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Building the B2B Payments Stack for India | Sundeep Mohindru @ M1xchange
231 Plays4 months ago
Small businesses in India often face delays in payments from large corporations due to complex bureaucratic processes and stringent payment terms. The TReDS system, developed by the RBI, aims to resolve this. With TReDS, businesses can receive immediate payment by selling their invoices to a financier, who then collects the payment from large corporations. In this episode, Sundeep shares his experiences as a serial entrepreneur and provides insights into how TReDS is transforming B2B payments. Listen to learn more about this exciting development and its potential to reshape the business landscape.
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Read more about M1xchange :-
2.M1xchange Surpasses INR 1,00,000 Crore in Invoice Discounting Throughput
3.In conversation with Mr. Sundeep Mohindru- CEO , M1xchange
5.M1xchange offers cross-border bill discounting from GIFT city, says TReDS will boom
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Transcript
Introduction and Background
00:00:00
Speaker
Okay. Hi, this is Sandeep Poindrao, promoter from Mind Solutions, which is running at a company called a brand is called M1 Exchange.
00:00:21
Speaker
I'm sure you've heard the saying, nothing can stop an idea whose time has come. But you know what? Sometimes the idea needs to be brought into the world by a big daddy. Take the example of the UPI payments infrastructure. We take it so much for
Understanding TREDS and M1 Exchange
00:00:35
Speaker
granted. But I'm sure you know that UPI is the envy of the world and even the US does not have a payment infrastructure as smooth. It took the vision of the RPI and the NPCI to birth and nurture this idea. And while UPI has made consumer payments smooth,
00:00:49
Speaker
Think of the typical small business owner and how much he struggles to get paid due to the long bureaucratic processes and the onerous payment terms to the large businesses that he sells to. But a revolution similar to the UPI is underway in the B2B payment space and that revolution is called TREDS. TREDS was also the brainchild of the RBI and while it has gone through a longer gestation period, the impact will likely be just as revolutionary as the UPI.
00:01:14
Speaker
In this episode of the Founder Thesis Podcast, your host Akshay Dutt speaks to Sandeep Mohindra, the founder of M1Exchange, which is leading Tred's company. Sandeep breaks down what Tred's revolution is all about and shares insights from his journey as a serial entrepreneur who has built up multiple scaled businesses in the last two and a half decades. Stay tuned for this deep dive into fintech and payments and remember to subscribe to the Founder Thesis Podcast for more such deep dives.
Sandeep's Journey and Entrepreneurial Insights
00:01:50
Speaker
So, ah I saw that you're from DPS archipelago, is it? Mathur Arud. Mathur Arud, okay. So, you are a Delhiite, like you grew up in Delhi? what Give me a little bit of your origin story. Yeah, I'm all through in Delhi, one brought up in Delhi. Perimch, father is from Pakistan, who shifted to the part of the partition, and they're up to all through in Delhi. And and me what did he do?
00:02:17
Speaker
was he he was until ah he he when he When he came from Pakistan, he was in the middle of his studies. So he had to leave the studies and come. And then he started a business and then he bought books. So he ran a a book retail shop and a wholesale shop at Delhi University. Oh, okay. Interesting. Interesting. yeah And what made you choose CA as a career?
00:02:46
Speaker
ah know So, ah if you ask me broadly, ah ah in in our days it used to be either a CA or an engineer or a doctor. Only three professions used to be there. and ah joke which So, first you eliminate sciences. I don't know how to do that. I don't know how to do that.
00:03:07
Speaker
hacking but about them yemits but Yeah, probably. pay and be eliminat minute but i filter but so so So it's been ah through a round of elimination and finally you'll end up into something when you start enjoying it.
00:03:22
Speaker
ah Okay. Okay. ah Did you look for a job or like just take me through your career path before you started? my Yeah. So, ah so immediately after CA, I worked for about six months. But the oh somehow I've always been more attracted towards the running ah and enterprise or my own business. So the heart was always towards setting up and keep looking for thoughts and ideas for looking for starting something on my own. So after six months of job, I got an opportunity to work for ah on an assignment. And that's when I branched out to leave for about ah for six months and started that. And from there on, then the journey started on the entrepreneurs.
00:04:10
Speaker
And what was that first assignment which you got? I got the first assignment to to work for Pepsi
Initial Challenges and Growth
00:04:19
Speaker
Foods. In those days, Pepsi used to be the only multinational in India. ah maybe one of the first we yearda and This was 1997,
00:04:30
Speaker
eight ninety seven you can say. And Pepsi used to be the first few. And I came across the the financial controller of Pepsi who gave me an assignment to to review the Pepsi Ford's business, which was, I mean, other than the main drink business was the Pepsi Ford business, and I started on that assignment, and then, fortunately, when I was looking back, I kept getting into from one assignment to another. Yeah, I mean, if you have Pepsi as your first client, I'm sure that automatically builds credibility, gives you more such reputed brands as clients,
00:05:12
Speaker
Yes, you're right and ah as a luck would have had it, ah ah in the first year of my assignment itself, the same financial controller of Pepsi, in one of the reports didn't like my report and he kind of ah kind of told me to stop the assignment and Pepsi would like got to me in those days.
00:05:34
Speaker
And I was very upset, and having said that, because you asked for DPS Matra Road, and the evening was the ex-dipsite dinner, the same day evening. And I just went for that dinner, though I was not very happy with ba myself. And what I see is the same gentleman standing on the DPS gate and welcoming people as a part of the ex-dipsite association head.
00:06:04
Speaker
And, uh, and, uh, so again, I would say the dots are connected whether God again, that, uh, you know, we again took hand and he was in a bitter mood at that time and calling me back the next day morning. So the journey started again.
00:06:18
Speaker
Okay, okay, okay, amazing. So you started a CFO. I assume you would have like brought on partners, built a team, stuff like that. ah How many years was that journey for? How big did it scale to? What was the focus areas? Was it an audit practice focused or what was it like?
00:06:38
Speaker
Yeah, so ah actually ah ah started the CA practice and in those days ah companies and enterprises and the outsourcing business was not that ah was not so much thought through. I ran this for about five years as a CA practice and brought in ah one partner and ah some senior employees as CA.
00:07:06
Speaker
and the focus was tech and consulting. ah So this is the focus area. And but I personally, I myself ah was very, was ah was kind of attracted towards taxation as an object of choice. And so therefore I was practicing that. And some industries I started specializing in over a period of time. One of them was be exile in the industry in terms of designers and the clothing. and ah so So I started getting, I almost had all the brands of India
00:07:42
Speaker
I was advising them for smaller brands in those days. and mothergarments and these kind yeah more make mo like brands. So like, so ah maybe if you're asking me to take names, Rajesh Pratab and Rohit Gandhi, you know, all those designer brands I was helping them with. and ah And these were small fledgling entrepreneurs themselves who had come up in those days and there, but probably you can say my age bracket.
00:08:15
Speaker
ah And then, ah through a friend I came across, besides Pepsi, I came across another organization called General Motors, who had just come into India. And they were not having finance team on their roads, they only had expats in India, and I met one of the expats.
00:08:37
Speaker
I was tasked to run the accounting function for General Motors as an outsourced CFO. okay And that's what we did. We went for them. And from General Motors, we went to a company. They had a subsidiary called Delphi Automotive. subsidiary EDL. subsidiary called ETK. All these companies came in into India one after another.
00:09:05
Speaker
And that's when our journey of outsourcing started and we set up a company called Mind Integrated Solutions in 2002. So we converted us here practice into a corporate enterprise and this started growing faster than the consulting business as an outsourcing business.
00:09:26
Speaker
ah And in those days, Genpak was flourishing. So there was a lot of learning. One could take what Genpak was doing. But Genpak was doing more global. We were all in all focused on the companies which were coming in in India. So our life got busy with serving these auto giants who were coming in into India and those days. And followed by ah the next wave of growth in India was the telecom sector.
00:09:56
Speaker
and ah I got a lot of outsourcing assignments from the telecom. mean here i mean Every telecom company that you can think of in India was with for that client. and There was a time when 8 to 10 licenses were issued and we were running accounting teams for almost seven of them.
00:10:15
Speaker
Okay, so that's how the growth journey has been. God has been very kind. The industry has been kind. We've been doing well and all all through. a And accounts payable. This is what you were offering of ah ah outsourced accounting. This was a like you hire people on your payrolls and place them in client locations kind of an offering or the yeah the data would come to you and then there would be a like an office where you have a lot of people managing multiple clients and like that kind of a.
00:10:50
Speaker
yeah i don't know but a Very good question. i che I believe you are from this trade, so you know you'll probably know this equally well now. ah yeah so Initially, it started more like ah outsourcing manpower. I mean, I'm talking about the days of 96 to 99 when um you had to just base the body and they would do the accounting in the client side and people wanted people to come to their office.
00:11:16
Speaker
Nobody wanted that the work goes outside their office and internet was not such a big thing and that you could transition the data. so yeah Yeah, everything was papers. There was no digital records. Right. Only computer was used for more for data entry rather than anything else.
00:11:33
Speaker
ah Subsequently, we also matured over a period of time. We also learned ah the best practices that we started and we started ah working with the client that can we transition the work to our office, even though it is manual, even though it is ah even though it is physical ah papers used to travel, that means the invoices and the agreements would travel, but can we do it from our office?
00:11:59
Speaker
ah Very few of them used to allow it, but they started doing it. Thereafter, in 2007, 2009, we reached the stage where everything used to be done from our office.
00:12:11
Speaker
so So we had to set up bigger infrastructure. We had to set up bigger offices ah in this journey because people had started sitting in our offices and internet and became ah more prominent in India.
M1 Exchange Concept and Pitch
00:12:25
Speaker
And ah you could transition the data easily and so servers could be accessed from anywhere. And that's when all this journey happened.
00:12:37
Speaker
And like you were saying, it was like a KPO kind of. Yes, it was like a KPO and ah all the all the challenges that the client used to face, we had started facing on our table.
00:12:53
Speaker
and I used to say that a accounts payable was one of the key functions which we were doing for many corporates and the vendors who had to be paid. ah They used to follow up for payments and like I was saying telecom was of main client was one of the main industry we were serving. So we had a we were serving vendors across India, because telecom operation circles, each circle as that has a state, is like a state. So we had to work in vernacular language of each state, we had to serve the vendors, payments in those states.
00:13:29
Speaker
And we saw the pain that vendors were going through for calling up for their payments. And that's when the concept of M1, which is strange, came out in the newspaper as a write-up about how a digital system can change the way of payment on the ah for And when I went, I mean, it's just a coincidence that I read about that write-up.
00:13:58
Speaker
and I liked it and this was in 2015 and it said RBI is inviting ah hit writing organizations to submit their court or a tender or whatever you may call it for running this kind of a platform.
00:14:17
Speaker
ah And there was no, in those days in 2015, the digital, FinTech, all these words were not there. So it was, for me, it was like a technology service provider who has to run this. And I like the idea of what I read in the in that article. And ah however, article was very technical also from a financial world side. I mean, it used that it used the word,
00:14:45
Speaker
factoring, it used the word receivable discounting which again in India in those days wales was factoring was something was not practiced too much in those days. So I had to do some bit of research at my end to fully coordinate with ah what the article was saying. and But I started loving the concept and I kind of fell in love with it. And then i from the i mean we were almost 700 or 800 people team at that time, maybe 1000 people team at that time. And that time we were about 200 crore kind of an organization.
00:15:29
Speaker
but i don't in Gurgaon. And so we, I collected, I kind of took out one person, senior person from the system and I said, okay, let's, I and you work together to put, pitch this to RBI, against this concept and, and let's make a proposition to them. And then he and I worked together to to apply and make a pitch. And we and we were fortunate again, and ah God has been kind that we were called for for and for a presentation by RBI. and ah And when we reached for the presentation, the the number of participants were arranged in a chronological order.
RBI Selection and Success Factors
00:16:15
Speaker
ah we got to know that 20 people had applied out of which eight were shortlisted and we were one month eight and because it was in a chronological order, so i mean starting from A, the first name was Axis Bank and ah and and then so on and so forth and then we were my institution so I was M and then followed by ah before us was Sydney which is A.
00:16:42
Speaker
So, when I read X is bang and should be, so I kind of sitting in the section area waiting for my turn, I was like, I mean, I've come to a wrong place because how can you pitch against X is bang and should be ah for something which RBI is asking for. So, but never the next since I was already in the corridor, so I had to complete the process.
00:17:05
Speaker
me When I entered the RBI room for the presentation, it was a huge room in the sense it was like a horn and the people were sitting in a U-shaped table and there must be not less than If I'm not exaggerating, it not may not be less than 40 people in that room.
00:17:24
Speaker
and and make so ro saying but no double no no ah kind But it had people from every kind of department. Now I can today correlate that ah RBI has multiple departments, so they must have called X number of people from each department, so there were large number of people in the room.
00:17:42
Speaker
And when the questions were coming, one could not correlate, okay, which person is speaking. It was that kind of ah population there. right And ah so I gave the responses, whatever best I could.
00:17:56
Speaker
whatever next I knew. ah Now in this process, in this journey, one good thing which is happening with us is that just a year before, ah that is in 2014, we had taken up funding for our domestic outsourcing business from the BBC fund.
00:18:19
Speaker
In 2015, when I read about this article, lu so I updated Shidvi VC fund about this and I expressed my desire to apply for this and they were forthcoming.
00:18:30
Speaker
so i had request it so ah So, when RBI had asked for the list of shareholders, in our cap table, it was the promoter and the Shidvi. So that was probably one of the and or a confidence building steps with the RBI and subsequently there was a second round of an interview and in that round of an interview a I also ah requested she'd be with the one senior person to join me and he quote ah he could give the confidence to RBI that I mean they they were okay with our kind of work what we were doing and so which gave a confidence to RBI and this is a part of the selection journey that we went through.
00:19:18
Speaker
and But yet, I was utterly surprised when I saw Access Bank and Zigbee and then we were catching. So, you can see my lack of ignorance um for this application which kind of took me through this. If I had known how big is the elephant, I would have been afraid to enter the room.
Benefits of TREDS for MSMEs
00:19:40
Speaker
it righted Amazing. I want to zoom in on a few of the things you spoke about to understand them a little better. ah ah First of all, can you define what is treads? You saw in this paper article about treads and you said M1, what is treads?
00:19:57
Speaker
and So, trades is a trade name given by RBI to a platform called ah which is called trades and it is a trade receivable discounting system. So, it's a full form P is trade and R receivables electronic discounting system. So, that is trades.
00:20:14
Speaker
And the article was about this, that how should a country like India, which has so many MSMEs, their receivables are a pain and they collecting them is a challenge for them and there are delayed payments in India. So that challenge can be solved using threats wherein their receivables can be discounted by the banks and it will be a bidding process and it will be done by the bank basis the risk profile of the customer of the SME on whom the bill has been raised.
00:20:49
Speaker
ah So the touch was this concept and it has to be done digitally because you are covering all India and no and so the article was more about that and then how can it help and etc. etc And now M1 exchange is the name of the entity which is our entity and when we applied for a license the companies called M1 exchange ah So, the license is a trades license. So, like a license is given for a bank. So, this is a license given to set up trades or a license is given to set up a the chip payment aggregator or any wallet. So, the trade is also a license given by RBI and M1 exchange is one of the licensees who runs it. Okay. Understood. I will just simplify this a little for our listeners. So, if I, for example, run a recruitment business and I
00:21:43
Speaker
data recruitment service for a company let's say for ah Let's say for Bharati, I did a recruitment service. So like Bharati has to pay me for that recruitment service. Let's say they have to pay me a lakh. So using trades, I can, instead of waiting for Bharati to pay me, get that money today, ah but I will not get one lakh. There will be some discount on it. I'll get maybe 95,000. The person who is giving me this 95,000 is a bank who has bid for this. so So I will receive a number of bids, maybe 93, 94, 95, then I can choose one bid. Am I right in this?
00:22:17
Speaker
You're very right. And I'll just add on one or two points on this. ah Marupi is a very good case, so Marupi will not default on its payment. However, there are various enterprises in India who may not repay on time. So let's say if you've done a recruitment for and foreign an enterprise which is a smaller enterprise and the payment has to be done to you in 60 days ah and ah you get your invoice discounted and now the the other customer has to pay on the 60th day and supposedly delays it.
00:22:50
Speaker
ah He pays on the 90th day, then there is an interest cost for that additional 30 days. Now, in the concept of trades, the interest cost is not to be borne by you as a recruiter.
00:23:02
Speaker
It has to be borne by your customer who has not paid on the 60th day, though he committed to pay on 60th day. So, it has to be borne by him and in case he he he defaults even on the 90th day and he doesn't pay, then the recovery from that customer will be made by the bank directly and non-disturb you. So, there is no recourse on you.
00:23:27
Speaker
the bank will go only after your customer. So therefore it makes you, it de-risk your business. yeah That's the most beautiful part. And the second part is that ah the bank is taking, like we said, and the bank is taking a risk all on your customer. Now, if the customer is always for an MSME, the enterprise customer may always be a larger customer or better customer than his own enterprise in terms of the credit profile.
00:23:54
Speaker
ah So, if that be the case, then the cost of interest ah will always be basis the risk profile of the customer, which will be lower than the MSME's own cost.
00:24:08
Speaker
ah which is the second beautiful part. So if the MFME is boring, normally at 12%, 18% on his own between that band, whereas his customer is the largest customer. So his cost will be 8, 9%. So the MFME will be financed at 8, 9% and not at 12%. So it saves him the money and the cost of doing business comes on very, very dramatically. And the third beautiful part is that ah It is not tied to any specific bank, all the banks in the country. So today on the M1, we have 60 banks and then BFC. Now, anybody, I mean, so if somebody, like in your example, somebody likes Maruti, then, so the SBI and HSBC and Kendra bank and anybody, any other bank would come forward and offer their price. Now, ah
00:25:03
Speaker
But like you said, you know the SME can select which bank is offering the best price for invoice number one. For invoice number two, the second bank may be offering a better price on that day. So he's not tied up to any specific bank. He can choose any bank he he wishes. So he doesn't have to sign any agreement with any bank. He signs an agreement of onboarding with and one exchange once, and he gets access to 60 banks. So therefore, this product becomes highly scalable.
00:25:31
Speaker
It's not one-on-one relationship, it's a network of 60 banks to thousands of HMEs. And similarly, an FME can get it done for Maruti, or for Mahindra, or for Tata, or for Ashok Leland of the world, without getting into an agreement with each one of them separately. So therefore, it is democratizing your picking of your receivable financing from which bank, for which customer,
00:26:00
Speaker
By one time onboarding, by one time registration KYC, you get access to the whole ecosystem of India. So that's the beautiful part. Amazing. They would probably be some friction here. ah which I'm wondering how that got solved. I will oh come to that. But before that, I had another question. You spoke of the word factoring. Factoring is the same thing as receivable discounting. Yeah. So factoring and receivable discounting is the same thing. Factoring is a more technical word. And what ah basically, when you sell your receivables under the factoring, then the financier who's buying the receivables
00:26:49
Speaker
is becoming the owner not of the receivables and that's how the risk is getting transferred. but Okay. So it's not a, it's not a known or a borrowing it sending your receivables. So that is why it is called factoring. Okay. and Understood. Understood. So supply chain financing can happen in two ways. It can be with factoring or without factoring, with factoring, then it means the owner of the receivable is getting clean cash, no strings attached. Now it is the person who has bought the receivable to figure out how to get paid. Whereas without factoring, then the person who's giving the receivable owner some money will still have some recourse to ah ah whatever ways it means to take his help or whatever to get paid. So as I told you, I was wondering about some friction points here and how they got sold.
00:27:45
Speaker
What would be the incentive for a corporate to come on this platform? Because in a way, it facing a small vendor who is chasing you for payment versus facing a bank which has a legal team, which can send you a legal notice and is after you for payment, you know they would obviously prefer prefer to face a small vendor than a bank. So what is in it to get them on the platform?
00:28:09
Speaker
and Absolutely. And that was the struggle we had to go through for the first three to three years. And ah over a period of time, we realized that ah this is a very well laid out commercial model from a perspective that, like I said, the cost of doing business for the SMEs is reducing from as high as 18% to 8%.
00:28:30
Speaker
That means if he is financing an invoice or business worth, let's say 10 crores in a year, on 10 crores he is saving 10% per annum. Now that saving is actually a saving because of the goodwill of his customer.
00:28:48
Speaker
And ah that is the saving which he can which he then passes on to his customer ah for for coming on the platform and approving his invoice. And that has become a norm now a normal thing in India as a part of the trade that if I am enabling you early payments,
00:29:08
Speaker
I will i will it will reduce your cost and in turn my cost should come down and now it has established fact that every corporate who is enabling its vendors work 100 crores in a month. Now a corporate entity would have purchases. If it's a 1,000 crore organization or a 2,000 crore organization, they will have purchases worth at least 100 crores in a month. And if they discount those invoices, enable them to discount on trade. And there is a saving of at least 5% to 10% per annum on those invoices. So it's a one crore savings that is coming on the table.
00:29:49
Speaker
and ah And it is win-win for both seller and buyer to entertain it. ah In any case, the seller is the ultimate winner because he's getting cash in hand quickly. But if the cost of doing business is coming fileled down for a buyer, i mean he starts loving it. And now the tables have turned. na dear I had to go and sell.
00:30:11
Speaker
the product to the corporate and convince them that but that they will save this money. Now we've reached the stage where from every industry we have at least five or six large enterprises doing this and the world is spreading amongst the industry that if they can do it, why can't we do it kind of a thing. So it is through that good references now that people are ah wanting to do more and more of this because they are saving themselves.
00:30:42
Speaker
Okay. Interesting. So possibly today, a vendor who's doing a price negotiation would tell them that I can give you a lower price if you are willing to come on trades. You're got very right. yeah ready like no not When buying in products, if if you paid cash, you would get a better rate than using a card. So this is somewhat similar. Yes. And in fact, now it's the purchase chase team of the corporate which is telling the vendor, if you come and get your invoice discounted, you may want to consider this. So they bring that proposition on the table, even if the vendor doesn't know.
00:31:21
Speaker
Okay, and they tell the vendor that we expect some discount in in exchange, like there's some sort of a soft understanding. Absolutely. absolutely okay okay Okay, interesting. ah the The validation of data also sounds like a point of friction. like If there are hundreds of vendors uploading hundreds of invoices, ah probably it'll be much larger numbers, and then each of those invoices has to be validated by the corporate. ah How does that happen? is Is there a way in which that friction has been removed? Yeah. So Akshay, over a period of time, ah we have now mastered the art of integration with the corporate.
00:32:02
Speaker
Within four to five weeks, we integrate with the corporate CRP system. And now we don't disturb the corporate to come on the system and approve it. We pick up the approval right from the ERP system. ah Whatever is the invoice value they have taken and booked in the ERP as a liability, and that becomes the approved amount. And so much so that we also update the yeah ERP system with an accounting journey that this invoice has been paid by us.
00:32:30
Speaker
So they don't repay they don't pay it out. And on the due date, when we connect the payment from the corporate, we also update their accounting system that they have paid it now. So end-to-end, we have integrated with the corporates, and we we don't ask them to do anything manually now. OK. Well, amazing.
00:32:50
Speaker
ah what if the Product supply was not of quality expected or something like that. you know And again, if you take the recruitment example, typically, if the person puts the job within a certain period, then that invoice is typically not paid up. so So those kind of frictions, what happens then? Yeah, yeah, yeah. So the regulations are very clear that there has to be an undisputed invoice.
00:33:17
Speaker
So, if there is any dispute between the buyer and seller, they have to settle first between themselves and once the buyer is convinced that all quality checks are done, ah there is no dispute, then only he should come and approve the invoice. Otherwise, he should not come and approve the invoice. So, that's first point. ah However, there could be exceptions. Like you said, the candidate ah has left after joining.
00:33:42
Speaker
So, in those scenarios, if there is any credit code to be given back or or discount to be given back to the corporate, then it may be done in that subsequent invoice. That invoice cannot be altered thereafter. Okay. Okay. Okay. Understood. Okay. Very ah clean, elegant system. Very nice. Okay. So, you know, what is There are other platforms also which have something similar, but I don't think they are in treads. ah Is there like a... So for example, there's Viana Network, which also does build discounting. ah There is Credily. I think Viana is an NBFC in itself, but Credily is a marketplace. So what is the difference here? And are there treads like only ever exchanged or is treads like a... say like a UPI where there are multiple apps which offer UPI. but Just help me understand the the lay of the land here. What does this industry look like? Yeah. yeah So there are no very good questions. So there are three treads back form. So one of them is excess tank.
00:34:53
Speaker
and then there is should be a back dredge platform also. So, the three of us are in the country ah running this. ah Now, as far as your point that there are other platforms, we can see the big marketplaces. Now, all of them are unregulated.
00:35:13
Speaker
As a result, all d the the all the benefits that I talked about, that means we are doing factoring, whereas they are doing supply chain, which is outside the factoring, so the borrowing it becomes a borrowing in the in the hands of the MSME, so that's one basic difference.
00:35:34
Speaker
or that happened. Second, it's a oneon one-on-one relationship, which I was explaining in my concept. So if I am giving services to Maruti or Mahindra or to Tata Automotive, whereas on Vayana or any other such place, it will be Mahindra's and one bank could be SBI and the vendor.
00:35:58
Speaker
Now if the vendor is running a program with Honda cars, so then Honda cars may have a program with let's say Mitsubishi Bank. So he'll have to go and sign papers with Honda cars and Mitsubishi Bank. So every time he has to go through that process and it will be dependent on more on Honda cars than on anybody else. So that is the difference between a platform and a marketplace or a network that we are running.
00:36:26
Speaker
So, so like I said earlier, it is borrowing. It is one on one the nation shape. Number three. ah the in in the Because it's borrowing, if the Honda car or Maruti does not repay, or there is a delay, which will not happen in these big names, but there are smaller names also are no and smaller companies also, then the recourse and the interest cost extract for the extra period will be recovered from these MSMA's.
00:36:58
Speaker
So, all that what we have carved out as a product benefit in the any trade M1 will start to fade away. So, and the rate of interest will not be anything less than 10-11% and could be as high as 18-24% versus a platform where there are ah hundreds of banks who are bidding on a day-to-day basis. It is more marked-to-market data of interest. So, our cost of interest is always the lowest.
00:37:35
Speaker
So now over a period of time what has happened is that any MSME who has a good customer, who has a oh a good rated customer, he will first he will first try and get his discount done on M1. If the customer profile is such that the banks are not coming forward, then he will go for a higher rate.
00:37:56
Speaker
cost option. So normally it is now going in the waterfall like this for anyone who's making a choice.
00:38:08
Speaker
Essentially, the difference is in factoring. And that makes all the difference for the MSME. And factoring is something which only a blue chip corporate would probably have access to. So if you're not a blue chip corporate, then ah your vendor will probably need to go to other platforms.
00:38:24
Speaker
and just so yeah So I'll just correct you here. One small point, and that was a shortcoming which we were seeing in the early days, or not early days, after five years, is that only the blue chip corporates vendors were getting invoices discounted because banks were taking a risk call on these blue chip corporates.
00:38:45
Speaker
ah We realized and sensed that a lot of businesses were not able to serve a lot of SMEs who were serving two mid-corporates and then to the small corporate.
00:38:56
Speaker
So, two or three things thereafter, the regulator has helped and we also work towards it. One is that all the NVXEs have been asked to come and do the factoring. So, therefore, now there is a financial for every risk appetite. So, therefore, even corporates are also now getting attended. That's one change.
00:39:18
Speaker
Second is that the trade credit insurance has been allowed on M1 trades, which is just starting. I mean, we are in the we are on the world of starting that trade credit insurance, wherein ah the banks are taking a credit insurance on hill on the on the buyer, which is mid market or a small market buyer.
00:39:44
Speaker
and the credit And that insurance will enable to repay the 90% in case the buyer defaults. So that is, again, going to give a lot of leeway to the banks to start financing, no value cooperates. The third, what we did is that we realized that the SMEs are buying a lot of goods and services from other SMEs. So you can say tier one is buying from tier two.
00:40:11
Speaker
And we are not able to serve them, but tier one have been on our platform since ah X number of years. So they have created a lot of legacy for their transactions. So we therefore created a credit analytics engine in 2023.
00:40:27
Speaker
oh and put it into the ah RBI sandbox for testing by various banks that the credit of these tier 1 SMAs bases their cash flow and not bases their balance sheet strength and ah banks came forward, approved it and today we have reached the stage where we are able to do financing of tier 1 to tier 2. Financing means factoring.
00:40:53
Speaker
so So therefore, we have taken it to a multi-layer of enterprises in the economy. And now, but then it is ah and whether i whether the customer is either a triple B, or a double B, or a triple B minus, everyone is getting financing through M1 trade. And like I said, deep tears, tears 1, 2, 3. Amazing. Amazing.
00:41:19
Speaker
ah By a tier 1, tier 2, you mean a tier 1 vendor and a tier 2 vendor? Exactly. exactly but ah Different levels of SMEs. Okay. Amazing. What is the ah scale of the platform as a date? What is the discounting value of discounting? yeah no yeah ah So, ah as on date we do on a monthly basis, I announce 6,000 crores worth of financing every month. So, on an annual basis, it leads to 72,000 crores worth of financing of the invoices and ah a achieve people are logging in from 1800 different cities.
00:42:02
Speaker
ah using mobile phone, using computer and getting the invoice discounting done. So there are there are entrepreneurs at times who are logging in from tea gardens in the in a head of Coimbatore or masana companies suppliers are logging and getting the invoice in discounted. So it's that kind of agree commodity suppliers, rice suppliers, barley suppliers, milk on aggregators. So the ah solution which you have developed of integrating with the yeah ERP would only work with blue chip corporates, right? ah For let's say a tier one SME may not have an ERP. ah So how how does that data validation problem get solved as you scale? and Right. So then ah we have integrated with Tally.
00:42:54
Speaker
so telly is there There's been a lot of work on ah this corporate payment to MSMEs from the government side. A lot of changes. GST itself is one big wave of changes. There is e-invoicing. Can you talk a bit about what what all has happened here and how that has influenced ah the M1 exchange platform?
00:43:16
Speaker
yeah So, like you're saying, a lot of changes, one of the latest changes has been in this March wherein the government said that there's a Section 43B of the Income Tax Act wherein the government said if you don't pay your MSME within 45 days and yeah there is a year end cut off, then your expenses will be disallowed in this year, but they will be allowed in the year in which you pay the MSME. And this was the first year in which and something like this came up. So we had ah ah we had an extraordinary queue of
00:43:49
Speaker
or large enterprises doing up that, ah okay, we wrote the payments of MSMEs through the M1 regs, and we get to pay later. um So we do our compliance. So it has become a compliance tool also. So if you so so one of the points which you were asking me is why should a corporate get into it? So one of the points which I said was the commercial point. The second point is the compliance point.
00:44:16
Speaker
it becomes easier for them to to complete their compliance. The third point which I have not covered so far is that regulator which is RBI has also allowed us that in case our enterprise wants to route its payments through M1 trades for regular payments and not get the invoice discounted.
00:44:39
Speaker
for any reason, then they can do that also. So therefore now today we offer the to the corporate a solution wherein we are saying that we are connected to your ERP.
00:44:51
Speaker
We take all your invoices and put them on the platform. If the SME wants to get them discounted very good or you want him to get it discounted very good because his cost comes down. But for any reason, let's say the bank does not want to discount it or the SME doesn't want to discount it. We can still root the payment so that they get one way of doing it. They don't have to touch accounting on that at all. They don't have to run payments on that at all. So we become a payment system.
00:45:17
Speaker
for the SME voices, for all the large enterprises, small enterprises. And so so it's becoming a one funnel of that. So it's standardizing their work. So and that's another reason now. like how How is the payment piece of this being automated? Like somebody in the corporate would still need to log on to net banking and do a transaction, or is there a yeah yeah we covered da no and and and Yeah, so I've not covered it so far. ah So any hate payment from a corporate, that means the invoice was discounted on day zero. Now the invoice is due on the 60th day, and the repayment has to be done by the corporate. So what we do is, as an and and we are and that's why we are given an license by RBI. Under the settlement act, payment and settlement act, we are priced to run an auto debit on the corporate.
00:46:11
Speaker
Okay, so we we run a settlement system wherein every day in the evening using NTCI, we are connected with NTCI using NTCI, we run a settlement file wherein each corporate, what amount has to be debited and which bank it has to be repaid to. Okay, so that entire network of payment is run by us late in the evening.
00:46:36
Speaker
So that next day morning, and this is triggered by NPCI, and the payments get flowed to the respective banks for repayment. So if you look at it from a banker's point of view, his connection is taken care of. He doesn't have to worry about connection. If you look at it from a corporate point of view, they don't have to run any payment leg. Everything is taken care of by us. And in their ERP system, the accounting journal connected with the payment is also posted by us.
00:47:05
Speaker
So for everyone, it's a digital system. And um actually, ah since I'm two i'm explaining this side, um we are also connected digitally to or a body called Sarsai.
00:47:19
Speaker
This is the body where all the loans and all the agreements get registered. If you borrow today from any bank, you get to you the bank has to upload the loan agreement in the government portal called Sarsai. So, threadads we as an enterprise are connected to Sarsai digitally. So, every voice which is getting discounted, bank has to record it into the Sarsai records. We do that for them.
00:47:48
Speaker
And when the repayment happens, then the then the ah the record record has to be updated, then it just has been repaid. We update the self side record. So the banks don't have to do anything manually. that' called Amazing. this This is such a powerful ah tool for lubricating the flow of money in the economy. you know The way UPI has done for consumer payments, this is super powerful. Whose brainchild is this? like Is there a specific architect behind this, a person, a body or something? or but ah Yeah, the two this is, so I would nail all of credit to RBI for this.
00:48:27
Speaker
who's brainchild with this, and ah there there's a section in RBI called DPSI, Department of Payment and Treatment System. So they have carved out the regulations connected with it. And in the initial period, ah ah ah since I was connected, I'm connected with this back from the early days, initial day, early days can be zero, actually. So all these processes did not exist at that time.
00:48:53
Speaker
ah repayment, ah how will the luck work? well So all this has been crafted out by RBI and we have been, um ah we been a you know, a person in their journey ah who have, you can say, implemented what they have crafted out and keep giving them feedback so that they can improve on to it, they can give us ideas how to improve on to it. and ah And do other countries have something as ah as seamless as India has? and No, a very good point. Actually, ah ah as much as we've gone to the Western country, Middle Eastern country, Eastern country, yeah none of them has it.
00:49:33
Speaker
So let's say Dubai, the I mean the central bank had asked that what do we need to do to do all this and run this in our country and when we carved out that we have a seamless payment flow like this settlement system like this, ah they could not, they they still don't have it in their country, a company like NPCIA who can enable this.
00:49:58
Speaker
um i mean If you go to Europe, they don't have something like this. so so there are i mean they they may well amazing The role of NPCI is to give you the authority to do direct debit from the bank account of the principal.
00:50:15
Speaker
And so the role of NPCI is that ah actually they do an automated clearing system, in which is called National Automated, N-A-C-H. So we give them a file, they run the clearing, and they move the money to respect to people. They don't touch us or we don't touch the money. ah They do everything. so but ah so so So that enablement is provided by them.
00:50:44
Speaker
And there is a one-time consent mechanism. I'm assuming like a one-time consent mechanism we take from a corporate as a part of onboarding. What is your market share of like everyone exchange versus is the other two? You said there are three threads platforms.
00:51:01
Speaker
Yeah, so ah we enjoy 33% market share. And ah in fact, today, all the three touch back forms in the first five years of the journey are at 33% each. ah some in one In some month, someone is 33, someone is 32. In the other month, like and someone else is 32, 33. So can indeed, we're all enjoying. Amazing. mean I want to understand, John,
00:51:30
Speaker
journey of, you know, you were running a services business. ah From that now today, you're running a FinTech. ah How did you personally learn, navigate, ah change how you run or how you manage people or change the DNA? Because, you know, these are businesses with very, very different DNA. ah Are they separate entities now? the The mind business, is that a separate entity? Just help me understand your own personal journey as well.
00:52:01
Speaker
You're very right. Actually, there are two different DNA's in this business. One is what you just said. It's a product business. It's a FinTech business. And the second is, this is very sales driven business. Where in, it's a, do it as a B2B. But in B2B, we have to sell to a large enterprise and then we have to send to a very small enterprise. And then we have to sell to a bank.
00:52:28
Speaker
ah So, it's a 3-way sale and very heavy on sale. And on the services, which I was running earlier, I mean, if you sign one contract, you sign for 5-year and it's a large contract, you know, when you fish for another contract, probably later. So, it was a lot of DNA change. So, all that I was not doing, I was to do.
00:52:52
Speaker
ah none None of this I was doing in my earlier avatar. And yes, we carved out a separate company completely. It was first a separate division and then division won't be merged into a company.
00:53:04
Speaker
ah ah Technologically, I have always been well connected with the ah IT development ecosystem because in my earlier business also, ah there we had developed a lot of technology tools which were used to service the clients.
00:53:24
Speaker
So fortunately there was a decent experience and I had a decent team in my erstwhile business that that was doing the IT development. So when we branched out into this, so I could take the help of the erstwhile IT folks and expand the team.
00:53:41
Speaker
ah The second thing was that ah attracting the talent from the banking community or fraternity. So there were two kinds of talents which had to be brought in. One is the talent which is from the banking background. The second was the talent which had to come from an IT background.
00:53:55
Speaker
ah You don't not need CS for this. ah So because there was an organization running ah and there was recruitment the recruitment was one such talent in that organization, I took help from some of the senior people in the recruiting side and to attract some and ah talent from the banking community. And like I said, in those days, trends and digital and all this was not a name, so nobody was willing to come forward like this. way ah However, few people took interest and day well they did realise the power of digital, so they did participate from the banking community and the banking community got in the favour of sales.
00:54:36
Speaker
How do they sell in a banking world? ah You know, the large enterprise, big enterprise, one enterprise, then ah ah how South India versus North India versus West west India and East India, ah configured on the MSME side, where to sell more, how to how to make this a change-driven culture, then a service-driven culture only. So that was the change that the banking eternity community brought in.
00:55:03
Speaker
ah The technology was, ah like I said, because I was running it, so we hired a separate CTO, separate analyst and separate related folks with this. Now comes the point that there has to be a product culture.
00:55:23
Speaker
ah which means user experience, which means ease of doing business on the platform, chin b v ah or changing the user behavior, ah motivating him to do business on the platform rather than doing it manually.
00:55:38
Speaker
And that's when in the last, I would say, three years, our culture has emerged more on the product side. That how do we differentiate ourselves in the market that ah ah people feel motivated to do business. And today, ah more than 22% to 24% of our user base is on the mobile now. So they're using our mobile app.
00:56:08
Speaker
so on ah So all the relevant changes have been made in the M1 of DAR, 1, 2 of DAR 2 today that we have i ah focused on on ah in know on a value to on the user experience. So the culture has evolved to the next level. We have a decent product team now internally who focuses day in, day out on are simplifying the user experience, make it more digital faster,
00:56:39
Speaker
Now onboarding any MSME on the platform is, I mean, we claim that within 10 minutes we will complete your onboarding. We don't want you to enter more than your PAND number and GST number, nothing else we want you to input. Everything else we fetch from the other digital sources. Whereas before Corona, that means in pre-2020, it used to be minimum eight hours job.
00:57:09
Speaker
of onboarding one MSME. Now it is a 10-minute job. In three years, ah we have evolved that it is a 10-minute job to onboard an MSME. So yes, it has been a very it's been a journey where we have evolved every stage. So stage zero was when we had to just set up those settlement systems and all those related work that we've just talked about.
00:57:35
Speaker
stage two Stage one, I would say, would be when we had to convince the banks that why should they come on a platform and bid. Banks used to say, ah I mean, I've never bid in my life for a business. Why should I come and bid for an SME business? So motivating banks to come and bid for a business, motivating corporates to come on the platform which you asked, why should I come and approve the invoice? That was all stage one.
00:58:01
Speaker
ah And wherein the focus was, okay, digital platform exists, it's just that people have to be motivated commercially that they should come forward and do it. And now the stage two, which we have now ah ah been doing it from since post 2020, wherein everything is digital, whatever was being done ah internally, externally, everything is transitioned into speed and user experience.
00:58:25
Speaker
So, this has been a grade by grade development and all this all of this I have learned through my colleagues. um i Like I said, i mean I have not been a techie, I have not been a banker.
00:58:38
Speaker
ah All the team members who joined in, they brought in their side of the specialization. I had to be open and listen to them and work with them. and they they They drove me rather than me im bringing in any drive to them. I'm going to zoom in on some of the things you spoke about.
00:58:56
Speaker
ah You said this is a business which needs like a sales focus. I'm assuming that there are two reasons for this. say It would probably be like say insurance. Now ah insurance is a fairly undifferentiated product.
00:59:10
Speaker
i mean to insurance policies from different companies can be very similar, minor differences. So is it something like that? That the three trade platforms are somewhat undifferentiated and therefore it is a land grab whoever on boards more companies first gets to retain them lifelong.
00:59:30
Speaker
And because there is a lot of untapped business which needs to be converted, so you know this is like the land graph phase which is why it is important to be sales focused. One this day ah thekin is is the regulator and the MSME ministry is continuously driving us.
00:59:52
Speaker
We want more, we want more. and The wallet is much larger in the india Indian economy. What is the potential wallet? Like you're doing 6000 crores a month. What is the potential? So if we are doing 6000 crores a month, which leads to a translation of 72,000 crores a year,
01:00:13
Speaker
and assuming we are 33%, so all three tech platform also do 70,000 crores a year, that makes it two lakh crore a year. ah The potential is one lakh, 30,000 crore a year. One lakh, 30,000 crore a year. I mean, so it is 1300 times higher from what we are today. ah And this I'm basing on the fact and that ah today there are 11,000 companies in India which are investment grade companies. These 11,000 companies, their average size is 1,000 crores.
01:00:53
Speaker
And if I multiply their purchase side of this 1000 crore, and out of which 40% to 50% is emissivity, then you arrive at this kind of number, which is today, what we are doing is probably 1000th of that potential. so So looking at that potential, this ah has to be taken on number one.
01:01:21
Speaker
Number two, ah because we are now engaged in the industry, we we like like I told you, we realized that ah smaller companies, their vendors were not getting serviced, which were not validated, or tier one to tier two were not getting serviced. But since we have opened the floodgates by way of ah solutioning to all of them, whether it's credit insurance, whether it is credit credit analytics, because we opened the floodgates now. So this volume can be much larger also.
01:01:51
Speaker
and it has to be sales-driven because ah ah like you said, land grab and the potential. and me m milk Okay, interesting. interesting what is Is there more stuff you've done to remove friction for banks? and Do banks still need to bid each one on its own merit or is there some automation there through which banks are just standing for it?
01:02:17
Speaker
Right. So what we have inserted now is we made the system very more intelligent for the bank. So ah for a bank, we've given a feature of auto bid, which means if a bank knows Maruti, and he's already done hundreds of transactions of Maruti, then the next time the invoice comes from a Maruti vendor, bank doesn't need to log in. The system can bid on behalf of a bank. So there is an auto bid.
01:02:44
Speaker
ah Similarly, if the bank has to record the transaction in the evening in their core banking system, ah whatever business they have done in the morning, A, they have to record and B, they have to create funding for those transactions next day morning. So we update their core banking system and their but and their relevant funds that they have to create for next day morning automatically.
01:03:11
Speaker
in the In the early days, or not early days, I would say as old as two years ago or one year ago, even I would say one year ago, banks were doing this manually, we were not giving this service as a part of our technology. Now we have ah we have given this to the banks that they do everything through our system, even the recording and even the cash flow management, budget management.
01:03:35
Speaker
And like I said, there's Salsai recording, everything is done by us. Now, what has this enabled? This has enabled that earlier banks used to say, okay, I will bid for the invoices with a high venue first.
01:03:48
Speaker
and small value I will do only once I get time ah because in the evening they have to record all that in their system. Now because we have automated it, ah now bank it doesn't matter to a bank if the value of being voices 10,000 or 10 lakhs or 10 crores.
01:04:05
Speaker
ah he for him he i mean And you would probably also be ah like they would be account managers who would be nudging banks that you should expand your universe of companies include more so that the automation is influencing more invoices which are uploaded. Absolutely. absolutely So, there are we call it a bidding team and they interact with the bank management bank relevant bank team once the once the bills are available that you have to bid, etc. Now, that's another side that we are now on, like you said, friction or user experience. We are working in this year that the no the system triggers the bank
01:04:49
Speaker
how can yeah How can he be interested to build more? ah How quickly are features copied between the three of you? Is it like UPI apps? you know In UPI apps, it is a matter of like within a month or so, of any feature in one app also gets copied in the other app. and yeah like Is it as competitive as that? or like ah Okay, so che ah like I said, you know i am i have ah we run we are the only trench platform which runs in large IT company.
01:05:26
Speaker
Internal. Okay. What fills me, the other trans platforms who have been on offshoots from the banks and okay. So then they, they, they, they, they are near. So then we using the external bank, external IT companies and everything has its own metrics and demerits. And slowly, certainly they are now, they are falling into place where they have to create their own IT teams.
01:05:56
Speaker
IT, like you said, culture and user experience and product culture takes time. I have taken six years to bend to the stage of culture of product and IT. ah They have started their journey on this side in last few... or q I'm assuming because like say AccessVac would already have the same DNA that might have been an advantage versus you would have an advantage in product and technology DNA. Okay, okay, okay. What data do you get from Pan and GSE? You said SME, MSME just has to share these two and then everything else is automated.
01:06:36
Speaker
All right, so we are connected through to the income tax, to the ROC, and even g through through various service providers through GST. So ah we a validate the entire KYC proof of address, proof of promoter, proof of proprietor, all that we do validate through these golden sources. And now we are reaching a stage where even the invoice can be validated.
01:07:05
Speaker
ah If it's through the QR code, ah that what is the GST system recording saying? and Can you talk a bit about this invoice part? This is also again ah like a change in how India does invoicing, the e-invoicing. Can you just explain for people who don't and understand what is QR code on invoice? Yeah. So in case of an e-invoice- When is the e-invoice valid? Yeah. So e-invoice- and indeed yeah So on organizations who are doing in business more than five crores and I have to ah do e-invoicing using the GST ecosystem. Now because they're doing e-invoicing they are creating an invoice on the GST portal and that invoice has a QR code which has all the details of the invoice and it is inscribed on the invoice itself.
01:07:59
Speaker
So ah this year we are doing a structure or a structural change that if you upload any invoice on our system, you don't have to do any data entry. ah We will read the QR code and and populate the invoice details. That is one point. Second point, we will also validate this invoice with the GST records.
01:08:25
Speaker
ah Now, ah there is a slight friction in it, that it is OTP driven, as far as the validation of the GST record is concerned. ah So, we are engaged ah with the Regulator, that ah there can be it can be simplified or for Tregs and MSMEs. that ah what is the simple way of doing it, so then over a period of time, why this move towards ah e-noising for five crore onwards? It's for like enabling trends and other such things, or what is the reason that the government did this?
01:08:59
Speaker
All right, so e-invoicing, I mean, of course, I mean, trade is a very small and dot in the government planning. But otherwise, if you ask me, e-invoicing is a revolutionary system within an Indian ecosystem, because ah the e-invoicing enables the government to know that and the and and this is that the goods are moving through an invoicing-based system only and not outside the invoicing system, which used to be the structure near in India, number one. Number two, and the the customer who's taking whos on whom the C invoice is raised, he's aware of the GST charged onto him, and he can take a GST credit because the C invoice exists in the GST records. So both the buyer and the sender at the same time i can avail their respective credits
01:09:54
Speaker
and ah and ah they don't have to file their GST returns again, and I mean all this data again because this data is automatically populated in the GST records of the respective buyer and seller.
01:10:09
Speaker
So this becomes a very yeah very co digital ecosystem which the government has created and complements to them that with the vast land and the number of MSMEs in our own the enterprise union in our country, they're able to stabilize it.
01:10:25
Speaker
and that that nobody today crips that because of me invoicing my business is getting deaied or my shipment is getting delayed its a very very fast process and nobody and i haven't seen a crib in the market that einanvoicing system is not working or the print is not working or it is not visible today and f is down today all that And is this again unique to India?
01:10:47
Speaker
ah There are also a possibility for trading to happen of devices. You know, if a bank buys a receivable. and ah it has a receivables book and can it have trading happen on it when it sells some of them before maturity, some other bank wants to buy it, if there is a anticipation of an interest rate change because of it. You know the way you say a bond market or corporate debt market works, I think India doesn't have a very deep bond market, corporate debt market, right, compared to the West. right could Could this be an alternate corporate debt market in India where people can trade also?
01:11:27
Speaker
Very good point, Akshay, and that you've touched that point. You could think of that point. ah So ah recently, RBI has announced it. and That's been secondly trading off the invoices. So if any bank has built in a portfolio and they want to trade in this portfolio with another bank,
01:11:47
Speaker
and That is allowed. Right now, they're only allowed between banks and BHCs. They're not allowed mutual funds or insurance companies to come and do it. So therefore, it may not take the ship as big as the bond market. Because in the bond market, the fund flow is mostly coming from mutual fund and the insurance companies also. So today, they have allowed, as a step one, um that if an BHC builds a portfolio and they want to send that portfolio to a bank, they could do that.
01:12:15
Speaker
No such initiation of the transaction has happened. Is it portfolio only? Individual invoicing, invoices receivables also can be traded? Yeah, so portfolio will be a combination of individual invoices. One can do individual invoices also because this is all you can make your own choice. And because it is digital, it is easy to implement. And we already developed the technology for this. So a bank or an NVXE can send it either one invoice or set of invoices.
01:12:44
Speaker
ah Having said that, now ah we have to find out the use case, a commercial use case of the benefit. that is and What could be a possible commercial use case for this?
01:12:55
Speaker
and The was but first possible usually yeah commercial use case is that if, hey first of all, this is all the business that a bank does on M1 trends is a PSL portfolio, property sector lending portfolio, and which is because this is MSME business.
01:13:14
Speaker
right So, if any bank is short on a PSL and NVFC has done that with us in let's say yeah now upcoming June quarter and bank wants to develop a PSL, buy a PSL book, they could do that from this NVFC.
01:13:30
Speaker
okay Plus the NVFC would have done ah financing at 10% on the platform and if the bank is ready to buy it at 9% so there is an upside for an NVFC. so So NVFC has a motivation to sell and a bank has its own motivation to buy it.
01:13:49
Speaker
ah they can be ah Secondly, here, that it's a credit of a very, very, like you said, one of the, in the beginning of a road chip corporate. So let's say we have IUCL, BPCL, HPCL, their window on the platform.
01:14:05
Speaker
And the repayment is to be done by these oil majors. And these oil majors are triple inherited. So for for a bank, this is equivalent to a triple inherited paper, ah which is they are getting at ah and a price higher than um they would have gotten in a CD market or a bond market for a triple inherited paper. and And they would have to do a lot of but paperwork to do this. Here it is happening automatically.
01:14:33
Speaker
they are in around VPSL here in VPSL also along with the along with the credit. So so it's so there are many points possibly they could also be trading based on information like if there is a change of credit rating of a company then maybe their invoices become available at a discount and you know that kind of the kind of trading which happens in equity based on news and information. I'd like to understand what is the is the revenue of the businesses today. And before that, like could you clarify what all businesses are there? Because I was trying to look up, I can see M1 exchange and MIND solutions, but I can also see something known as M1X. So like what all businesses do you run today? Right. So essentially there is MIND integrated solutions, which is ah running as an organization between the erstwhile business.
01:15:33
Speaker
Then M1 exchange was set up ah in 2017, I went to go live. And then M1 has set up two subsidiaries. One is M1 Next out of the gift city in Gujarat for i'm doing whatever is M1 doing in the domestic market and the international market. That has got its approval from our regulator at gift city called Ipska.
01:16:01
Speaker
And that has gone live in April 2024, that means last one. And so there is the the transactions have started happening. it is However, we've not started charging the participants yet. So there the banks are coming on board, the the exporters and importers are coming on board, and the transactions have started. And M1 Exchange has also set up a subsidiary called Mindfintech.
01:16:29
Speaker
which is essentially doing supply chain on the ah distribution side for the large corporates. That means large corporates to dealers and distributors. Like it is ah BNPL binopilator for distributors.
01:16:53
Speaker
And ah it is on light by now failure, but however, it is on the lines of supply chain finance. And ah these distributors are credit evaluated um by our system. And therefore, we enable funding from multiple banks multiple and multiple NBFC. It's not one bank or one NBFC. So it gives that diversity to the distributors. Okay. And that would not be a factoring. It also is factoring. It has a mix of factoring and it has a mix of non-factoring also. Okay. Okay. Okay. Understood. Understood. And I guess there is this company called PropCap in that space, right? Yeah. Yeah. So PropCap is one such entity, which is also an NVSE actually. Right. Right. Right. Right. Okay. Okay. Understood. So how does the M1 exchange make money?
01:17:52
Speaker
is it a yeah so it a charge a pre yeah yeah So we a fee which is percentage linked to the to the value of the invoice for every transaction and there's no fixed fee for anybody. So therefore they it's all recurring cost for all the participants and they just pay a small percentage fee.
01:18:12
Speaker
Okay, and what is your ARR right now at M1 exchange? This year, our year, I mean, the financial year 25, we should be head of 100 crore organization. Okay, amazing. And what is the roadmap here? Like, let's say, what would be the path to become a 1000 crore organization?
01:18:36
Speaker
Right. So we're growing 100% year on year, fortunately so far. And so at least in a three-year roadmap, it looks like ah we should be somewhere near the event of 1000, that is 500 crore. So three-year visibility is clear.
01:18:56
Speaker
or How do we become a 1000 crore organization? Yes, after three years, I will be able to define it more clearly. yeah all But as of now, three year horizon is that we should be a 500 crore organization. Okay. And MindSolutions you had told me was at a 200 crore top line in 2015. What is that like now? It is in the range of about 450 crores.
01:19:23
Speaker
Okay. Okay. So, as a group, it's about roughly 55600 crore. So, as a group today, yeah, 5500. Okay. Okay. Okay. ah I wanted to understand You know, you were running a CFO and there are so many CEOs who run firms and are running the firm for the rest of their lives. There could have been an alternate history in which you are still running a CFO. What made you reach here where you are running these two businesses, both of them very large opportunities in their own right? What was it that got you here?
01:20:06
Speaker
ah ah so actually in ah When there are many many sides to this answer, but one of the main points is the opportunity that came and i be we and we worked on that opportunity.
01:20:22
Speaker
ah And but these opportunities that came our way were more to do with the technology and digital. ah The underlying theme remains the finance. a go short year um So I would say that the and but i mean there is always a zeal to do something innovative and some solving some challenge. and innovate ah So that zeal kept and going forward to do something new, try something new, take a risk. ah So even the international trade finance, the cross-border trade finance that we've just launched from Gujarat, we understand there is and there is a need in the market. ah yeah and ah So we have taken ah we have taken a step forward.
01:21:11
Speaker
ah The connected risk is only that ah we have to invest ah ah some amount for expansion of the current technology.
01:21:24
Speaker
it's not it's not a zerobased ah We are starting here not starting from a zero base. ah So it's and it's a calculated risk one is taking. However, because we are solving we are we are solving a larger challenge, it can it can turn out to be a bigger result.
01:21:45
Speaker
be The effort involved Again, killing up. Just as an example, in cross-border is going to be very, very large, much larger than the domestic market. And that is what is the excitement all about. Because you will have to put extra effort, you will learn new things by engaging with international bankers, not just domestic bankers. You will engage with international buyers. And as a result, the self-expansion
01:22:17
Speaker
the company expansion in terms of knowledge and experience will be multifold. So, so like you are sitting in Japan and and doing this, versus you sitting in India and doing this, it is hope i mean it must be opening up your horizons and multifold.
01:22:36
Speaker
so So like these kinds of opportunities and taking a learning and ready to take up lunch is something that has been our core and we and the fact that it gives an enjoyment.
01:22:51
Speaker
okay okay ah How will cross-border work? so For example, let's say, Gokul Das is exporting an order of garments to a Walmart and they are to be paid in 90 days. How would this work then? Right. So the initial ah initial way it is we are starting is that we are approaching through Gokul Das and we are oh taking on board Gokul Das and i mean every buyer on the other side may not be Walmart.
01:23:20
Speaker
But if the buyer is reasonable size, he may come on the platform and and operate in the same way we are operating in the domestic market. ah Now, let's say, 10 such Google Docs we have onboarded and we have done these transactions for their buyers. Then at the time, we should be approaching their buyers and and explaining to them if we can do it for Google Docs, we can do it for any company based in Hong Kong or in South Korea or in, let's say, Indonesia and supplying to you, we could do this for them as well and as well as for the Indian exporters.
01:23:56
Speaker
And the financing could be done by ah by a fund or a bank based in Singapore or in or in Frankfurt or in US. s So therefore, ah the buyer, if he sees a value in it, he could bring all his global business for financing on the platform. So that's the ultimate goal. We'll have to take steps, move towards that goal. ah Right now, it's ah it's a very high peak and to go.
01:24:25
Speaker
ah Step by step, we'll hopefully reach somewhere. Amazing. that That vision sounds very, very admirable. ah You would initially underwrite GoKuldas or underwrite Walmart? Both. So in some scenarios, Walmart, in some scenarios, GoKuldas. Now, that will depend upon if Walmart is ready to come forward on the platform, then obviously, it will be Walmart. If not, then the recourse will be only on GoKuldas in this example.
01:24:58
Speaker
that is one and ah and there is in this ah international cross-border there is also a lot of play by the insurance companies. So insurance companies will be a larger play rather than in the domestic market. so So that is another participant who will play ah will make a lot of contribution.
01:25:21
Speaker
and okay okay ah Are there double platforms similar to this? Yeah. So the the regulator has issued four licenses in India. ah So ah all of them are just starting or have started about six months ago. Somebody started eight months ago like this. And ah so all are trying to establish their feet like we are. And hopefully, ah no all will flourish in coming days.
01:25:50
Speaker
But here you're not competing with only Indian players, right? Is there like a already established global player which does this cross-border business culture? Good question. and So there are and there are of global players ah who are in the cross-border trade. Now again, it's a difference between M1 and Vienna.
01:26:10
Speaker
M1 is regulated. There is no cross-border player which is regulated today. Globally, there is no cross-border player. No regulator has come forward and blest up in tech to go cross-border and be a regulated entity. So this is the first time India has taken that stand and and done this. So it will be the same scenario that we were discussing, like regulated versus unregulated. So over a period of time, same scenario will emerge. OK.
01:26:40
Speaker
Can you share with me what are some management mantras which help you manage? it's So you're now soon going to be managing three large opportunities. How do you stay on top of all of this? What are some principles that help you manage all of this effectively? Are you numbers driven? Are you people driven, relationship driven? How do you do it? Yes.
01:27:09
Speaker
or First and foremost is, or I mean, for every line of business, the owner, the focus person ah is the one who is driving this. So that is the basic mantra. I cannot be the owner or the driver. I mean, there are people who do better job than me in implementation. So they had to be in in the driver's seat. So first and foremost is that. The second is ah that ah Though they may be the owner, though they may be in the driver's seat, one has to make them comfortable and successful in their respective roles. So everything under the sun I can do, oh one will contribute towards that. And two mistakes are human.
01:27:59
Speaker
I was in that driver's seat, I would have done mistakes, so they wouldn't do also. So one has to be mindful of the those points. um However, it is easy to say them to follow. I myself may not follow in every situation, but I try my best to follow. So this is on the people side.
01:28:17
Speaker
on the oh on the on the management of such people and the situation and the opportunities, very important for me to ah to be able to feel it.
01:28:31
Speaker
to observe it and feel it. ah Just by being in my office and ah taking a review, i and after a few minutes of a review, I don't do justice to it. So, one has to get down to the market and observe and feel it. Only then ah one can work and make them, whatever one can continue towards their success.
01:28:54
Speaker
So that is and another important point, so that one is able to connect the guards, give them a full backup or an advice if one can and and contribute in that journey of being successful or he being successful. Number-wise, very, very important. I mean, ah anything and everything that one does,
01:29:19
Speaker
ah ah never until the numbers don't come on the screen. I cannot do or I want to not do anything. So I'm not able to contribute much ah unless and until I'm not able to, I'm not kept up to date by the concerned business hand with the numbers. So that is very critical. ki What are the numbers you're trying? Is it just revenue or are there metrics?
01:29:44
Speaker
and no so Revenue is, of course, one part. I mean, more to do with what drive the revenue, which is essentially the cent need sales, which is essentially the acquisition, which is essentially the solution, which is what technology and developments are driving that solution. What are the needs which are coming from the market?
01:30:05
Speaker
What strategies are we following for that market? ah What is the brand? How is the brand reflected by the marketing team? ah And how is the regulatory framework managed, whether it's the regulator himself or whether it is other regulatory framework requirements?
01:30:30
Speaker
um and then the investor in the board member, how are they taken care of? So all of this is day to day for me. Do you actively run mind solutions also? or Is there like a separate CEO? No, no, there's a separate delegated promoter team as well as the professional team. So there's a CEO for that business and he run it. And what is the focus there? Is it still like accounting services? center It's mostly a accounting and HR services and the platforms. So that company has also developed platforms over a period of time and those platforms are now getting sold as independent platforms also. So like SaaS products. So accounts payable SaaS product, a payroll SaaS product like this.
01:31:23
Speaker
okay okay okay interesting so you know When you say that you like to get down to the market, like do you go on sales calls with the sales team or do you visit customers? I love to do sales calls, I love to go visit customers, I love to understand and how the solution is being drafted and crafted for a customer made.
01:31:44
Speaker
I love to get involved in the product meetings. that That kind of gives me a lot of innovation kick. ah Maybe I add value, I don't add value, I don't know. But I create a new things value in that meeting. And ah and ah meeting with the regulator is another. So yes, right so the short answer is yes, I like to step out for these meetings. Okay, okay, okay. When you were setting up everyone next, did you start by first finding a business head for that? Or were you the business head and made it reach maturity? And then like, like how, how did you, how do you build a new business? Yeah. So, uh, mostly a new business was built by me getting involved, putting myself in the shoes for a few months, few weeks, and then finding out. Okay. That would help you understand what kind of person you need in that role because you've played that role then. Okay. Okay.
01:32:42
Speaker
but Any advice on fundraise? You have raised, from what I can make, her about $23.5 million for everyone exchange for buying solutions, about $20 million. ah So you know any advice on that front on fundraise?
01:33:01
Speaker
oh Advice being in the sense that yeah if one is one is that by engaging in this fundraising activity, you as a promoter and the leadership team in the company.
Engagement with Fund Houses and Business Planning
01:33:14
Speaker
So much of clarity emerges because these fund houses have brilliant analysts sitting on the other side and they bring brilliant questions to disc discuss. so So every year one has to make a business plan. I would recommend one should engage with the fund house. Get one selfie when you open the next year business plan comes on on the table. It is strategic one.
01:33:41
Speaker
Second is, of course, so ah I've been fortunate that I've always got a supportive fund investors.
01:33:52
Speaker
ah they they ah they not get angry yeah help right and So they've been very very supportive in their journey. so ah And maybe we've attracted the right people or we've gone to the right people. So that has been an important point. So, however, I hear a lot of situations and events where many people have challenges would be fund with once there is the funds about the difference of opinion on the strategies. ah So we hear all we take the best call, we have to satisfy the other person in case the call they're not reconciling. ah Having said that, must complement the mature maturity these fund houses that we have engaged with have, we've not faced a very difficult situation with any of them so far.
01:34:47
Speaker
yeah Okay. I was a little curious about the fundraise at Mind. Services businesses tend not to do too much of fundraise and you've got Amazon as one of the investors at Mind Solutions and India Mart. What was it like? Sure. but These are all the investors at M1 exchange. but okay but Okay. Okay. Not they're not the services business.
01:35:12
Speaker
Got it. Okay. Okay. Okay. They, they were listed at the mind in that platform, which I was referring to must be a listing error. Okay. Understood. Yeah. Obviously for M1 exchange, it makes sense. So M1 exchange, the legal entity name is also starting with mind. Okay. Okay. So there are, there are two mind entities. One is called mine integrated solutions. And one is called mine solutions. Mine solution is the, uh, is the M1 exchange and mine integrated solution. as weos web Okay. Okay. And for that erstwhile business, I guess you would not have needed to raise funds, right? i know so we Yeah. For erstwhile business in 2014, we had raised funds from Sidhvi. After that, we got raised funds. Right. Right. Right. Okay. Okay. Okay.
Advice for Entrepreneurs and Closing Remarks
01:35:56
Speaker
So let me end with this. Any advice to young people who are listening to this podcast?
01:36:03
Speaker
oh So actually, I mean, India is right now at a cusp of, we are all aware of it, and multiple people are saying the same things, that India is at a cusp of the growth. ah And I mean, versus 20 years ago, when we were doing this business, ah the kind of opportunities and the openness ah that was existing was very limited. i So, this is the time to actually be very, very eventful and innovative in the Indian market. The need is far and many. So, the needs of the public, society, funding, everything else is lot of demand is there.
01:36:44
Speaker
So this is the time to be innovative in India. ah And but if one is truthful to the work that you are doing and the objective that you've picked up and to your fellow colleagues and to be people who are in your journey, whether it's an investor, whether it's a regulator, whether it's ah ah ah any other yeah customer. ah if well I have seen if one is being transparent and truthful, things start flowing. I mean, your solutions start coming to you. One really doesn't, I mean, struggle happened, but one thing start flowing to you. And the last point I would put is,
01:37:25
Speaker
ah Enjoy the challenges, only be ah the next evolved growth will emerge. ah Next evolution of the growth curve will emerge. So keep enjoying those challenges. I mean, don't put them under the carpet or don't postpone them. um I mean, that's all. These are some of the points which one has practiced over the last 10 years, and they're working for us.
01:37:50
Speaker
I would also add one more that don't underestimate the power of naivety. If you are not naive enough to go and present to the ah RBI, none of this would have happened. ah yeah she read i i mean i mean this what All right, cool. Thank you so much for your time, Sandeep. Thank you. Thanks, Akshay. Good to connect with you. 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.