festive season has just started. Even the small merchant wants to advertise to customers in the neighborhood saying, like, I'm offering a 20% discount on shopping, or if it's a jeweler,
00:24:55
Speaker
Because now it's an app. Can you give them those marketing capabilities on the same app? Why not? Because a bandwidth is a problem. Start with payment. Payment is something everybody needs. Give them those digital tools. And as they start using this app over a period of time, you have enough data. Can you use that same data to work with
00:25:17
Speaker
Banks and NBS cease to pre-qualify them for loads and offer loads and credit cards on the same app. Why not? Now you're talking about an ecosystem, payments, digital services, and financial services, access to prices. I mean, coming from Visa, one of the things that we've seen on the merchant payments side, historically and forever, merchant payments is the most seamless way to access an SME.
00:25:47
Speaker
Why is an SME important? Because SMEs globally are financially underserved. So the object and everybody needs to accept payments. Earlier it was cash payment, now digital payments. So these guys need platform to accept digital payments. So the thought has been start with digital payment because that's the most seamless door opener. And eventually because this guy is
00:26:09
Speaker
financially excluded, eventually open up access to financial services on the same platform. And that's how you're supposed to make money. I mean, some of the companies that have done it well globally include Square. That's a good benchmark for all companies. But what was happening was for a large part of history, merchant payments were being done on post terminals. These are dumb devices.
00:26:35
Speaker
There's only one way communication that can happen. You can only accept credit cards and debit cards and nothing much you can do on that. As a result, the story could not evolve beyond payments. The financial inclusion story was still an aspiration. But now with apps, look at what's happening in India. India is an example. India, nine out of 10 transactions are happening when somebody is scanning a QR. Every time, so one is,
00:27:04
Speaker
Because you're scanning a QR and the merchant has an app, merchant has a smartphone and hence an app on that phone, they can check whether the payment is successful or not. But most important, pause terminals because they're expensive, you cannot offer it to everybody. Look at the market like India, there are 65 million SMEs. I'm not even talking about the guys selling vegetables on cards. These are people who have some form of a license.
00:27:34
Speaker
But the outlets that would have a post terminal would be about 5 million. The number of post terminals are in excess of 7 million, but there are multiple post terminals at shops and so unique outlet should be at best 5 million, which is less than 10% of the population. And if merchant payment is supposed to be the door opener to SMEs, one is this device, this hardware called the post terminal is not a universal solution. And that is something that has been solved beautifully through UPI and merchant apps.
00:28:01
Speaker
Now everybody has a smartphone and anybody who has a smartphone, which is technically everybody can be made a merchant. And you can see that in numbers. When I quit Visa in 2017, the market had about 4 million pause terminals and pretty much a hundred percent of the payments used to get accepted on pause terminal digital payments.
00:28:25
Speaker
UPI was, I mean, I remember data from March 2018, the market saw about 500 million transactions at outlets. 36 million was UPI and 440 million, 50 million was cards, debit cards, credit cards. Fast forward to March 23, the same market did 5.5 billion transactions.
00:28:45
Speaker
Cards was again 500 billion, not pretty much stagnant for the last six years and UPI 5 billion transactions and most of these transactions is when somebody is scanning a QR. Today we have 50 million merchants accepting payments not on a postable but on the smartphone through a QR, a merchant app and a QR. Now the good thing is
00:29:09
Speaker
This is a universal solution because everybody has a smartphone, and everybody can technically become a merchant. Second is, every time you scan a QR, the merchant looks at the app on their phone, and to see whether the payment is
Mintalk's Strategic Partnerships and Market Reach
00:29:25
Speaker
successful or not. Every time they're looking at the phone is an opportunity for the platform provider to interact. So if, let's say, I'm a small,
00:29:36
Speaker
Coffee shop. You come to my shop, have your coffee and for 20 rupees you scan a QR. I will open the app on my phone and I'll see the as 20 rupees payment successful. But I see a small message saying 50,000 rupees pre-approved loan. Are you interested? I may ignore that message. Next time another transaction happens, I see that message again. Three days later, I actually need a loan. Where do you think I'll go? Not to the bank, but to this app.
00:30:02
Speaker
And that's the beauty. So this new model is solving not just for
00:30:07
Speaker
not just for scale up, it's a universal solution, but also engagement. And that's what we also created. We were not the first ones to create it, there are other players doing it. But where we differentiated, when we created, we ran this for about a year. We call it our past experience legacy baggage, call it what you will. We realized
00:30:33
Speaker
You ran what for a year? This business where we created this merchant app allowing merchants to accept payments through QR.
00:30:42
Speaker
We had right up front. QR plus Visa Mastercard also? Yeah, everything. Everything was there. So it came with a device which could scan and where customers could enter the PIN? It came with a device, but for a small merchant who didn't have a device on their phone and a QR, they could still accept card payments. I mean, I could send you a link or when you scan the QR, you could pay through the card as well. Okay, it would open a payment gate link for the customer. Something like, yes, yes, yes.
00:31:12
Speaker
But right from the beginning, we were kind of clear that the best entities to be able to solve for SME were banks. Because banks have something, an advantage over everybody else, which is unparalleled, which is the trust. Today, people, when it comes to money, trust becomes important and that's where banks
00:31:39
Speaker
have unparalleled advantage over everybody else. FinTechs have solid tech. The only area they lack is trust, which is what banks have. But banks don't have the right tech to be able to offer these products. And the customer is spoiled. They want the best of tech provided by
00:32:02
Speaker
a trusted partner, but banks cannot. And that's where we realized if we were to offer this offering through a bank, it would solve a lot of problems. But when we went to banks, obviously banks have inertia.
00:32:23
Speaker
They were like, yeah, looks good. Let's keep talking. And that's what prompted us. We said, for us to do a product market fit, let's do sign up versions on our own. That's which is what we did for about a year. And in the process, this was like 2018 to 2019. 2018 pretty much we did the first one where data was wise. And 2019 is when we started signing up merchants across Bombay, Chennai, Mumbai, Chennai.
00:32:50
Speaker
And you had a bank partnership in place. We had a bank sponsorship in place because technically you need a bank to sponsor you, but they were not. We were signing up agreements with the margin, the understanding between the margin. And over a period of a year, we were... How you would earn this through the MDR, the merchant discount rate, would be shared with you. Yes, yes, yes, yes, yes, yes. So that's exactly what was happening. So that was our margin.
00:33:19
Speaker
And over a year, we were able to demonstrate to banks that an unknown brand was able to sign up the merchants where banks were present originally, was able to displace those banks.
00:33:38
Speaker
and charge a fee from the merchant. So the merchants liked us and were willing to offer us a fee and an unknown brand becoming a predominant acceptance platform at merchant which was
00:33:51
Speaker
and I opened up for the banks, and that's when they started closing up to us. So in addition to the MDR, you would charge like a monthly subscription or something from that? That time, yes. We had a monthly subscription. Which I think is par for the course, right? When a merchant takes a post machine, they pay some sort of rental? Yes, yes, yes, yes, yes. So that's how it started. And then because, as I said, we were not the first ones to do it. There were players like Paytm, PhonePay. Everybody was trying to do the same thing.
00:34:21
Speaker
The only place we said like if we were to do what these guys are doing, we would end up becoming like them, one of them, one of the many options available to the shopkeeper. And that's the problem that you see currently also well. Banks took a back seat for the first five, six years and pay ATM, phone pay, the likes came because payments has become more tech.
00:34:50
Speaker
and banks don't have that DNA and hence banks abdicated that space. But what we also saw was any shop you go to will have like three or four QR codes. We're just talking payments and then something else for digital catalogs, something else for Kata
00:35:09
Speaker
Again, same problem. Earlier it was multiple payment options. Now, well, payment options have become interoperable, but because brands, every brand realizes this is the way to acquire an SME, you see like four or five QR stickers at every shop. And we said, that again, positions banks with a unique advantage of trust. Because if one of these players goes to the shopkeeper, and this we've seen in our experience as well,
00:35:39
Speaker
One of these players goes to the shop and says, like, you don't need the other four QR because my QR is self-serving, suffices for everything payments, because they don't have the trust. The merchant generally responds saying, how do you care or how do I care? Let the customer decide. Now, just imagine if the bank were to go to the same shopkeeper and say, the current account is with me.
00:36:05
Speaker
Your money is with me. You trust me with your money. I will give you one QR and one app that will solve for all your payment needs. And tomorrow I will offer you loads cheaper than anybody else on the same app that is likely to resonate.
00:36:21
Speaker
And that was our story. That's where we started in 2020, starting up our first bank partner, which was HDFC that we signed SBI Access. Today we have, and yes, Bank in India. Today we have shared over 2.2 million merchants in the country through banks. We offer it as a white label proposition to banks. And just to make the decisioning easier for banks, our model is a SaaS model where banks pay us per user per month kind of fee to start with.
00:36:49
Speaker
So, it doesn't hurt. They don't have to incur a large capex to sign us up. It only when it scales up does it start making sense for them or us. So, we have version over 2.2 billion merchants. So, 2.2 million merchants. Merchants using the platform. These are offered by banks, white label for banks.
00:37:11
Speaker
In terms of... What is a merchant offered? That same mobile app with a device to scan? No, no. So it's only QA? No, no, no. Okay. So merchants... The journey starts with a merchant downloading an app, which is a wide-labeled app, wide-labeled with the banks branding.
00:37:28
Speaker
They get a QR. So like a yes bank merchant app, something like that. For example, HDFC has smart app Vyapar for merchants. So merchants get a QR and an app on their phone. QR is one of the touch points, but on the app itself, the merchant can accept card payments. Like if the merchant has an NFC phone, customers can tap their card on the phone and make a payment. Merchant can generate a dynamic QR in addition to that QR sticker. Merchant can send a link
00:37:57
Speaker
Any transaction happening on that QR sticker also gets updated on the app in real time. In addition, if a merchant has a post terminal from the same bank, any transaction happening on the post terminal gets reflected on the app in real time. So it's a complete omni-channel experience for the JobKeeper to start with. Now that's the first one. Then there are any statement the merchant needs
00:38:24
Speaker
historical yesterday's last week last year's at a click of button they can download they don't have to call up anybody the shopkeeper has five outlets they want to see the performance of five outlets on the same app they can compare performances of all five outlets in real time which one is performing which one is not performing then
00:38:45
Speaker
The platform allows banks to run campaigns. Like as I said, you still have cases where bank would be competing versus some Pintex in the same shop. So the platform allows banks to run gamified campaigns which
00:39:03
Speaker
Propose levels to merchants. When merchants achieve levels, there are incentives, small gratification in terms of either digital badges or cashbacks, just to enhance stickiness. Then there is a merchant loyalty program, very similar to an airline frequent flyer program, where this is their performance. They get categorized as platinum, gold, silver, and the benefits accrue to them according to their tiers.
00:39:29
Speaker
If they have an issue, what kind of benefits? Could be anything like a simple thing like if a cashback campaign is being run, the Platinum guys qualify for the top most year automatically. They don't have to go through levels. Or when they offer bank products, there are subsidized offerings for banks. The idea is solve for the merchant's payments initially because for SMEs, the most crucial activity is payment collection.
00:39:58
Speaker
that defines their existence. Get them to use your app for payments because that's the starting point. Once they start using it, build engagement through these gamified campaigns and loyalty. The third is in a pain point, they don't have to call up anybody. From the app, they can log in, they request and track what's happening. And the idea is build engagement for the SME with the bank partner because once there is engagement,
00:40:26
Speaker
Then the bank starts offering pre-approved loans or credit cards. So our experience across these merchants today, these merchants look at the payments app much more than they look at their mobile banking app.
Mintalk's Business Model and Competitive Position
00:40:41
Speaker
And they're definitely not going to bank branches. So if you want to sell this guy a loan, the best option or your best chances of getting this merchant to take a loan is on the payments app, not on mobile banking app. And as I said, they're not going to the branches.
00:40:55
Speaker
So we have about $2.2 billion merchants on this platform. I won't be able to reveal the exact numbers, but in terms of size, we are the third largest after Paytm and Phone Pay. In terms of number of merchants? Not number of merchants. Number of merchants, we are just not there. It's the volumes processed on the platform.
00:41:22
Speaker
Oh, you mean like the GTV, the cross transaction? GTV, GMV, we are number three in the space, bigger than some of the names I haven't taken. And with a merchant base, which is significantly, we have 2 million merchants. Others are like, all of the other guys are 10 to 30 million merchants.
00:41:41
Speaker
And the only reason is because when the bank goes, the same point, the merchant starts, already has four QR codes, four apps. When the bank goes with the pitch over a period of time, the merchant consolidates everything on the same platform. And as a result, we have our throughputs on volume generated by merchants is like six times better than what the market is used to see. It's basically for the SME, combining the best of tech
00:42:19
Speaker
They had abdicated the space. Now this gives them a chance to come back because if you look at some of these players, they started with payments. Banks had abdicated the payment space. These guys got into payments. Then they started offering the same SME loan. Then they started offering wealth management products. And now banks are saying, wait, this guy was my customer because this guy had a savings or a current account with us. But he's not taking a loan from us.
00:42:36
Speaker
of big offer through their most trusted partner which is the bank.
00:42:48
Speaker
Obviously because he's not coming to a branch, he's not looking at a mobile banking app. Payment app is what these guys look at because they cannot survive without it and the banks don't have those payment apps. So banks are now getting excited saying like banks had a challenge because as I said banks are used to creating static products. You launch a current account customers will come. You deploy a post terminal transactions will happen. But when it's an app
00:43:16
Speaker
which is what payments have now become. App is a very dynamic a living product where you have to change things pretty much every week or month. And that's what banks are not wired to do because they have the common notion is banks have legacy infrastructure what we tend to underrate under
00:43:37
Speaker
is the fact that this infrastructure for banks has been built over multiple decades and they have a large business that's running. They cannot overhaul their infrastructure. It's like mid-air refuelling. But they have the trust which is unparalleled. They lack tech, which is where we come and we say, we will white label it. So it's your brand going. We will ensure it's at par if not better than whatever is available in the market.
00:44:05
Speaker
And we will offer you on a subscription basis so that you don't have to. It's it's pocket friendly as well. So you essentially you're like the Shopify for like in this example, Paytm is like the Amazon. Yeah, but both both these players are going too much in directly. We are I would rather say we in terms of a business model, we're more like a
00:44:30
Speaker
Again, this goes back to the previous experience, more like a Visa. When you go to a bank, you ask for a debit card or a credit card, you ask for the bank's debit card or credit card. But when you swipe, when the transaction happens, that is powered by the network Visa Master, but you don't see much of Visa Master on the card. We have a same philosophy.
00:44:53
Speaker
Oh, amazing. So you're like the digital app-based version of Visa. Absolutely. For SMEs. For SMEs. Right, right, right. Okay, got it. Very interesting. So I have a couple of questions I want to ask you. You spoke of dynamic QR or what is that and what's the use case of that?
00:45:12
Speaker
So, when you talk about QRs, there are two types of QRs. There is a QR that you see, a sticker that you see in most shops where you scan and you as a customer enter the amount. That's a static QR. Because all that QR has is the merchant credentials, nothing else. You are supposed to enter the amount. Dynamic QR is something that is generated on a digital device where the merchant or the shopkeeper enters the amount.
00:45:40
Speaker
and the customers can scan it with their app, but they can't enter the amount. The amount is pre-populated. Okay, got it. Yeah, I understand now. When I do shopping at IKEA, you typically get something like that there. Yeah, yeah. Okay, got it.
00:45:56
Speaker
So a shopkeeper could also generate multiple QRs for each cash till, like each of his cashiers can have a separate app for him to track who's processing how much payment. Absolutely, yes. I mean, the app comes with a user delegation module. The business owner can delegate usage of the app by till or by function. For example, if I'm the business owner, I download the app.
00:46:25
Speaker
I need to step out of the shop. I can delegate it to somebody else in my shop, but I can define that this person should be able to accept payments, but not have access to my financial statements. Or I have an accountant. I can use the same app to delegate access to the accountant, but define saying this accountant should access my financial statement, not accept payments on his or her phone.
00:46:50
Speaker
So all those permutation and combinations are possible through the user delegation model which is available on the app. Okay, very interesting. When you say financial statements, this is linked to the bank account or just payment history, history of payment transactions? So as of now it's payment transactions, whatever they want to see, last six months, how much payment, how much fees they have paid to the bank, how much declines have happened, that's the starting point.
00:47:17
Speaker
But now we are working with the bank partners to break the banking history, because banks are realizing, saying banks are realizing SMEs are spending more time on this app than on the mobile banking app. So why not show some of those features on the same app? As for SMEs, bandwidth is also a problem. And payment app is something they can't survive without. So can you bring their entire ecosystem on this app
00:47:44
Speaker
rather than getting these guys to toggle between multiple apps, which is what we are doing now. So yes, what you said is coming up. It's on the roadmap. The same SME would be able to access banking relationship on the same app.
00:47:59
Speaker
Amazing, amazing. You spoke of creating a CRM also so that the merchants can send out promotional messages to their customers, etc. All that is there? Yes, yes. So there are two forms. One is merchants can just do a communication campaign saying, for example,
00:48:18
Speaker
pre-monsoon, before monsoon, they can just send out messages to customers in the vicinity saying new set of umbrellas in the shop or the merchant can actually... How is the messaging sent? Is this through a SMS gateway? It integrates.
00:48:34
Speaker
What the module does is it has predefined templates available for merchants. They can pick and choose those templates. We are actually enriching in the process of enriching those templates with some generative AI as well so that merchants can get creative. And then it can integrate with their Instagram. They can push it through their WhatsApp.
00:48:56
Speaker
So, all those capability or they can display it on their Facebook handle, all those capabilities are available. The other module is the merchant can technically run a loyalty program saying like every fifth transaction if they want to reward the customer, there is a module that allows them to run that kind of a campaign through the same platform.
00:49:19
Speaker
How does the data entry happen? A merchant doesn't have time to get the data of customers. I mean, each time you'll have to capture the customer phone number for a loyalty program, right? It's only when you want to run loyalty because that's one of the easy identifiers for customers because customers
00:49:37
Speaker
can change payment options. Today I'm getting a cash back on my credit card, I want to pay through card, tomorrow it's UPI, third day cash. The only thing that doesn't change is number. So if the shopkeeper wants to run a loyalty program, then it's through, phone number is the point. In that case, they have to enter the phone number. And this is through the app only, like on the mobile app, he can enter the phone number. Absolutely, yes. So that mobile app is available in
00:50:02
Speaker
All OS is iOS, Android, as well as for the larger merchant, there is a BEM version. OK. OK. Right. Right. Yeah. That's what I was going to ask you, Nik. Most larger merchants generally have a desktop where there is a BEM version. Yes. So we have an option for them as well. OK. OK. OK. And you would integrate with whatever POS software that they are using. Billing software integration is on a need basis.
00:50:33
Speaker
Not everybody wants to integrate because that's one of the challenges in India. The billing software space is very fragmented. Even the large grocery stores in a city like Mumbai would have billing softwares built
00:50:54
Speaker
through some software developer in Nasek or Nagpur, not necessarily those branded ones, may or may not have APIs. And that's where the challenge is. Our first thing is let's solve for the payment challenges first, because payment will get you interactions. And interactions result in engagement. Engagement helps banks monetize.
00:51:19
Speaker
Let's solve for that. And then, yes, on a need basis for large stores, chains, we can integrate with the billing software as well. OK. OK. Got it. Got it. OK. Maybe doing a billing software of your own makes sense because all merchants need it. Building is easy. It's a selling part. As I said, such a fragment. See, payments, we said.
00:51:46
Speaker
Because it's to do with money, collection. And banks have trust and they have distribution. What they lack is tech. Let's compliment because distribution and trust is available. And we were able to solve it. Billing software, I don't know what that distribution would look like. Banks would not be able to distribute. They already have something where they're used to. I mean, I remember
00:52:15
Speaker
When we initially started, a lot of people told us, why don't you create a billing and inventory system of your own? And for us, the logical thing is before we embark on anything, we talked to merchants. And we created some prototypes, went to merchants, and we asked them,
00:52:37
Speaker
We asked them the reaction and pretty much everybody said, this looks very nice. But the other message that came back was, while this looks nice and fancy, the challenge is, I'm the business owner, I will not use it. I have a cashier.
00:52:59
Speaker
who uses this, who's very used to my existing software. And this cashier goes for vacation three months a year, where he brings in his friend who is also used to this software. If you have to sell it, you'll have to train my cashier, which will take a lot of time, but also ensure that when this guy leaves, you are ready to come back again and retrain. And they said like,
00:53:29
Speaker
I don't know if you recall 2018, GEO also ventured into the space and their pitch was everything on a pause including inventory billing. While they discontinued the services, I was told one of the big reasons was this training and retraining part. And that again comes from like a very fragmented space. So yeah, there are no answers.
00:53:54
Speaker
The payment opportunity itself leading to financial inclusion of those shopkeepers is calling it an ocean would be an understatement. That itself is a very large opportunity. We will evolve with the system. Tell me about the Vyapa deal. How did it fructify? How did you execute it? Because that was like the first big opportunity you had to really change the game for you as a business.
00:54:23
Speaker
Yeah, HGSE smart hub Vyapar. In fact, again, coming from Visa, HGSE is the largest layer in this ecosystem.
00:54:34
Speaker
And we were very clear, we had to start with the biggest one. And then convincing others, so it was right from day one, it was we had to get HDSC and SBI because SBI sets the door for private sector players, HDSC, sorry public sector players. And HDSC is like the top layer in payments. And we had like we said, we need to get a couple of between access ICI say one of them to
00:55:01
Speaker
When we went to banks, there was inertia. They liked it, but there was inertia. I said, that's when we started signing up our own merchants. And over a period of time, when we were able to demonstrate to the same banks how this becomes the salience that we gain, and these merchants were originally owned by banks, is when they started realizing this. And by the time what had helped was
00:55:29
Speaker
the likes of PTM Fonpe had started gaining traction and banks were initially they were okay letting these merchants go but when these guys started selling loans and that's when banks started sensing danger and they started cozying up to us even more. HGFC was the first one because we were so perseverant with them we were able to demonstrate they came on board
00:56:00
Speaker
Unfortunately for us, we signed up in January 2020 and March 2020 lockdown got announced. Incidentally, we not only signed up HGSE in India in January 2020, we signed up a bank in Kuwait, a bank called Burgan Bank, with a similar offering. March 2020 lockdown got announced, but that allowed us to like, thankfully HGSE
00:56:28
Speaker
took that lockdown as an opportunity to accelerate stuff on the tech side, which just provided us the fillip or impetus that we needed. And we went live while we had developed, but the training, et cetera, took some time. It's only December 21, December 20, that things started moving for us with HDFC. They started signing emergence, and the market was just about opening up. People were going on the ground.
00:57:00
Speaker
things started changing for us. 21 is when they really picked up steam and I said like 21 is when SBI came in and then this early years back came in and earlier this year we signed up AXIS Bank and the journey has been interesting now again with the very
00:57:23
Speaker
relatively small size, not very small, relatively small base of merchants. We have throughputs which are bigger than players with much bigger bases. We've been able to demonstrate engagement for banks, which is where they are seeing value. That story has panned out well, though I always believe we could always do better.
00:57:47
Speaker
But similarly, equally interesting, as I said, 2020, Jan, we signed up Book and Bank in Kuwait.
International Success and Expansion Plans
00:57:54
Speaker
They were the fifth largest player in the merchant payment space, fifth largest bank. There, it's pretty much bank, so do it. Today, tell me about Kuwait. See, in India, you see essentially the app.
00:58:13
Speaker
is not made for card processing. It's more for a QR processing. That would be a bigger pitch for the app, which is what you said multiple times, that you will replace multiple QR codes with one single QR code. How does this value proposition work in a country where there is no UPI QR code-based payment? So I'll tell you what
00:58:41
Speaker
happened in Kuwait and then I'll come to like how the other parts of the world are looking at what we built because we are there in Africa as well. So Kuwait, as you rightly said, there was no UPI. Digital payment penetration was relatively high as compared to India. And all of it was happening on pause terminals.
00:59:07
Speaker
banks are buying post terminals. Unfortunately, when it comes to post terminals, globally there are two or three large OEMs who provide these post terminals, the likes of Injaniko, Verifone, Pax. And it's very difficult for a bank because everybody is buying from these guys. So how do you differentiate your proposition? Everybody is offering the same post terminals. Kuwait, the problem was even bigger because
00:59:34
Speaker
Banks don't directly buy post-terminals from OEMs. There is a centralized agency called K-Net which procures. So whatever K-Net gives you, you have to take it. Now, I am bank A. I go to the shopkeeper. I offer my post-terminals. There is a bank B coming up with the same post-terminals from the same OEM. How do you differentiate?
00:59:57
Speaker
Because you can't differentiate. And there will just be different stickers on top. Yes. And these are dumb devices. You can't do much. And hence, the only thing that you can play on is price, MDR. The only thing you can offer is, I will offer you 10 basis points lower. And the next guy would say, I will offer you 20 basis points. And as a result, just business has become very commoditized, payments on past nominees. And Burgan Bank was facing that same challenge in Kuwait.
01:00:28
Speaker
So what we did was we gave, we white labeled for Bergen Bank a subset of what we have in India. Without the payment capability, everything else was there. So payments in Kuwait, so Bergen, the app is called Tejarati. To their merchants, Bergen gave them a post terminal and they got the business owner to download this app on his or her personal phone.
01:00:56
Speaker
Now, what was happening was this owner was able to stay connected with their business in real time. Transaction would happen on the pause terminal. They could see on the app. They could see a consolidated view on the app. If this guy had five stores earlier, they had no visibility. Now there was real time visibility. So much so that on a pause terminal,
01:01:18
Speaker
If you ask a shopkeeper as to how much business has happened till this very moment since morning, they would struggle because they mostly get to know next day when the bank sends them an email. And that was happening in Kuwait. But with this app, the merchant had real time access to their business irrespective of their location. They could be in Kuwait, they could be in New York, as long as they had their phone, they could see how much business has happened.
01:01:41
Speaker
across multiple outlets, if they had a payment gateway and a post terminal, between credit, debit, international, domestic, all of these things. All statements, now interesting, the statements was an interesting piece because that point in time when we were doing the beta, the sales guys went to merchant saying, you could access your payment statements in real time at a click of a button, merchants refused to believe because in Kuwait that time it was taking about three weeks for a bank to deliver a statement. And we were telling a watch it,
01:02:08
Speaker
this could be, they could access it real time, they refused to connect believe. So that was the first big differentiator for Burgan Bank. Now because they had this app and let's say the merchant had a post on from Burgan Bank and a bank X. The first differentiator was Burgan was giving them real time intelligence, not just about payment information, but they'll say business trending, peak hours, off peak hours.
01:02:39
Speaker
Beyond that, Burgan was able to run gamified campaigns on this. Do 30 transactions and there is a reward waiting. Now just to get the excitement it creates because there is curiosity. Something will happen at the 30th transaction. Every time a transaction would happen, the app would light up saying 10 transactions done, 20 more to go. Now the merchant does not have incentive to use the bank access terminal. They would try to consolidate everything.
01:03:05
Speaker
And 30th transaction there would be a scratch card saying, digital scratch card, merchant scratches the card and says, you just want a $1 cash pack. Now that's interesting and it says, there is a bigger surprise waiting for you at the 60th transaction. So one is, you are giving the merchant to consolidate business on the Burgan Bank platform. Then, Burgan Bank was able to run loyalty, which earlier merchant doing
01:03:33
Speaker
100,000 Kd of business and a merchant doing 1000 Kd of business a month were treated at path. Now you could run a loyalty program being able to reinforce a privileged status to the bigger merchants and create a path to upgrade or enhance motivation for the smaller merchants. Then the other problem was
01:03:55
Speaker
Earlier the post terminal would break down, merchant would be irritated, but what would irritate them more was calling up the call center, getting into that queue, after five minutes getting a response from a customer care rep and they would say like we would try and resolve this problem in 48 hours.
01:04:14
Speaker
that just irritates the merchant even more. Now, Burgan Bank merchants, they don't have to call anybody. They can log in their request, be it a terminal breakdown, they want a new post terminal, everything can be logged in through the app without the need to call anybody. And not only can they log in, they can track what's happening to the request.
01:04:36
Speaker
You create differentiations without payments continue to happen on the post terminal. But you've created a differentiation through this app and because the merchant is looking at this app multiple times a day, there is a reason. You start pushing offers for pre-approved credit cards also on the same app. That's monetization for the bank.
01:04:54
Speaker
And as I said, we started again around the same time as HDSC Bank in India. They were the fifth largest player in the market. Today, they are the second largest player in the same space in Kuwait. And it's before the end of this calendar year, they are likely to become number one in the market. Their only differentiator, claim differentiator, is the Tidarati app, which is our app available for that.
01:05:17
Speaker
So that was amazing. But what's happening is we have now, we are focusing on Africa because a lot of Africa is very similar to India. Large continent, densely populated some countries, high penetration of cash.
01:05:41
Speaker
And the challenge was digital payments. There's some pockets like Kenya where MPSI exists, but that's still a closed loop, wall guard kind of inter-operable payments are not there because inter-operable payments earlier, warranted infrastructure, post-double card, which is expensive, and hence these countries lagged behind. Now everybody wants to emulate what's happened in India.
01:06:04
Speaker
India has become... What is MPSA, if you can just quickly? MPSA is an offering by a company called Safaricom, which is a mobile wallet. That sits on... Like a Paytm. Like a Paytm in the earlier days. Paytm wallet to wallet transactions. Anybody can play because the currency is MPSA. Not interoperable. Yes. So MPSA is...
01:06:28
Speaker
the predominant payment mode in Kenya and there are a couple of other markets. But again, you need MPs on both sides. Unlike here where you can use your... Like China has WePay. Yeah, WeChat and Alipay. Very similar. These are World Gardens. But now everybody has seen the success that India has tasted.
01:06:53
Speaker
And a lot of these countries are looking to emulate what's happened in India through UPI smartphones. For example, Mauritius launched a product called Mochas, which is open-macking APIs, connecting banks and facilitating real-time account-to-account transfer. South Africa resetly launched Peishap. Kenya is launching Kenya QA.
01:07:24
Speaker
For everybody, the reference point is India. And for us and all these places, the struggle is the same banks, because this is becoming tech and that's what banks struggle with. They're feeling left behind. And from our side, the way we have architected the platform, it's one cloud native, all our integrations are API, and it's a microservices architecture, completely modular.
01:07:53
Speaker
Which means if a bank in Africa wants this, all I need to do is lift and shift. I take the same platform that's in India to Africa, change the skin, add a language, maybe like for example Mauritius, we will add French at some point in time. But beyond that, pretty much it's the same thing because the shopkeeper needs are same. Bank's needs are similar. And the payments architecture is looking to replicate or emulate what's happened in India.
01:08:23
Speaker
So that's now, we've signed up with APSA in Africa, which is the third largest bank in Africa. They're present in 10 countries. We're starting with Mauritius very shortly. And you support MPSA also in this? Like if a merchant wants to accept payment through the MPSA wallet? If the bank wants an MPSA as a predominant currency, yes, we can integrate with MPSA also.
01:08:49
Speaker
Okay, banks would not be very keen on it because they lose the MDRs. Yes, they're not keen, but some places they don't have a choice because the salience is so high. Okay, very interesting. Okay, got it. So I understand broadly like what the business is. What's your global GTV? Are you at liberty to share? Or what will it be by the end of the year?
01:09:18
Speaker
I don't want to make futuristic statements, but we are, as of now, in terms of salience, India is the high concentration of India on our platform, and we are shared in excess of $27 billion annualized, GTV.
01:09:42
Speaker
Okay. This is everything, including India, rest of the world, everything. The rest of the world is very small because that's how those markets are. But yeah. Wow. Amazing. $27 billion. This is your annualized GTV. Wow. Amazing. Amazing. And this you're saying only a PTM and phone pair bigger than this.
01:10:11
Speaker
This is the physical space I'm talking about. So physical shops not counting the online payment gateway volume that you see on the online players. Because that's the space we play. We don't play the online space.
01:10:26
Speaker
Right, right, right. Got it. Okay. Okay. So what, what is your pricing strategy? Like you, you price per user, what's the user defined and like one business as a user? So it starts with one, the business owner as the user, but when the business owner delegates to another user, it becomes two users. So there is a subscription pricing per user per user per month is what we get. Every time a payment happens, we have a small take rate on the payment.
01:10:57
Speaker
That's what we start with.
01:11:01
Speaker
Some point in time, once the vintage build, the shopkeeper takes a loan through the same platform. We have a cut on the loan. They take a credit card. We have a fee. That's more success related. And then we will shortly be opening up some third party services on the platform. For example, if this guy needs to file a tax, their GST, on the same app, they would be able to file where we will integrate with the third party and we will have a cut share with the revenue share with the third party.
01:11:31
Speaker
Okay. Isn't this friction where, I mean, I'm just thinking from the bank's perspective that for me, one business should have one price, right? If that business owner decides to add his cashiers onto the app and his accountant onto the app, then I have to pay more for it. But you are giving the business owner the flexibility to add. Banks are free to charge the business owners.
01:11:57
Speaker
We don't dictate that. Nobody can, I don't think banks have the ability to charge. I mean, they wouldn't pay, right? Market also determines what you can, what you cannot charge. But you have to understand that banks have many other levers. I'm not saying, because this guy, for example, retains a current account of the bank.
01:12:25
Speaker
On the current account, current account is one of the richest product for any bank because whatever money you put into the current account bank is offering you 0% interest rate. But the same money in the bank is lending to somebody else upwards of 10%. So you just imagine the kind of spread they have on the current account. So it's in the bank's interest to ensure that the SME stays with the bank, the current account is the bank, everything else is peripheral for everybody else is competing on
01:12:52
Speaker
figuring out how to make money on payments. But banks, as I said, for reasons that have been there for law, have a lot of other levels. Yes, yes, absolutely. Absolutely. OK. And what kind of take-red do you have on the MDR? And this would only be for Visa, MasterCard, Rupe, right? Not for UPI, because UPI has no MDRs. So I won't be able to give you the numbers, but it's on everything.
01:13:23
Speaker
See, my thing is that if it's a... But if it has no MDR, so... What is it doing for the bank? It is enhancing their stickiness, ensuring that that money stays in their current account. If they don't have this app and the merchant is using, let's say, a Google Pay app tomorrow, what if Google Pay starts pitching, saying, shift your current account to some other bank?
01:13:53
Speaker
So that's, I mean, there are reasons for banks and it's not like we didn't start with this revenue line. It's evolved over a period of time and it's because banks have seen value they're willing to offer. I'm guessing, wouldn't it make more sense for you in the long term to just take a cut from the GTV? No subscription, just friction free.
01:14:17
Speaker
very linked with, I mean, very closely aligned incentives for both parties. So, I don't know how it shapes up in the future. We started with subscription, now it's a hybrid and as of now, the banks are comfortable paying it. We are also happy with that because there is motivation for us to deliver more and it is working for us.
01:14:44
Speaker
At this point in time, no need to change it. I don't know how the situation evolves in the long run because we have what we have built versus what is there on the roadmap. We're not even 30% of our roadmap. So as the landscape evolves, as more features come in, who knows?
01:15:06
Speaker
How easy is it for another software company to replace you? Could a bank tomorrow sign up with another company and just push an update on the app store? So when the app is updated on the merchant's phone, you're out and the other company's in. A hypothetical question. I'm just figuring out how it is. Fair question. Technically, nothing is impossible. What you're saying is definitely possible, but you have to understand
01:15:36
Speaker
It's not just payments. Banks, the challenge always was they had legacy infrastructures which they could not overhaul and they were not nimble enough. As a result, they were losing the space to Pintex.
01:15:56
Speaker
We came in, complimented banks, and it's not just payments. In the process we integrated with multiple systems within the banks. Now we sit as a digital layer over the bank's infrastructure. Banks are clear and they want to partner with 100 different players because that's the way they could get nimble. Earlier they could because integrating into their infrastructure was quite a long haul.
01:16:20
Speaker
Now banks are cleared, any new partnership would integrate into our platform, not the bank's core infrastructure, because we are already deeply integrated with the bank's infrastructure. Tomorrow, if they want to change, they will have to approve us from each of these linkages, get a new partner to. And as I said, we are also building up newer third party services which are being offered to bank through our platform.
01:16:51
Speaker
which means they will have to get the new player to integrate with all those third parties, go back to the same merchants, get them to resign their agreements. Not impossible, but not easy. Again, as long as, as I said, we've been able to deliver to banks what they expected, maybe more. I would tend to think maybe more because that's why I'm still relevant for them.
01:17:21
Speaker
It's not just a subjective thing we've been able to demonstrate consistently on the numbers thing. Being late starters, getting to a position where we are with a significantly smaller merchant base
01:17:37
Speaker
And the lowest of integers, I mean the throughputs also increase as the portfolio increases. We have one of the lowest integers. So as long as we are adding value to banks, I don't see a bank wanting to redo everything because it's not impossible but not easy. Yes, tomorrow if we stop adding value, why not?
01:18:03
Speaker
So there's this class of businesses like these FinTech infrastructure companies like say Falcon, Kite, maybe even M2P. So you are also competing with them if I understand correctly because they are essentially doing this right they help
01:18:27
Speaker
fintechs to connect with banks and they are the layer in between they have integrated with the bank systems and now fintechs who want to offer bank products or integrate more deeply go through them so you are competing with them
01:18:42
Speaker
So they're also enabling banks to get better. We are also doing the same thing. The big difference is the name you just said largely focused on the consumer on the issuing side. We focus on the SME side, on the merchant side of the story.
01:18:59
Speaker
Okay, so those are like for a company who wants to issue a credit card in collaboration with the bank. So they will go through an M2P or one of these other players to make that issuance of credit cards happen digitally. Yes, yes, yes. And we specialize largely on the SME side. For SMEs, payments are the starting point, but the idea is to leverage payments to convert this
01:19:25
Speaker
merchant into a customer for the bank where the merchant takes more products from the bank. We get loans, cards and that's where we have gained experience. But we have these 2 million merchants and the throughputs are better than the market. It's not been an easy ride because we've gone through a lot of learnings. So we have a
01:19:54
Speaker
very strong analytics and merchant insights team. That every month comes out with hypothesis that we test in the market, see what competition is doing. If a merchant is using our platform, why are they using it? If they're not using it, why are they not using it? And all that feedback then funnels back into the product
01:20:16
Speaker
roadmap to see is there anything that we can offer on the feature side? Can we add a new feature? Can we improvise an existing feature? So we've done multiple interventions over the last, I would say 30 months, we would have done close to 10 plus interventions, large interventions. Give me an example of what an intervention looks like.
01:20:44
Speaker
So for example, when we launched this app, it was a payments app with all the dashboards, everything. Over a period of time, we realized the journey starts with the business owner. But the business owner is not in the outlet all the time. If they have to step out,
01:21:05
Speaker
you may recall people would like earlier call up the owner when somebody scanned a QR, the cashier in the shop would call up the owner asking... That was a pain. And we looked at what was happening in the market and then we created the user delegation module. Then we realized small merchants were hesitating to use the platform because very small merchants
01:21:34
Speaker
They want to see money real-time into the bank, whereas we were settling next day, the bank was settling next day. And the market was willing to instant settlement.
01:21:46
Speaker
The team came back saying this is what small merchants wanted. But we realized if we move the entire thing to instant settlement, the large merchants who account for a big chunk of volume would not use your platform because they don't want to see those many entries into the current account. They want one credit, but they want notification for everything. So we created this feature where the merchant on the app can decide whether they want the money instantly into their account or next day.
01:22:11
Speaker
So, these are some of the interventions that, and these keep happening on a regular basis. I said like that's. This would need like very close coordination with the bank, right? Because the bank has to agree to provide instant settlement. Absolutely. Yes, yes. But the thing starts with on-ground research feedback like merchant knowledge, you know, not using it, talk to merchants, survey merchants, see what competition is offering. They come back saying trust is an issue and hence they want instant settlement. But instant settlement enabling it for all merchants.
01:22:41
Speaker
would just show away the larger margins which contribute big chunk of volume. So how do you, then the product thinking goes and saying what kind of feature do, and then we go to the bank that this is what is coming from the ground, this is what's happening, this is what we can do. We pretty much do our features. It's not like, we're not a service and company that bank tells us something and then we build accordingly.
01:23:09
Speaker
It's mostly the other way around. We are a product company. We come out with features because the idea for us is to stay relevant. We need to be on our toes all the time, understand why something is happening and why something is not happening and how can you make them happen. And that's what the bank wants.
01:23:28
Speaker
Sorry, go ahead. This sounds a lot like the DNA of Visa, right? Visa also has a very similar DNA of continuously creating hooks so that banks issue more Visa, like contact less payment or like tap and pay and stuff like that. I think Visa does more innovation than Mastercard, right? No, your answer could be biased. No, no, no, no. It should be biased. It will not be biased because I think
01:23:56
Speaker
Both organizations are innovating at the same pace and while you go to the NPCI. The pace of innovation at NPCI is just mind-boggling.
01:24:14
Speaker
Absolutely. Give me an example of other fintechs integrating through you. Like you said, now you reside on top of the bank's stack and other fintechs now would use you to integrate with the bank's stack. Okay. So let me give you an example, a couple of examples.
01:24:36
Speaker
And is this monetized when another FinTech is integrating through? Absolutely yes, absolutely yes. There is another revenue source for you. There is, for example, in the grocery and the pharmacy space, there is these wholesalers who use their capital to buy from the manufacturer and then they extend credit to a retailer.
01:25:02
Speaker
So, depending on the segment in grocery, the credit period is 14 days, 0% credit and pharmacy could be up to 90 days. For that period, the distributors capitalist stuck. There are some very interesting fintechs that are working in the space that are
01:25:24
Speaker
leveraging dealer subbencher, which means they pay the dealer or distributor upfront and recover from the retailer and the distributor subwets that covers them for the cost of capital. Build discounting. Kind of build discounting, yes. Build discounting or BNPL, depending on who's paying? It's both. It's both. Because for the retailer, it's BNPL. For the distributor, it's build discounting.
01:25:51
Speaker
So there are a couple of interesting fintechs solving for this where they pay the distributor upfront. As I said, for the SME, their bandwidth is limited. Can I offer the same offering on our app? So we are integrating with the startup called ePay later. They already do this. Then there is a very interesting startup working on discovery for SMEs.
01:26:21
Speaker
Today you get into any place, let's say you go to Indore and you go to a place and you want to see what are the Kachori places. These guys are working on the discoverability for that. Can there be something that tells you this is what
01:26:45
Speaker
These are the Kachori places and you scan, you see in their QR, you scan the QR and you get to see everything that this guy has to offer, including their menu, prices, their history, whatever they want to display. For a small merchant. I mean, kind of creating, this company called Vyapalify, that's kind of creating a LinkedIn for SMEs.
01:27:08
Speaker
helping their discoverability. Now, we are an SME platform. So we are in the process of integrating with them. And there are, similarly, there are quite a few more. Wherever we see value for the SME, we start zeroing and doubling down. So this is not...
01:27:30
Speaker
FinTech connecting with bank, right? Like what, say, a Falcon or an M2P is doing. This is more of FinTech connecting and getting access to SMEs through your app. So, incidentally, yeah, Equilator is a FinTech, their periphery is not a FinTech. They are tech, SME tech, for lack of a better word. As far as financial services are concerned, we are already integrating with the bank and
01:27:57
Speaker
Bank has all the products. The other tech needs that the bank is not able to fulfill is what we are leveraging these other tech partners for. This is essentially like a market access partnership for them. They get access to market. The SME gets everything on the same platform. And for the bank, the stickiness is increasing.
01:28:24
Speaker
Right. And the bank would share with you the revenue that you get. So there is a revenue share that happens across partners. So for banking products, we take the bank shares revenue, bank pays us a fee. For other products where the bank is not involved, where then the revenue share is between us and the tech partners.
01:28:46
Speaker
But a bank could say that these are my customers you're selling to. The only reason why you have access to these customers is because I sold the app to them. I made them download the app. Bank has the right, but are they interested at this point in time? No. They are more interested in enhancing the stickiness for their platform.
01:29:06
Speaker
I think you must be a really great deal maker. You've got phenomenal deals in place with banks. I need to put you in front of my investors. I need you to repeat that in front of my investors. Seriously, the deals you've structured with banks are incredible.
01:29:27
Speaker
Okay. Maybe I'm telling you the rosy part of it. Just kidding. Tell me what your own fundraise journey, what have you learned along the way? Given the organizations we have worked in the past, they were all profitable organizations. So when we started the business, it was not to create scale, not to just solve a problem. For us, it was
01:29:57
Speaker
solving a problem where we could get scale or solving a problem at scale but monetization or the path to profitability wasn't equivalent if not the bigger KPI. So we started with a particular problem but we pivoted given that merchants were not willing to pay. We pivoted, we created a product market fit
01:30:27
Speaker
And initially we started, we bootstrapped. We were fortunate enough to over a period of time get some very good angel investors. These are industry leaders and the biggies in their own space. They backed us up till we got the product market fit. And 2020, when the bank journey started,
01:30:55
Speaker
the angel investors would have helped you in that one year when you were directly selling two merchants yes yes yes yes yes and they were how much did you dilute for this angel round i think we diluted around eight percent that pointed time okay and then 2020 is
01:31:17
Speaker
2020 is when we started the bank journey and that's when our first institutional investor came in which was Pravega. Pravega Ventures was the first institutional investor. They invested into us. The bank thing started and HDFC started as a client over a period of time. HDFC also realized and that's another validation. They wanted to come on our cap table. They just didn't want to stay as a client.
Funding and Investment Strategies
01:31:43
Speaker
They came on our cap table somewhere in October 21.
01:31:47
Speaker
Wow, that's an amazing vote of confidence. I would agree. We've been lucky in that regard. January 23 is when we closed our last round, which was led by PayPal Ventures with participation from BII, British International Investments, which is UK sovereign fund. And interestingly, LGSE Bank enhanced its stake and
01:32:17
Speaker
Pravega held on to its stake. So, and I mean, we started the fund raise journey somewhere last year. We were very clear that even for the fund raise we wanted, we did not want just money because we were already profitable at that point in time. We wanted partners who could give us more than capital.
01:32:43
Speaker
And that's why if you look at the names that we paypal, one of the best names, and when it comes to payments globally, they have understanding across markets. BII, UK Sovereign Fund, they are shareholders into some of the largest banks in Africa, which is a target market for us. And obviously that you have our existing backers, HDFC Bank, our largest client in Pravega.
01:33:12
Speaker
So yeah, that's where we are. How much have you raised total till then? $22 million in total. Okay. Of which into the company has been about $18 million, yeah, $4 million because the last round. Angels got an exit. Yeah.
01:33:30
Speaker
requirement that we could, there was this thing on our head that we could go beyond a particular amount as far as primary was there. So we had no option but to get some of the agents to dilute. What was this requirement?
01:33:51
Speaker
There was, this thing came from the investor that the max primary we could raise was because they wanted a certain stake in the company. They did not want their stake. And they were like more capital being offered than we could take. So we didn't have an option but to beg and plead or some of our angels to dilute partially. Nobody, incidentally, unfortunately for us, that's a good thing.
01:34:19
Speaker
Nobody wanted to dilute. But yeah, as I said, they were real ninjas.
01:34:26
Speaker
We could convince some. Amazing. What are some of the lessons you've learned around fundraise? Did you, in the early days, have to hear a lot of no's before you heard a yes? Or your pedigree of visa and the connections you built over the years made it easier that journey? And what's advice you can share with founders and some of your own war stories around fundraise?
01:34:50
Speaker
Fundamentals is an activity I just don't like, seriously. But it's interesting because you get to learn new things, especially in our case, we've gone through this and VCs, typical VCs come with a mindset like they want to back players who want to disrupt incumbents. Whereas we were taking a very contrarian approach saying, can we strengthen incumbents? And that's the model that
01:35:20
Speaker
took time for VCs to, and one thing with VCs is they have a very small span of attention.
01:35:32
Speaker
So you have like the first three, five minutes where they would try to box you somewhere. And I don't blame them for it because they meet 10 people like me every day. There is no way they could go deep into things. So the first instinct is to box you somewhere. Are you a square? Are you a tripe? Are you a did? Are you a picer? And the moment there is a no, no, no, no across these five,
01:36:00
Speaker
9 out of 10 would switch off. And you're gone. So the first big challenge is how do you get to increase their attention span from 5 minutes to 10 minutes because that much time you need to tell the real story. And as far as some of the mistakes we make is,
01:36:22
Speaker
We get super passionate about our platform, our pitch. Without realizing that the person on the other side has a limited span, you need to first get into their mind to increase, broaden that span and then tell the story. We get so passionate on the first few things, creating that context by the time you come to the real pitch, you've lost the VC. And we went Roman.
01:36:47
Speaker
We've done our rounds. We've met a lot of VCs. As I said, our struggle was very different because they could relate. They would talk about disruption. And disruption is a very abused word. And for them, disruption was disrupting the incumbents. And we were empowering. So much so that there was a VC who said, we like your anti-fintech
01:37:13
Speaker
thesis. My response was, how anti? They said, no, fintechs are trying to disrupt incumbents and you're trying to... Then I had to correct that particular VC. I said, if you go by the real definition of fintech, fintech is nothing but using technology to enhance the efficiency or delivery of an existing financial service provider. If you use that definition, technically I am the fintech and everybody else is anti-fintech.
01:37:44
Speaker
person on the other side kind of nodded. But yeah, so my learning is good to be passionate, but you have to understand you have to be a better storyteller.
01:38:02
Speaker
How did you increase that 3-minute attention span to 10-minute attention span? We did a lot of iterations. That said, we used to initially get passionate. And by the time we would come to the crux of it, we would have lost the VC. That happened. We tried changing the story multiple times. Because we had a very different problem. This was a model the VCs were not used to. So eventually, after multiple iterations,
01:38:29
Speaker
What we did was we brought the traction slide without telling the largest story with a traction slide right up front. And they would see, okay, there is scale and they are making money. So there has to be something interesting. So that helped include the span. And then they said, what's the problem? Why are you solving? So yeah, you have to be creative. And that's the thing. As I said, I don't blame the VCs.
01:38:55
Speaker
The nature of their job is such, they meet so many, they can't get into the depth. So you need to get into their minds for that. Storytelling is the most important element and you need to be creative. Okay.
Future Plans: Product Enhancement and Global Expansion
01:39:10
Speaker
What is this 20 million raise for? 18 million rather? It is enhancing. So 16 million is the primary. It's basically enhancing the product roadmap, tech and geographical expansion.
01:39:23
Speaker
Because it's a platform made for India, built for the world. Now we have to look at the world. India part of the story is like beginning to pick up traction. The rest of the world's story is where we need to enhance focus now.
01:39:39
Speaker
And what is your global go to market? Because in India, by virtue of being from Visa, you probably have the ability to open doors. Like you could probably go meet someone big in HDFC because you would have had an existing relationship. How would you open doors outside India? So because we are dealing with banks and for banks, you need credibility to get in front of them.
01:40:07
Speaker
In India, you write the visa background help. Outside India, we are leveraging partners who have that credibility. For example, as I said, one of our investors, British International Investments.
01:40:19
Speaker
They are shareholders in the bank, so they are opening doors in Africa. We have a formal partnership with Mastercard for Middle East Africa and Asia, where they've seen value and they are now taking us to banks. We are also co-creating some products with Mastercard for largely African markets.
01:40:39
Speaker
Okay, now I understand why you are not biased between Visa and MasterCard. And yes, somebody recently asked me like, you're from Visa, why did you sign up? Why did you go with MasterCard? And my submission was going to Visa would have led to two big problems.
01:41:05
Speaker
I approached Visa because they know me and they partnered with me. People would think because I come from Visa, that's why Visa partnered with me. My value wouldn't be appreciated. But in the worst case scenario, if Visa said, no, that would have been a nightmare I could, I can't even fathom. Like, you coming on Visa, Visa didn't support you. We didn't even go to Visa. Mastercard liking us, signing up with us is a very big validation because we don't come from Visa.
01:41:35
Speaker
Yeah, absolutely. One last question to
Leadership Philosophy and Team Building
01:41:41
Speaker
you. What are your top learnings as a founder over the last five, six years? What are the things which you've had to change coming from a very MNC culture into a startup culture?
01:41:57
Speaker
So MNC culture, to start a culture, wasn't a big deal. We were used to open offices, open cultures, and excitement here is far more. But I think some of the learnings have been stay perseverant. That helps.
01:42:14
Speaker
Be passionate, but don't get obsessed about your thing because you may be passionate about something, but if you get obsessed and the product market fit is not there, the things will change for you. And last is focus on value, not on valuation. If you focus on value, valuation will come. But I've seen a lot of people and in India, unfortunately it's also, um,
01:42:42
Speaker
Valuation is strongly correlated with your image of how well you are doing, which is I don't align with it. As long as you're creating value, you're very clear what you want in the long term, valuation will be an outcome. And that's what I believe it has helped us. How do you measure that you're adding value? Are there some metrics you track? What's the way to know? How do you focus on value?
01:43:12
Speaker
has different connotations for different people. For us, the combination of having created scale and profitability, which means banks, my primary customers are liking up, is the value. Right, right, right. What about building an organization? What are your learnings around that? As I said, it's a simple taboo we follow. And thanks to my co-founders who
01:43:39
Speaker
Help me with this. Focus on attitude more than attitude when you're building an organization. If the attitude is right, everything can be taught. You may have a heavy hitter, but if the attitude is not right, things will go for a toss. Getting the right attitude,
01:44:04
Speaker
may sometimes, if the aptitude is not there, take you longer. But we'll do wonders in the long run. What are the filters which tell you the attitude is there? Is there some process through which you come to know that, yes, I like this guy's attitude? I mean, there are various things when you're talking to people. So somebody's showing interest in the organization.
01:44:32
Speaker
Are they trying to tell you what they have done and what they will deliver? Or are they also curious about your organization, which means they're passionate. They will participate in the growth story. And there's a simple, simple yardstick. How prepared is somebody? Somebody is applying for a role. How prepared are they? Have they done some background on your organization?
01:44:53
Speaker
or are they just saying like I know how to build dams and I will build dams but the problem is building dams is not what everybody wants you need to know where you need to build dams otherwise the dam will have no value so that's a small yardsticks rule call it what you will that that I use has helped me till now
01:45:17
Speaker
And that brings us to the end of this conversation. I want to ask you for a favor now. Did you like listening to this show? I'd love to hear your feedback about it. Do you have your own startup ideas? I'd love to hear them. Do you have questions for any of the guests that you heard about in this show? I'd love to get your questions and pass them on to the guests. Write to me at adatthepodium.in. That's adatthepodium.in.