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The Blueprint to a Profitable Fintech with Massive Scale | Gaurav Mathur (SafeGold)
470 Plays2 years ago
"Gold is money. Everything else is credit."
This provocative quote by a historic JP Morgan banker is the foundation of Gaurav Mathur's audacious long-term vision. In this episode, he reveals how SafeGold's accessible digital gold platform in India is just the first step toward building a global, gold-backed digital currency designed to be a more credible and stable alternative to the traditional financial system.
In this episode of Founder Thesis, host Akshay Datt dives deep with Gaurav Mathur, the Founder and MD of SafeGold. A former private equity investor who co-founded a $350 million fund , Gaurav has built SafeGold into a fintech behemoth that clocked over ₹6,100 crores in revenue last year and reached profitability on just ₹16 crores (~$2.4M) in total funding. His journey offers incredible lessons on strategy, capital efficiency, and building for the Indian mass market.
Key Insights from the Conversation:
- Capital-Efficient Scaling: Learn how SafeGold grew to nearly 50 million users and thousands of crores in revenue with virtually no marketing spend, a masterclass in profitability for any startup.
- The B2B2C Moat: Gaurav’s decision to be the API-first infrastructure for partners like PhonePe and Amazon Pay, instead of a consumer-facing brand, was the engine for explosive, low-cost growth.
- Psychology in Investing: Gaurav shares a candid story about his biggest investment miss—passing on Domino's India—and how personal psychological bias can cloud objective business analysis.
- Innovating a Traditional Asset: SafeGold's vision extends beyond just buying and selling. With innovations like Gold Leasing, they are turning a passive, idle asset into a productive, yield-earning one.
Chapters:
00:00 - The Investor-Turned-Operator: Gaurav Mathur's Playbook
01:27 - Early Life, IIM-A & First Job on a London Trading Floor
02:04 - Learning the Ropes of Private Equity at JPMorgan Asia
05:42 - My First Startup: How We Raised a $350 Million PE Fund
10:08 - My Biggest Investing Regret: The Psychological Trap of Missing Domino's India
16:46 - The "Aha!" Moment: How Manappuram Finance Revealed the Massive Gold Opportunity
19:04 - The Original Grand Vision: A Gold-Backed Crypto to Disrupt World Banking
22:46 - The SafeGold Pivot: Building the "Trust Infrastructure" for Digital Gold in India
37:05 - The Growth Engine: How SafeGold Reached 50M Users with Zero Marketing Spend
47:59 - Beyond Buying & Selling: Making Gold a Productive Asset with Leasing & Lending
53:18 - The Numbers Don't Lie: Building a Profitable ₹6000 Cr Business on Just 16 Cr Funding
1:01:10 - The "No Global Competitor" Thesis & The Future of Money
For more on: #Fintech #StartupIndia #VentureCapital #PrivateEquity #DigitalGold #GoldInvestment #IndianStartups #Entrepreneurship #CapitalEfficiency #Bootstrapping #B2B #API #StartupFunding #MakeInIndia #Investment #BusinessPodcast #FounderThesis #AkshayDatt #GauravMathur #SafeGold
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Transcript
Introduction and Background of Gaurav Mathur
00:00:00
Speaker
Hi, good morning. I'm Gaurav Mathur, the founder and CEO of Safe Gold, and I'm thrilled to be on this podium podcast.
From Banking to Gold: Gaurav's Career Journey
00:00:19
Speaker
Have you heard the one about the man who walks into a gold bar? No.
00:00:24
Speaker
Don't wait for the punchline to that joke. This is an episode about an investment banker who discovers gold or rather discovers the business opportunity in selling gold. Gaurav Mathur has had a remarkable front-row journey in the startup space in India. He was among the earliest institutional private equity investors in India, first as an employee of JP Morgan and then as the founder of India Equity Partners. India Equity Partners eventually got disbanded and that is when Gaurav discovered gold.
00:00:53
Speaker
Gaurav
Investment Philosophy and Early Career Experiences
00:00:54
Speaker
has a fascinating thesis on the past and the future of money, and Safecold is his expression of that thesis. In this freewheeling conversation, Gaurav talks about the wild west days of PE investing in India, his learnings as an investor, and the ambitious journey he is currently undertaking at Safecold. Listen on, and if you would like to learn about the evolution of startup ecosystem in India, then do subscribe to the founder thesis podcast on any audio streaming app.
00:01:27
Speaker
So my father used to work in the public sector using the railways, and then he worked in a bunch of other public sector organizations. And I grew up largely between Delhi and Calcutta. And schooling was split between Calcutta and Delhi. Then college was in Delhi University. I went to Hindu college, did my economics. After college, I went to Ahmedabad to do my MBA. And I graduated Ahmedabad in 1998. My campus job was with Deutsche Bank in London. I spent a couple of years there. And there I was on the trading floor. I was trading like exotic derivatives and
00:01:57
Speaker
very quantitative stuff. And I realized that maybe dealing more with people is more fun for me than dealing with lots of numbers and analysis and things like that. So I joined, then I moved over to JP Morgan on the private equity side. So JP Morgan used to run a fund investing off the balance sheet, and I joined that team. And there what I really enjoyed was you meet companies, you meet people. Every day a job is to go out and meet companies and kind of assess them and things like that. So there is analysis and other stuff that you do, but it's fundamentally about going out and meeting new companies every day.
00:02:26
Speaker
This would be investing in unlisted companies, basically. Investing in unlisted companies. And this is not like VC kind of stuff. It's not like very early stage companies. So the thing is, this is 2000. It was slightly different either at that time. And at that time, Asia was also, actually it wasn't even JP Morgan. It was Chase, Chase Manhattan bank when I joined it, which subsequently merged I think in 2001 with JP Morgan.
00:02:53
Speaker
called Chase Capital Partners, which in those days, it was very small, right? The sums of money going into unlisted companies were small. And if you take Asia, the subset of that, it was microscopic. So our team probably used to invest like $100 to $150 million a year across Asia. And that would range from putting $1 million into a startup to doing a buyout of a beer bottle manufacturing company in Sri Lanka and a Domino's Pizza franchise in Japan. So it was all over the place. Because
Challenges and Opportunities in Asian Markets
00:03:21
Speaker
it was not such a big business then,
00:03:22
Speaker
Now, in hindsight, to think that the same guy can buy Domino's pizza franchises in Japan as a full buyout where you're running the company and hiring management and also going to Bangalore and putting one million dollars into small companies is like a completely different skill set network this and that, but that was also fantastic. It gave you huge perspective.
00:03:39
Speaker
that you were able to travel all over Asia. As a young guy, it was, I think, one of the most fascinating jobs one could possibly ask for. And I did that for about six years. And if you asked me, I was happy too. I could have done that for the rest of my life. I liked Singapore. I loved the job. I loved the team. It was all perfect. But then, of course, big companies, then JP Morgan merged. And then by that time, the whole unlisted space had started getting more and more kind of specialized and things. And you couldn't have this gang of seven, eight people charging all across Asia.
00:04:07
Speaker
doing stuff. So they said they were going to specialize. And it became JP Morgan Partners, which was now globally going to specialize into being a buyout fund, where the aim was to do, you know, what the US called mid market buyouts, but in Asia would be where you put in between 200 and $400 million in a single check and buyout a company typically with some leverage and things like that. So then it started shifting to like mobile phone operators in Hong Kong, chip packaging units in Singapore, tire distributors, traditional businesses and buyouts.
00:04:33
Speaker
And the strategies that you buy out, you hold for a few years, make it more efficient, make it more profitable and sell. Correct. Correct. That was a strategy, which was great. But at that time, once you when you join at a junior level, it's very easy for you to work in any jurisdiction, all of that stuff.
00:04:49
Speaker
As you get a little bit senior, you're expected to bring in some of the deals, go originate stuff. Honestly, without speaking the language in Korea or in Japan or Taiwan, it's very difficult to go and bring in transaction, right? You need to go sit with an entrepreneur and venture different from buyout. Buyout typically your counterparty is much older. And if you're like 29 years old and you try and find some 60 year old Japanese entrepreneur who's looking to sell his business in English, it's a challenging situation. You're not going to do that.
00:05:14
Speaker
Yeah, I live in Japan and I can totally relate to that language barrier challenge. So language and culture, a lot of little things, right? Where am I going to find some aging Japanese entrepreneur wanting to sell his business? And I'm the first guy he calls, right? Not going to happen. So naturally I was doing more stuff in India. And in India, even today, buyouts are not that common, right? How many businesses do you have in those days to find a $200, $300 million buyout where you will get it was that much tougher, India or Singapore?
00:05:38
Speaker
I figured that now with this
Insights into India's Private Equity Landscape
00:05:40
Speaker
new strategy it's a little less fun for what I was doing and I teamed up with a bunch of people and we started a fund because that was my first startup when I was like 30 years old. We started a fund called India Equity Partners and we raised 350 million dollars in our first fund and I moved back to Bombay in 2007. That's pretty massive like raising such a big amount. How did you do that? I mean even today 350 million dollars is a pretty massive amount to raise for your first fund.
00:06:05
Speaker
So we were thrilled to bits. It was much more than we thought we'd do. There were a few things going for us. The single biggest thing, which is pure luck is Chris Capital was raising its fourth fund in 2006. And you didn't have that many India focused funds at that time. And what is Chris Capital? Sorry.
00:06:21
Speaker
Oh, sorry. Chris Capital is like the most successful home-grown private equity fund in India. They had a guy called Ashish Dhawan. I don't know if you've heard of Ashish Dhawan, who's now a philanthropist and all that. He's worth a lot of money. He's a neighbor with Sunil Mittal. So he, in 1999, started a venture capital fund focused in India. That time it was called Chrysalis Capital. He renamed it Chris Capital. And he, to date, remains the most successful private equity investor in India.
00:06:44
Speaker
He retired a few years ago and now all his acolytes run the fund and all that. I would say if they're the father of Indian private equity, it's Ashish Dhawan and Chris Capital. He amazingly retired, handed his firm over to the next generation of partners and ran it. Chris Capital was raising fund 4 or fund 5.
00:07:01
Speaker
This is a VC fund or a private equity? In those days, we used to be an India opportunity fund, but largely private equity. VC was not a material user of capital, so you would do early-stage growth investments and things like that. You're looking at cashflow-positive businesses. Largely cashflow-positive businesses, or even if there may be loss-making, there were growing established businesses. There was no doubt on, does the market exist? Are the economics good? Stuff like that.
00:07:25
Speaker
So you looked for growth. In a market like India, your returns will come from growth. Unlike in a market like Japan, where you can make returns by just taking out cost and restructuring and you'll get 3% annual growth, stuff like that. India, you would look for where a business could grow 20% a year or 15% a year. So most of your returns would come from growth as opposed to making the business more efficient, which is why you also ended up taking minority stake. So it was the classic growth equity in private markets. So Chris Caput was like the hottest India fund. And even since then, they've generated great returns.
00:07:52
Speaker
So their fourth fund was massively oversubscribed in 2006. So people wanted to put $50 million in his fund. He was taking $5 million. And from his original subscribers, the people who backed him in his first fund in 1999, he said, yeah, you backing in the beginning, I'll take whatever amount you want to put everyone else was cut back. So that was one massive stroke of luck. We just went out there with an India strategy, India focused strategy. And they said, yeah, if you'd back risk capital early, you'd have got there. So back these new India fund. So that was one thing.
00:08:18
Speaker
You didn't have that many guys today. You have lots of guys raising money, but you didn't have that many guys. What a track record. I'd also been doing India.
00:08:24
Speaker
amongst other things. I had exits, I had things, so you had a bit of a track record. And in all honesty, the single most important factor, apart from Chris, is we had a partner in New York, who was a retired Goldman Sachs guy, who was supremely well connected. And if I had to distill it down, when we used to go to a pitch, this guy was a Jewish guy, knew all the big endowments, all the big fund investors, and they would look at him, they knew him, so they trusted that guy. And then they looked at me and my partner, Akash Mehta,
00:08:53
Speaker
And they said, these guys look like reasonable guys that have a track record. If we had gone on our own, they just said, yeah, I don't know. These guys look sensible. India seems to make sense. But I'm not sure if they'll take my money, run away. I'm not sure if I trust them. That combination of these guys who knew the people to go into, and they fundamentally trusted him. And then they thought India's good. Chris has oversubscribed. And that is what helped us do very well in terms of raising money.
00:09:13
Speaker
And most of this money was from the US because your partner... 95%... Forget the US, I'll say 80% was Midtown Manhattan. I can be more specific than that. Okay, okay. Far away LPs were Downtown Manhattan and maybe 5% came from one or two European families or something like that, who again, who are partnered you. So it was a combination. It was Luck and our partner's network that kind of let us do very well.
00:09:39
Speaker
So I moved back to Bombay feeling like a hero saying we have a lot of money in 2007. Now the problem was in 2007, every asset was priced at astronomical level. That was the peak. This was like at the precipice, like just pre-11 brothers. And then we realized that along with us, this whole India boom, there are like 40 others who also got money and shown up. It's not like...
00:09:58
Speaker
We are the only guys who are doing it, so lots of people came, raised money. I'll tell you two of my biggest, my biggest hit and my biggest anti-portfolio miss, which kind of bothers me, no end to this date. When I had JP Morgan, one of the deals that I had done in India was we owned approximately 25-30% of
00:10:16
Speaker
the Domino's India franchise, which is now listed as Jubilant Food. And honestly, when we invested in it in 2000, in by 2002, we'd written it off because it was just losing money. And the story is now because such a big successful company, but it gives you an insight into how psychology works, human psychology.
00:10:32
Speaker
So in 2002, I was saddled with this thing, which was losing money because when Domino's first opened in India, it did very well. And then you open 30 stores, highly profitable, we invested, they used that money to go open more stores. As JP Morgan, we had a minority stake of 25% or 30%, I think.
00:10:47
Speaker
and the Bharatiya family owned the rest. And it did well. So, with the new money, they said, Delhi Bombay stores do very well. Now, let's go to slightly tier 2, let's go to like, say, Jaipur, let's go to Dehradun, Poona, all of that. And the first six months when they opened in all these places, the stores had lines outside. They were like, spectacularly profitable. In fact, they were, in terms of your investment return, they were far better than Delhi Bombay because your real estate cost was much lower.
00:11:10
Speaker
Walmart, one of the reasons why Walmart is successful is because when they went into small towns, the market can support one supermarket because like a small town in Idaho or in Indiana, if you're the first supermarket there, no one else will ever open. So you become like a monopoly.
00:11:25
Speaker
And it grows as the town grows over 20 years and all. It becomes highly profitable because they're all monopolistic towns. So in my great MBA type theory of saying here, global learning should be transferred. And I thought, yeah, we should also go open all in small towns. And then we'll be the monopoly. We are a great international brand. And we felt very happy initially. Sales look good, all of that. Then sales started dropping.
00:11:55
Speaker
And now the Delhi Bombay Bangalore stores are doing damn well. They're consistent. So now I'm looking like an idiot. Again, this is more my fault than management, but I'm looking like an idiot. So in JP Morgan's books, every time you put money in as a fund, you make a memo and you make projections. Every projection only goes up like this in one direction.
00:12:13
Speaker
No one says things are going to go down, so we should put money. I'm looking like a chump under extreme stress. And for the first time, I felt the weight of like, yeah, when you lose sleep, no, until then, I never lost sleep in a job. I was like,
Gold as a Strategic Investment Opportunity
00:12:25
Speaker
shit, man. This is like, I had gone inside yoga and I genuinely believed it. This is like, gone to shit. Fortunately, we had partners like the Bharatiyas who were able to put money in, manage the debt, all of that. And at JP Morgan also, every six months, they would drip feed money in of our commitment.
00:12:38
Speaker
and I had to literally go write these detailed memos back before the committee and no one knew whether it'll turn. Because when you shut a store down, it takes one year because you're paying rent and this, it's a very messy time, very stressful. The new stores, you don't have money to advertise, new stores are not necessarily doing that also in Bombay if you open more or in Bangalore if you open more stores, they'll cannibalize each other, all of that. After 2-3 hours of stress, the company had just about started growing again and it was stabilized, that's when Perez Rawal came, there was some little bit money to advertise all of that.
00:13:04
Speaker
So, that was the Domino's story and that was going stable and then I left and I started IEP. So, one of the first deals I was sitting in New York and all, then I spoke to the JP Morgan guys, they said, we are getting into buyouts and all, we want to clean up the old portfolio. So, that company which now has a 12,000 crore market cap or something, the JP Morgan stake was offered to me 30%.
00:13:28
Speaker
I had a 200 crores valuation or 160 crores valuation. So it was 40 or 50 crores. I know this very well. When I bought spreadsheet, analysis, 10 years ago, now in hindsight, the biggest barrier to me was I had been through 3 years of insane pain with that company.
00:13:44
Speaker
where you'd lost money, had been groveling before, they'd missed targets, missed targets. So that clarity that you should, what I should have seen was look in these 30 countries, pizza has taken off, delivery has done well, this, that, all of that, which was what I'd seen. So originally when we wrote the first memo, we didn't know all of that.
00:14:00
Speaker
But after three years of missed targets, just human psychology just takes it away. I did some analysis and I offered some price where I said, whatever crap I did. That company went public two years later and JP Morgan sold its stake and has done a 30x. If I had done that, I mean, that would have been like a 50x, 80x kind of deal for us today. On today's term, it would be like 100x.
00:14:22
Speaker
And it was like what they say proprietary deal because I'd been there. I knew the promoter JP Morgan is willing to sell it to me. It was not like a deal that was shopped around. They just said we are cleaning up the Elena Leylo. So I think that to me is the single biggest miss that I did. And it's just psychological. Because of my history, I couldn't kind of see the potential. So I think that is one story that I think about. And when I look back, it's very difficult to be that optimistic when you've been through three years of pain and write offs and miss targets and stuff like that. That is one.
00:14:48
Speaker
Do you think if you had done that deal, you would still be running India equity partners? It's possible. It's possible. Because then the credibility you get with investors with this, it would have returned the fund three times over. Continuing from the JP Morgan portfolio, one deal that we did was a company that's now listed called QuestCorp. So the promoter of that company, someone had backed at JP Morgan. It's a staffing business, right? It's a staffing business. That guy had started some Ajith Aizak. He started a company called People One Consulting.
00:15:14
Speaker
People on consulting also has an interesting history. One of the deals that J.P. Morgan did in 2000 was they did a partnership with the Hindustan Times Group to start something called Go4Eye. Go4Eye.com, which was supposed to be like Yahoo, which was in 2000 all the horizontal portals of the rage.
00:15:30
Speaker
and they had Yahoo finance, Yahoo cricket, whatever Yahoo sports, this, that and all. We said, Bofarai will get all the content from Hindustan time, then we'll have a number of sort of sub-verticals. One of the sub-verticals in that was something called Go For Ticketing. The guy who started Go For Ticketing, so Go For I had got some 7-8 million dollars and they put half a million dollars into Go For Ticketing.
00:15:48
Speaker
GoForTicketing, by the way, today is better known as Book My Show. I did by Afeem Rajani, but GoForEye was shut down very quickly because in 2001, we said the horizontal portal, which is that was then just spun off as an independent company. And, you know, JP Morgan exited that. Ashish Himrajani is a great guy. I didn't work on that deal. There were others in my team who worked on it. But the part that I worked on, there was a subsidiary called GoForCareers.
00:16:08
Speaker
was brought in to run Gopher careers. Of course, when the parents shut down, like Gopher tickets became Gopher show, this thing became people want consulting. And people want consulting. He sold to a Deco, which is now a Deco India. And once his non-complete finished with a Deco, then he said, let me start again. So then I backed him from IEP.
00:16:26
Speaker
And that was very successful. We did a roll-up. We controlled that company. We had a majority stake. We put up nearly all of the capital. And we went and bought a whole bunch of other companies, did a roll-up. We sold it to Fairfax, another private equity firm, did very well. And then Fairfax subsequently listed it, and they again did spectacularly well. And Ajith continues to run it, very successful company. I'm on the board of Quest even today, all relationship with Ajith. So that's one of the better ones. The other very successful investment we made, which led to where I am today,
00:16:53
Speaker
is in a company called Manapuram Finance. So when IEP invested in Manapuram Finance in 2007 and 2008, I think. Manapuram Finance does gold loans. That time it was like a 150 crore balance sheet. Today it's a 17-18,000 crore balance sheet. But it was essentially a small
00:17:08
Speaker
small Kerala-based lender of whole loans. And then we were the first outside capital, then Sequoia came in, and then it, of course, grew and went public. They had arms and merged together, went public, and it's done very well since then. So that did very well for us. And that was the classic unorganized sector, largely unorganized sector, but an organized sector has a better offering. It has the potential to grow naturally. Lots of people own gold. And we exited that, that did, again, venture-style returns. And that was my exposure to the gold sector.
00:17:34
Speaker
I think there the whole summarizing the takeaways from that was it was essentially gold is a huge industry. We all know gold is massive. Everyone buys gold, all of that. But honestly, as an urban professional, people like you and me don't really buy a lot of gold. We're not that involved in the day-to-day of it.
The Birth and Vision of Safe Gold
00:17:49
Speaker
Maybe there's a wedding and someone in the family.
00:17:50
Speaker
you will go to buy it, but it's not a frequent monthly, quarterly kind of thing where we'll go buy gold and put it in our cupboard. But when you're involved in a company like Manapuram, and that was like in the US also, we had all US investors, they said this is a pawn shop, what is this pawn shop, sort of shady business, all of that. So you had to do a lot more due diligence, the bar for putting money in that was much higher. And remember back in the day when we invested, even banks didn't give loan to Manapuram or these gold loan companies, because even in India, it was viewed as a high risk, slightly shady business, all of that stuff.
00:18:16
Speaker
So the power for putting money in was very high. So we had to go spend a lot of time in the branches, meet lots of customers, do a lot more due diligence. But then it opened your eyes to the fact that once you take off your this urban professional blinkers and you look at what the true Bharat is or whatever else, gold's like
00:18:33
Speaker
It's like a major part of the savings. If they get spare money, they'll go buy gold. If they need a loan, they'll either sell it or use that as collateral, all of that stuff. And then seeing the way Manapuram and even Muthoot and these other specialist guys grew, it was that once the organized sector figured out a compelling offering compared to the unorganized loan, jeweler loans and things like that, they were able to grow very rapidly. And I think that's what when I was finally looking to start a business, I said you could organize the gold business in India. That's the loan side, but you can organize the investment part of it. And just potentially you can build a very big
00:19:00
Speaker
business on that and that's what kind of that was the experience that led to my current fascinating. Let's talk about the safe code journeys. I think one of the things that I started doing was I used to I've never learned computer programming but I used to code a bit hobby and I started learning getting back in touch with doing some courses and learning how to code a little bit and all that.
00:19:17
Speaker
And I got fascinated with the whole cryptocurrency thing. So this is in 2016 when Bitcoin was also Bitcoin started in 2009, but I started dabbling in Bitcoin buying it. And the concept fascinated me. Concept of Bitcoin is everyone gets a unique address. And anywhere in the world you can have that unique address, you can transfer value from one address to the other address. It doesn't matter.
00:19:36
Speaker
where you have a bank account, you can open a wallet and you can transfer it. If you look at how banking has come up, banks came because you needed cash to go put it right in the banking started as far as in Europe in the 14th, 15th century, people had gold or they had currency or whatever, they would go put it at a physical place to safe keep it.
00:19:52
Speaker
And then they would take it out and then you would get a loan and all that so that whole concept of a branch physically deposit and all that started off the need to physically keep money somewhere and then all these payment systems and all that stuff came about but again if you look at it from an economic concept point of view.
00:20:10
Speaker
For me, what blows my brain still today, and I think there's a more efficient way, the whole financial system banks have built up based on that 14th century Medici, Italian families started it, pioneered it and all, it's been built up from there. But today, only a branches are we all know, okay, some people need them for customer service, it's not really needed.
00:20:27
Speaker
But if you think about it now with some central bank, digital currency, gold bank, digital token, Bitcoin, but you can have a digital representation of your value, whatever the format is. You can keep it in your wallet. So if you want to keep it safe, you can keep it in your in your hard drive, you can keep it in a centrally stored wallet. The whole banking thing which has maybe 100, 200, 300 billion dollars of cost.
00:20:48
Speaker
which are incurred because you have to protect people because they've lent their money to the bank. That shouldn't be the case. You should be able to store your money because if you want to store your money, you have to lend it. That is the fundamental dichotomy in today's thing. To store money, you have to lend it. You can today store money 100% safely without lending it to an institution.
00:21:05
Speaker
That is dichotomy number one. With everyone who stores money can have one global address. And if you want to transfer it from point A to point B, this massive infrastructure that exists in the world today is honestly a waste.
00:21:20
Speaker
Because this thing exists, so these two things will at some point, my views go away. So I first, if you look at Safecold's website, we started out saying, we'll be a gold-backed cryptocurrency. In 2016, we had a better website than gold-backed cryptocurrency. And I thought it would be one plus Bitcoin merged into one, and I will conquer the world. In six months, I was disabused of the notion that India's regulation of crypto is not a good word. But this concept,
00:21:49
Speaker
just got me excited enough to say, let's start a business. I think retirement may have tried doubling here that this thing seems fascinating. And there are, it's a long journey. Let's try and figure out what we can do. That was the genesis of me getting out of retirement and doubling and this and that and starting a full time. So you actually set up a blockchain in version one, like I want to understand the evolution of the product.
00:22:11
Speaker
Blockchain exists, just not used in India, like we have an operation in Thailand today, we have a
Global Gold Trade and Safe Gold's Operations
00:22:16
Speaker
subsidiary. There we use the original blockchain that we started and also have applied for license in some other countries where we're applying for a crypto token. So my original, let's say, I put it at fantasy level, where we'll do a goldback digital currency, it will then give you a store of value, yield all of that, build an alternate currency for the financial system.
00:22:33
Speaker
That remains, you know, whether it's a 10-year goal, 20-year goal, you know, honestly, I can't say, and then put it in the realm of fantasy. But still, everything that we try and do is building blocks to one day it'll be used in that system. So, if you look at our system in India, what is safe goal today? What we saw was that there is demand for gold as an investment. This is just a simple website we started and this was still in my dabbling day, 2016, this wasn't a business. The business really started in 2018. I suppose there's still enough people wanting to invest because a token can be subdivided.
00:23:04
Speaker
So, the value proposition that we figured out was that 1 gram of gold is about 5000 rupees. You know, Bitcoin also can be divided infinitely. You know, this is like a good thing. So, we were seeing some evidence of that demand when we were talking to customers, things like that.
00:23:20
Speaker
So we said, okay, let's just build it. There's a big value to be built as an investment option. And then you can monetize that investment. You can lend it out. You can do a whole bunch of things with it. So in India, let's build a user base. Let's organize gold. There's a big market there. At some future date, when regulations around crypto are clear, you can always take your entire user base and make it a gold back token and all. It's not like you're shutting that door, but today you want to run it in a compliant manner so the government doesn't shut you down and let's run it as a gold based investment.
00:23:47
Speaker
How we run digital gold today is when you buy digital gold. When you buy it on safe gold, we've got like a hundred partners from Amazon, Flipkart, Phonepay, all of those guys. Wherever you buy safe gold from, the money goes to the trustee. Trustee will then check with the custodian. Is there actual gold backing this purchase? If there is gold backing this purchase, then they give us the money.
00:24:03
Speaker
Otherwise, they'll sit on the money until we buy it. Like they could get the money on Friday night and we'll say, I can't buy gold. He said, money is with me. So we set it up such that it's not possible that you can buy safe gold from us without physical gold backing your thing. Or if there isn't for whatever reason, for some temporary market shut weekend, home holiday, whatever, then we don't get money sets in the collection account. Also, if you
00:24:25
Speaker
one of the other reasons we chose gold is that until next 7 to all currencies in the world fiat currency is also backed by gold that the gold standard so there is a natural let's say history where where people think that gold can be used as a currency it's also the most traded asset it was the most widely traded asset after the US dollar you can go to
00:24:43
Speaker
You can go to Kabul, you can go to Harare, you can go to New York, the least developed, the most developed city in the world. There will be a market for US dollars and there will be a market for gold. So, unlike Bitcoin, there will be no debate that what is it worth. They said people will know it's worth gold. Now, you could say there will be some plus minus one, two percent on the digital format versus physical. All of that will be there. But largely, there is an anchor value for gold in this taxation and all of that. But gold is an anchor value. So, you want to build this global address.
00:25:09
Speaker
So gold price is relatively stable across the world. There's no arbitrage opportunity. So gold is cheaper in Pakistan than India, for example. Does that happen or it's relatively stable? Yes and no. The reason there's no clear answer is the world is split between free trade and restricted trade.
00:25:25
Speaker
I don't know Pakistan, but India, like you can't export gold. You can import it. If you import it in the very strict regulations, only a few people can import it. They have to pay custom duty, this, that. If say gold in India is more expensive, adjusted for taxes than gold in Dubai. I'm just taking that. Then there'll be lots of imports coming in. Everyone from Dubai will send the gold to India. So Indian gold will never be much more expensive because the whole world will send it in here through banks, whatever in the arbitrage
00:25:48
Speaker
But if Indian gold is much cheaper, then you can't buy gold in India and take it out. So in the free trade world, it will be very tightly priced. There will be on occasion when COVID happened and you couldn't deliver, there was no transport. So suddenly gold in New York zoomed up because London said no, there were no planes to transport it. So in free events, there will be arbitrage. But in the free trade world, you will generally have a very tight price. If you look at gold, its volatility is like a currency. It's close to the, it's a very low volatility. It'll be half the volatility of say the equity market.
Customer Trust and Security in Digital Gold
00:26:16
Speaker
And if you look at long-term returns, if you look at 20, 50, 100-year returns, in the US dollar, it gives you 3 or 4% annual returns. It essentially gives you inflation plus half percent or something. So short term, it'll go up or down. You can't predict. In the next one year, you could lose money in gold. In the next 18 months, you could lose money in gold. But if you hold it for 5 years, 10 years, it's good. Indian rupee is over 10 years, 15 years. So it gives you 9%, 8%, 12%, depending on which period you look at. So it's almost comparable to equity.
00:26:43
Speaker
Indian rupee again is an inflation factor or Indian rupee gives higher return? So, it is a 3%, 4% US dollar plus Indian rupee depreciates 4%, 5% depending on which time period you look at it. So, you take US return plus inflation up by 8, 9, 10% and that's the, again, we have to give it to 3 years. In short term, you'll have fluctuation. It's a good stable asset. It's got whatever 5,000 years of history is used as a currency. So, we thought it's as good a base to build a digital currency.
00:27:11
Speaker
Based on but the digital currency is for the next five years will only be a be outside India India is fortunately a huge market for gold in any case So there's a whole bunch of stuff you can build in India in any case behind gold Okay, so I want to go into the nuts and bolts and let's start with these terms are used a custodian a trustee award Help me understand what are each of these because for the India offering these are the core parts of the offering, right?
00:27:34
Speaker
In India, we offer a more efficient way for anyone to invest in gold and then to do a bunch of things with that gold. So let's talk about the basics. The custodian is the institution that operates the vault. So all the physical gold that is purchased by customers. So you actually buy physical gold and
00:27:50
Speaker
There is an actual vault in which it is stored. It's one of those James Bond style vaults with five layers of security and you have to get your fingerprints done before you go in and all of that stuff. And this is with a banner, like who's the custodian? There's a firm called Brinks, which is the largest safekeeper for precious metal across the world.
00:28:09
Speaker
So whether you're a JP Morgan Chase Bank in New York, or your HDFC Bank over here, or you're the MCX, or your Chicago Mercantile Exchange, which is the biggest gold futures platform in the world, all their physical world is stored with Brinks for the most part. They have a few other operators. Brinks are the largest. It's a listed US company. They operate the largest network of precious metal walls across the world. So they are our custodian as well.
00:28:33
Speaker
So, they physically store the gold. Now, safe gold, we call it digital gold, but it is actually, it's a misnomer in the sense, safe gold is a platform where people buy real physical gold. The only difference is it is stored in a vault. You are not buying it and taking possession of it right away. It is stored in a vault. And because it is stored in a vault, we can subdivide it. That we can say there's a one kilogram bar and it is owned by thousand people. Someone may own 40 grams, someone may own 0.2 grams.
00:28:58
Speaker
If we have sold six tons of gold to customers, there will be six tons of gold in the world. So it's not possible that we sold gold to the customer and there isn't gold backing it in the world. So safe gold is buying physical gold. It's just that you're buying it over digital channels. So it's a bit of a misnomer that people think it is. It is not physical. It is you are buying physical gold. Whatever you buy from us is actual physical. It sits in a vault with insurance, with high security, all of that stuff. And you can get it outside whenever you want.
00:29:23
Speaker
And the value of your investment is always whatever is the current price of gold. There is like a direct linkage. If you buy 0.05 round, then... So let's put it this way. You want gold. You want physical gold. The only difference is you don't have it in your cupboard. That is all. So that is what we tell people to think about. You want physical gold and legally you are the owner of that gold. I don't have it. Not that I expect it to happen. But theoretically, if we were to disappear,
00:29:48
Speaker
go bankrupt, whatever it is, right? There is a trustee who's got all the customer data and stuff, I mean, encrypted and all with all the data protection guidelines, but the trustee will then step in and distribute those assets. We as a company don't have any claim on that gold, our creditors don't have any claim on that gold, it is customer gold, not our gold.
00:30:04
Speaker
They are like a manager facilitator for helping customers access their gold. So it is stored with a custodian who operates the vault. The trustee is an independent agency whose job or it's a company called Vistra corporate services. They're a Singapore headquartered company. They operate these trustee services in many countries. UK Singapore is that.
00:30:26
Speaker
Trustee service for digital gold is not regulated in India. We hope that it does get regulated or for digital assets or whatever. There's no regulation on it. The government's talking about it. At some point, hopefully it'll get regulated. But globally, people regulate digital asset trustees and things like that. This is a subsidiary of one of those companies.
00:30:42
Speaker
What is a trustee? Trustee, that's why in India, it's an independent company whose job is to protect the customer's interest. Now they do it. It's a specifically defined thing. I'll simplify it without going into all the details of the contract, but they have two specific roles. First is when we sell gold to a customer, the money comes to an account controlled by the trustee. Their job is to make sure that we get that money only when they are very excited that there is adequate gold backing this purchase in the world.
00:31:08
Speaker
So it's a daily release. They get all our sales into an account controlled by the trustee. They will then check here, is there gold backing this purchase? If there is, they will give us money. If there is not, they will sit on the money. And if beyond whatever a few days, it's never happened, we've done whatever 70-80 million transactions. But if after a few days we haven't put the gold, they'll just send the money back to the customers. So that is job number one.
00:31:28
Speaker
And the trustee does the verification digitally or physically? There would be some sort of a linkage. They do periodic physical visits, but since it's daily, money comes to us. I mean, we do let's say 200,000 transactions a day and that money is coming into the account. They can't physically do that verification on a daily basis.
00:31:45
Speaker
which is the custodian, they send a daily report to the trustee. So they will look at it yesterday, okay, this guy had so much gold in the vault, today he's got so much gold in the vault, does it correspond to the new sales? If it does, then they send us the money. That is job number one, that we cannot get customer money without corresponding gold being in the vault. Second function that they serve is if something were to happen to us, or even if a customer just pissed off with us and said, I don't want to deal with safe gold, I don't like them, I don't trust them, I don't like them, whatever else.
00:32:11
Speaker
Then, they can go to the trustee, they'll have to prove the KYC that the trustee has access to a system. They will check that this guy owns one gold, and if the one gram of gold or whatever the guy owns, and if it all checks out, then they will give that gold to the customer. So, if we don't exist, their job is to distribute customer assets in an orderly manner to the customers because everyone share that you may have bought the gold, this, that, but suppose you go bankrupt.
00:32:35
Speaker
Who will I call? How will I get my gold? This, that. So we built that full process in place and got someone over there whose job it is to distribute all those assets and make sure that no one is ever lacking for the claim. So if you think about it again practically, and I know regulators will hate this.
00:32:51
Speaker
But when you look at any currency note, it says I promise to pay the bearer the sum of, we'll just give you another piece of RBI, no asset to give you. We can give you like a government of India born. So as we've seen with Sri Lanka or other countries, if the government goes a little crazy, some very populist guy gets elected, cuts taxes, starts giving lots of freebies, that currency that I promise to pay the bearer the sum of 100 rupees close to what's less or it'll suddenly lose a lot of value very quickly.
00:33:15
Speaker
We are effectively giving you the digital equivalent of that, that I promise to pay the bearer of this digital token, one gram of gold, and we set it up such that it is always backed. Anything can happen, you can go to the trustee or you can come to us and there will be that one gram of gold backing it, the way we set it up. And you can take your gram of gold and the gram of gold is such that you can get up from India, you can cross the border, go to Nepal, you can go to Singapore, you can sell it, you'll get something for that gram of gold.
00:33:38
Speaker
I say it's a bit facetious but J.P. Morgan had a quotation in 1929 at the height of the crisis where he said money is credit or rather he said gold is money, everything else is credit. It's a physical asset, you can go somewhere in cash, it's a globally traded asset which you can put in your pocket and you can have a lot of value in your pocket and you can go and get it.
00:34:02
Speaker
When you get this paper currency, whether it's US dollar, this, that at the end of the day, it is the credit note that you've gotten, you're taking credit risk on some institution. So I would argue when this is again, highly conceptual that it is in some ways more credible than most feared money that you've got.
00:34:17
Speaker
to buy gold to put into the world? Is there a gold market? How does that happen? So, there is a wholesale gold market in India. India is the second largest physical market for gold in the world. Some years China is bigger, some years we are bigger, but we are close to the largest physical gold market. We don't produce any gold in India.
00:34:35
Speaker
So, it's all imported. There are only two institutions or two types of institutions that are licensed to import gold in India. One is banks. So, that's the FCICIC. They import from global sources. They'll buy these one kilogram bars. You can go to the bank and you can buy one kilogram bar. So, we buy some from the banks. And the other are refiners. And the refiners are people who import something called dore, which is like gold ore. But it's not just mud, but it's somewhat purified all of that.
00:35:01
Speaker
But they met that and processed it and produced gold bars. Now, they have about 50 or 60 refiners in India, of which five are what is called India Good Delivery Refiners, who have been certified by the Bureau of Indian Standards to follow certain quality standards, certain norms. The RIT is assured. And they're authorized to deliver bars on the MCX to settle gold futures trade and things like that.
00:35:23
Speaker
So, we will buy either from a bank and banks only sell something called London Good Delivery, which is the London market, the LBMA, which is the London Bullion Market Association. So, they have certified about 78 refiners all over the world and they periodically audit them and stuff like that. So, banks will only sell you LBMA. So, all the bars that we buy, short point is you will either buy London Good Delivery from a bank or we will buy from bars that are made by one of these five refiners, which are India Good Delivery. So, we will buy, in short form, we will buy a Good Delivery.
00:35:51
Speaker
every bar and put it in the vault and then get the money from the trustee.
Safe Gold's Customer Experience and Pricing Strategy
00:35:55
Speaker
What if during that day you haven't sold enough to need to buy a full bar? Then what do you do? Do you buy in advance or do you buy after sale? So on the weekend, this is the only time we buy post because pre-weekend. So we'll predict if we think we're going to sell 100 kilos, we may buy 30-40 kilos.
00:36:13
Speaker
But through the day, I'll buy in advance. So now the market's open. So our interest is to buy in five kilo, two kilo, one kilo increments. I don't want to lock up capital. So I think in the next hour, I think I'll sell a kilo or two kilos. So I'll buy two kilos and keep it. Then in the next hour, I'll buy two kilos and keep it. So that's how we do it. So in working days, we buy small multiples.
00:36:31
Speaker
and weekends are long holidays. We'll buy half and keep it by the rest of it. And what does a customer get? Tell me the customer journey and what a typical customer is like and what is their long-term behavior on the platform? Okay, so our biggest method of just taking gold investment and gold investment is just the base of it. Now, if you go to a website, you can earn a yield on it and you can get a loan against it. You can get people give you credit cards against it. You can exchange for jewelry. It's a whole bunch of things.
00:36:58
Speaker
you can do. I think everything you can do with physical gold, our aim is to make it more fun. In fact, many of the things that are possible when you do it over digital channels are very difficult to do over physical gold. So, we can talk about all of that later. Let's just talk about the simple how customers buy. Our, let's say, the bulk of our platform, 90-95% of our platform is working with distribution partners.
00:37:19
Speaker
This can range from Amazon and Flipkart to people like Axis Bank to people like Jar, which is the fintech app to people like Tanishk. Tanishk sells the digital gold on his website. When you buy digital gold on the Tanishk website, you're buying it from Safecold. Now, all of these guys consume our APIs.
00:37:35
Speaker
where we have a buy price, sell price, delivery, all of that. So, we have a bunch of APIs. So, the entire functionality that you see on our website is available through APIs for any partner to consume. And partners can then list six-fold on their website. So, you go to Amazon Pay, you can buy it. You go to Phone Pay, you can buy it. So, all of that. Moby Quick. And we have about 80 or 100 partners like this. So, the customer journey is when you register. So, you will register typically, let's take with Access Bank. You have a savings bank account with Access Bank. So, when you go there,
00:38:01
Speaker
One of the things in the access banks app will let you do like lots of things, right? You can buy insurance, you can buy mutual fund, you can grant money. One of the things that says you can buy gold, you can buy digital gold and access bank is not selling it to you. They are just acting as a payment channel where they're taking money out of the bank account. You're buying it from safe goods. You'll have to click on disclaimers that access bank is not taking any risk.
00:38:19
Speaker
They are not getting this. You are using them as payment, whatever all those disclaimers that they have to give you. And then they will show you a buy price on the app or rather they will not put on the, we will show it to you on the access app. So this is the price which you can buy it. You choose to buy anything, 100 rupees, 1000 rupees, whatever you want. So you'll get a balance. And then once you have a balance, the most basic apps will only give you the choice of selling it. The other apps would say you can ask for delivery.
00:38:42
Speaker
Now, if you own 0.02 grams, I can't deliver like a fleck of like some gold. So the minimum you need to own is like half a gram or one gram, depending on sometimes they have half grams in stock. But otherwise, one gram is most commonly the thing. So once you get to one gram, deliver a coin. There is a charge because there is a courier, there is insurance, there is we actually make it because it's stored in one kilo bar. So it's actually manufactured in so it'll cost three, four, 500 rupees to get that delivered to you, deliver it to you. The other
00:39:09
Speaker
Another option you have is we have a tie-up with Tanish, Karat Lane, Kalyan's, online Ambat, what the dwellers. You can go to any of these guys. You can go to Tanish website, go to Tanish store. They have got a safe gold balance, wherever you may have bought it. And you can exchange it for jewelry. Now, what will happen is if you have half a gram, you have even 0.2 grams. At the back end, you will get a sort of OTP. If you enter the OTP on the Tanish website, then that your 0.2 grams will transfer to Tanish. And it's the same as going to Tanish website.
00:39:36
Speaker
becoming the Tanishk wallet. So then Tanishk as a company gets ownership of that gold and they will give you credit for it. So it's as good as walking into a shop and you have some old jewelry, right? You say, I'll be a Purani jewelry lillo and I will take some new jewelry and the same process of the follow just that it's done digitally. So whatever you've accumulated, even if it's a very small amount, you don't need to pay any make delivery, all of that stuff. You just go and you exchange it for actual
00:40:00
Speaker
One quick question, somebody was buying through an access bank app and not opting for physical delivery. So they will get like a safe call login where they can log in and see the balance and is there interoperability? Can I buy from access bank? But later on access that directly to save or whatever.
00:40:18
Speaker
So there is interoperability, I'll say, in 90% of the cases. 10%, some of the partners have some work, so they're doing tech development and all, but it's not fully interoperable. But if you buy an access bank, for example, banks are regulated and they're very clear guidelines from the RBI about what they cannot do, what they should do, shouldn't do. So that way, it's a good thing. I'm much happier if the whole industry gets regulated and they're very clear guidelines for what's possible and what's not. If you buy an access bank, yes, you can log into the Safe School website.
00:40:44
Speaker
and you could have bought on Amazon, you could have bought on Access, wherever you bought, that you will always see when you log in on the Safe call website, they'll show you, or rather will show you your balance when you go to your transaction history, what you did on Safe call, and what is your balance at all the other places. Most of the other places, they transfer it out, and you can move it, so you can't move it from Access to Amazon and stuff like that, because there they have some EFL concerns, so to stay away from that,
00:41:09
Speaker
We've just you can move it because then we do your kyc whether it's done or not if you move more than two thousand rupees worth of gold will take your pant card will do all that other stuff take your proof of address if you ask for delivery and all of those things but yeah you can move it all into safe course you can consolidate it into a single place and wherever you bought from you can also go to tanishkin you can exchange it so you could have bought from three different places you can go to tanishkin you can exchange it
00:41:30
Speaker
and you can convert it into jewelry. So, the simple basic functionality you can buy and our aim is, look, if you want to trade gold, this is not good because you're buying physical, you're paying 3% GST. There's also a buy-sell spread because every person who sells it, they take a distribution fee. So, they take a distribution fee to make a bit of money. So, there's the most actually 70-80% of that buy-sell spread goes to the distributor. So, because of that, there's a buy-sell spread. This is not a trading product.
00:41:55
Speaker
Trade, you go trade MCX futures, you buy ETFs and trade those. There are many ways to trade gold where you do not lose GST. This is an accumulation product. If you buy vehicle gold and you need to use it for jewelry or you want a gold coin at the end of it or something, then this is great because you will buy it cheaper than any jeweler in the country. It's roughly 2.5% higher than the wholesale price of gold. So what you can buy a 1 kilo bar, you go to any other jeweler. It will be anywhere from 4% to 8% higher than the wholesale price. The gold rate is not meant for trading. It's meant for accumulation.
00:42:24
Speaker
And if you want to use it at some point in the future, if you want physical metal, that's what the product is set up for. Do they have to pay GST when they buy and don't take delivery? GST is still there. Because from a legal point of view, you are buying physical gold. It is kept in the vault.
00:42:39
Speaker
You don't have possession of it, but legally you are the owner of the gold, so you have to pay GST. And what kind of KYC do you need to do to be able to buy gold? So the law says if you pay in cash for more than 2 lakhs, then we need to take your pack card. That is the declaration. However, what we have imposed and most of our partners also have it is, up to 2,000 rupees, you just verify your mobile number. One is there's no cash gold. So nowhere in our system can you buy gold for cash. Yeah, it's all digital payment.
00:43:05
Speaker
If you are able to look at it theoretically, we are not supposed to take any KYC. There is no law on KYC in a theoretical level because of cash money, everything will either come through credit card, credit card, net banking, so you can always track it. But for more than 2,000 rupees, we take your pan number. And if you go above and then they have different layered stuff, if you go more than 50,000 rupees, we'll take a proof of address.
00:43:24
Speaker
your bank account, if you sell, your bank account has to match your payment. So there are a bunch of other things we do. The summary is less than 2000 rupees with your mobile number you can buy and sell and all, but this is cumulative. So once you've done 2000 rupees worth of transactions in any form, then you need to start giving KYC.
00:43:40
Speaker
And QVC is just PAN? It starts at PAN, then as you do more, as you cross certain levels, then we'll ask you. PAN, like ID proof, residence proof. ID proof of address, and then your bank account, if you sell. So then see, what is the fear that people have? That you get it delivered and it's someone else getting delivered. So then you're, now again, if you're getting one gram delivered, we won't bother you. But at 20 grams, 40 grams, if you're getting frequent deliveries, then we'll say, yeah, you have, give me some, now we see you'll have already given your PAN.
00:44:09
Speaker
So, we need a proof of address where it's being delivered which has to match that same. You can't give me some other proof of address at the same time. It has to be where you're getting it delivered and the name has to be the same. Otherwise, you need it delivered. Then, you say, what is my option? Then, you can sell it. If you sell it, then the money can only go to a bank account. Again, your bank account name has to match your PAND name. Otherwise, we're not sending it there.
00:44:28
Speaker
Those are the two things and then we may do if you have a whole bunch of risk parameters running at the back end. So if you trigger suspicious behavior and I'm not going into what it is because you got many, we have maybe 40 or 50 indicators that we track, then we'll further on say we have to do video KYC, we'll call you and check that you are the person you have to hold up your KYC. So we've got a whole range of things.
00:44:46
Speaker
Which we think is, as I said, technically, if you read the letter of the law, we are not required to do anything. But I don't know anyone who does that. So we follow obviously way higher standards than the letter of the law. But all of our distribution partners also have somewhat similar levels of KYC. Because it is not in regulations, there may be slight variation, but it is broadly.
00:45:06
Speaker
So, you said that gold retailers earn through the buy-sell spread. Can you explain what that means and do you also earn the same way? Let's say you buy 1 kilo of gold from HDFC bank today. You are a jeweler, you buy 1 kilo of gold. He sells it to you at 100 rupees. On average, the average jeweler, then when you go to a jeweler and you buy some chain or something, if you buy some gold chain for 10 grams,
00:45:26
Speaker
He'll say 10 grams price of gold is X and making charges Y and X plus Y is what you have to pay. Now, in this example, the 100 rupees of gold, he will mark up to 105 rupees. Just to make it simpler, in this example, if he bought 1 kilo for 100 rupees, say he would give you 100 gram chain. Instead of pricing that gold at 10 rupees,
00:45:47
Speaker
he would price it at 10 rupees 50 paisa or 11 rupees so one is they make a margin on wholesale versus retail and this is every product right rice to cold oil gold either the wholesale buying one kilo and there's a retail price so one that is the margin that even we make so the average jeweler in the country makes a five percent margin we make a two and a half percent margin so that is the spread we all make money at the end of the day even we are a business trying to make money right but the point I'm making is look at our price go to any jeweler for buying that five gram ten gram
00:46:14
Speaker
and whatever, compare it, go to Amazon, you can buy a 10 gram coin on Amazon, we will invariably be, if not the cheapest, close to the cheapest. Why is the buying price and selling price different? If I want to buy gold, there is a different price. And if I want to sell gold, there's a different price. One is we don't want people, we don't want to build it as a trading platform. So first is if I'm buying at 100, I will sell it to you at 100 and 2.5. But when I buy it back from you, I buy it back at 99. Because one is there are days when the price goes up a lot.
00:46:39
Speaker
And that is honestly risk management plus again of that spread, we have to pay for money transfer and all the payment fees. But when people start selling back to us, what happens is that there are days when price of gold goes up, suddenly everyone will come and sell. So that day we'll have net buyback of 10 kilos. It takes time and that is when I have to buy a lot back and then I may, when I go to sell in the wholesale market of these banks and refiners don't buy by gold from you. I have to find some bullion trade by gold from me.
00:47:05
Speaker
So that bullion trader will also not buy gold back from me if the price is 100. He'll buy it back at 99 from me because he'll say, boss, I'll give you a service of liquidity. I need to make a spread. So I buy back at the price at which I can sell to a bullion trader. So that covers my risk. I don't want to lose money on that. I'm not going to make money, but I don't want to lose money.
Expansion and Innovation at Safe Gold
00:47:23
Speaker
So that is the buy-sell spread. And what do you pay for payment gate rate? Is it the standard? One and a half, two percent, because that would be exorbitant rate.
00:47:30
Speaker
That's why I said 70-80% of that 2.5% spread that we are making goes into the payment gateway or to a distributor. So if Amazon also collects money from the customer, so it's that same, it ranges between 1-2%. And the good thing is maybe over time as UPI becomes more, then hopefully that average cost comes around. But yeah, just now you're still stuck on that 1.5% average cost.
00:47:54
Speaker
Okay, so tell me about the other features, like you said, that you can do lending, or you can earn a yield on it, the other stuff that you allow people to do, because it's a digital asset. Yeah, so there are two things. So for example, we've got a partner called galaxy card, they keep your gold as collateral in the issue, you like a credit card with the value of your credit
00:48:15
Speaker
is linked to the goals that you have. And there are a bunch of other parts. We had actually five, six other guys, but all of them had followed that prepaid instrument route for funding the card. But that was as a mass market product, it is a
00:48:31
Speaker
Very interesting thing. So, for example, I'd got my driver one of these cards. So, for him, he buys gold. See, that is the ideal target customer. Sorry, you'd asked about that earlier. And they are the ones who are starting to get digitally savvy. So, he will save a thousand rupees a month in gold because for him, he understands bank account. He has an FD. Beyond that, he says, for him, make the leap into mutual fund, equity, debt, and all is a little bit of an extra thing.
00:48:55
Speaker
I got him one of these cards where he had maybe over a year or two, he'd got some 10-15,000 rupees worth of gold. So he had a 10,000 rupee credit limit concept. That's like a mind-blowing concept. It's free credit for them. So that I think is a big thing because this at the mass market where they accumulate gold in any case,
00:49:15
Speaker
to use it as a standing line of credit without having to sell it, without having to liquidate it, without having to go to a shop and put it in as collateral and it keeps on adding up. In a shop, you'll first save up money to buy 10 grams, then you'll go give it to a muthu, then they'll give you a one-time loan. To get this standing line of credit is a very powerful product and I think these guys are now reworking it and they'll come out with a credit card and I think it's very popular. With the mass market, the last 10 days of the month is when they need credit. I think it's a great product for them and they're the biggest buyer.
00:49:42
Speaker
Yeah, it builds up their credit history, credit scores. It's a great thing. And they'll normally never get a credit card. So that is one. And this is a physical card or a virtual card? With this PPI guideline, all those old issues have gone out and they have to now be reworking it. But they'll all come back because it was the massive traction this was getting. So I think that is one. So losing, let's get a yield. You take risk on that in the bunch of disclosure. That's in beta. It's still very early.
00:50:11
Speaker
But it's like, to the best of our knowledge, it's the first in the world that lets you make some money. How does it work? So, jewelers lease metal. So, if you open the Tanish balance sheet or you open any other big jeweler, actually any jeweler, if you look at it, if you look at the jewelry store, the average jewelry store will have, say, 3 crores worth of inventory in gold, right? He'll have lots of things and all.
00:50:31
Speaker
But of the total value of inventory, 3 crores will be in gold. Now, if you think of that as an asset, 3 crores gold asset. Now, if you want to manage this because this gold asset can go up in price, it can go down. The day he says, so if you buy gold today, a jeweler on an average will take you between 90 to 120 days from the day you bought gold till it gets manufactured into jewelry.
00:50:51
Speaker
till it sits in your shop till it gets sold. So, if the price of gold is now fallen by 5% on the day you sold it as opposed to the day you bought the gold, you've lost 5%, right? So, you've got an asset in one currency which is gold price and your liability is in one place.
00:51:06
Speaker
So what they want to do is, I want to borrow 3 crores of gold also. And then if the gold price goes up, goes down, I don't care. My asset liability gets matched off. It is, again, thinking of gold as a currency. If you look at a big multinational, if I have operations in Japan and I have 100 million yen in assets, I'll finance it with 100 million yen in local sort of yen liabilities rather than finance yen with a dollar liability because then with US dollar yen,
00:51:30
Speaker
I might make money, might lose money. So you offset it, then you're totally matched. That's what multinational does. So a jeweler also says, let me finance it with gold liability. How does he do it? He actually takes like Tanishq in the balance sheet, we'll say we lose eight tons of metal in a year, which means he has borrowed eight tons of metal and he'll pay you say 10% interest. Tanishq actually pays much less than that. But if he's paying you whatever 10% interest, so on one ton, he'll give you back 1.1 tons of gold at the end of the year.
00:51:58
Speaker
It's like gold is borrowed, gold is interested, gold is liability. Whatever it is, balance sheet size, he'll offset it. So, jewelers borrow gold. So, the large banks lend it to the top 500 jewelers. They have 3 lakh jewelers in the country. Of which the top 500 or 1000 get these metal loans from banks because they borrow from offshore and they give it. The rest of the jewelers don't get anything.
00:52:16
Speaker
So they bought on the informal market and so we start saying we will, as a customer, one is you have to accept the risk that is key because when you're giving it to the boss, it doesn't pay back, then you're stuck. So if you're willing to do that, but it's taking an ideal asset and it's actually reducing imports today, they would, if you're done, if you're finished, you would, I say, say bank will import that gold and lend it to finish.
00:52:35
Speaker
Better still, you have local gold, so much thousands of tons owned by consumers. Let them lend it locally. And so local jeweler gets it. And what we do is we take a bank guarantee from the jeweler. So we tell the jeweler that you want to borrow one kilo.
00:52:47
Speaker
We list it. If we get customers equivalent to 1 kilo lending it to you, then we will collect it all and give you 1 kilo. And if you don't give it back, we'll enforce this bank guarantee, which you've taken for the value of 110% of that 1 kilo. We'll buy gold and give it back to the customers. There is risk because when you go to enforce a bank guarantee, it takes 3-4 months, no bank pays you quickly. When you go to buy it, the price to hold may have gone up and all of that.
00:53:08
Speaker
But it is still protected to a large extent. You won't lose all your money. You lose all your money. That is the product that we started. And there would be a lock-in period for this, right? Because the loan would be. Three months or six months are typically lock-in period. So, think about putting a fixed deposit and then you get it out. So, that's what we've started.
00:53:24
Speaker
I wanted to understand your go-to-market. How did you acquire the first 100 customers and then how did you acquire the first 1000 and then the first 10,000? How did that go-to-market journey evolve the customer acquisition strategy?
00:53:39
Speaker
quite simple in the sense that we started off as a distributor driven platform. So our first partner was Phonepay and we launched with Phonepay in effectively January of 2018 was the first full month of operation with Phonepay. And I think the first nine months, Phonepay was on a rocket ship for a while.
00:53:56
Speaker
So we were able to get the first few million customers straight by being present on the phone pay app. By powering the gold icon on the phone pay app, we were able to get the first two, three million customers with no spend or no work and phone pay was spending more on cashbacks and this and that, all of that. So that was almost too easy to get the initial scale. But then of course, if you're completely dependent on one person who's a much larger entity, then of course the terms of trade are skewed in their favor.
00:54:21
Speaker
But I think that actually opened the doors for us in the sense that once you're on phone pay, once you get some initial scale, it's much easier to get other partners. And then we started, then a lot of people also come and start talking to you and we were able to go to other banks and other tech apps. And then from phone pay, then you go to Flipkart, then you go to Amazon, then it builds up from there.
00:54:40
Speaker
So you don't really see a direct-to-customer play in the future also. You want to continue with the route through partners? Yes, I think today now maybe 5-10% of our business comes direct-to-customer. How does that happen? Do you spend on ads?
00:54:55
Speaker
No, it's just come organically. We've had zero marketing expense so far. We've hired a PR company and we've hired some people to post on Facebook and Instagram and all for us. But we don't spend on marketing in the sense we don't make ads. Branding efforts, but not like performance marketing.
00:55:14
Speaker
It's more communication type efforts that we do where we hire. It's like you pay some retainers and all, but you don't spend on Google and Facebook and stuff like that. And there's a reason for that. See, the margins in gold are so low. So the two reasons, actually, that the margins in gold are so low that it doesn't justify, even if a customer comes back and buys gold twice a year, twice a year, I've given the average ticket size with us on our website. It's about 4,000 rupees.
00:55:36
Speaker
on some of these other fintech apps and all it'll be lower at seven eight hundred bucks banks it'll be higher six seven thousand rupees but even on that we'll make some five rupees ten rupees twenty rupees kind of margin each time a customer buys from us after you've paid all the payment gateway costs and all of that stuff right so the customer acquisition cost anywhere you look at it will be at least two hundred three hundred four hundred you're not going to get twenty rupee thirty rupee customer acquisition cost plus it's a
00:56:00
Speaker
High trust factor. I think more importantly, when someone buys from you, they need to believe that you actually have the gold stored with them. Now, we've got all this trustee, custodian, all that fancy thing. But the reality is that most customers are not going to bother reading all that stuff and going through it and all that. Between the fact that the economics don't really make sense. So whatever comes organically because people hear about a CR logo, that's fine. That's great because all margin is good margin if you're not spent more than that on acquiring it. Also,
00:56:26
Speaker
And the final point is that we think of it like if you look at a mutual fund rate, we are in some senses like a product. You're an investment product. Also going back to my original plan. The original plan is it's like you should be with 50 million, 100 million consumers. You're a currency which you want 100 million people to own. Should be a unique address that they have and you should be able to focus on the interoperability.
00:56:45
Speaker
I'm not trying to build a gold investment business in itself. So then if you are like a currency which is now used by a hundred apps and hundred big apps, then you can start doing stuff with that, right? They can start like going to Tanishk is the first theoretical use of currency that you've got. You bought some gold on Amazon. Now what do you do with this? If you want to make it a currency, you can use it for a hundred things. Today you can use it for one thing, which is go to Tanishk and buy jewelry with it.
00:57:08
Speaker
trying to do that. I'm trying to build this. I have a currency which hopefully in today, 20 million people own it. Hopefully 100 million will own at some point. Then you give them other things to do with that currency, always in partnership with other platforms. How many customers do you have now? So you want vanity metrics? Okay. Depending on who I want to answer. Let me give you the entire stack. We have about 30 million customers. We've got KYC and we've got the details and all of that.
00:57:30
Speaker
After 30 million, about 23 million have bought gold from us. So 23 million have given us money at some point, bought some gold and gone away. And about 9 million today still have a positive gold balance with us. Why is this such a high churn? 50%? There are again three buckets of customers. Okay. Roughly one-third, one-third, one-third, but, and it's simplifying a bit because it varies a lot on a channel. So part of the churn is without naming them, let's say some FinTech app gives the cash back.
00:57:56
Speaker
You buy digital gold, you buy something, you get 5 rupees cash back. In 3 weeks, you'll get 2 million guys who'll buy it, take that 5 rupees thing and go away. So, I'm happy, I made some money off the guy, someone gave cash back, showed engagement, whatever. So, that is part of it, okay? So, that explains some part of it. The other part is you get, talking about a customer base, about one-third come, they aren't sure what it is, so they'll buy 5-10 rupees, 50 rupees, they'll buy it, they'll keep it for a week, a month, whatever, sell it and go away saying,
00:58:24
Speaker
Some of them come back, maybe a third of them will come back, two-thirds of them won't come back, but they just try it out, so they don't know what it is, they try it out, see what it is, and they don't come back again. Not one-third, about 20%, 15%, 20% buy it once and then become regular users. Regular users redefine it at least once a quarter, they come and do a transaction with us, whether they buy, redeem, give, deliver, whatever, once a quarter. So say, depending on the distribution channel, somewhere between 15% and 20% become recurring regular users, and the balance, which is 40% or so,
00:58:53
Speaker
are guys who will maybe transact once a year or more. So, you said your ideal audience is like your driver, someone who is not in the formal investment economy, not using mutual funds. So, what's your strategy to reach that audience? You want to find partners who are in apps? Largely, it is find partners who cater to them. So, someone like an Amazon pay or a phone pay will reach the upper end to the absolute lower end.
00:59:17
Speaker
they're the challenge or the focus more is figure out the lower end or the mass market people and then how do you reach out to them and engage them and get them on board the other thing is you work with people like microfinance companies you work with they have nbfc's who focus on the mass market so other financial services type of people who are focused on this segment and you go to them we found the most success through the payment bank so we work with you know payments bank at l payments bank
00:59:39
Speaker
And there are a couple of others in the pipeline. What is your path to profitability? Are you currently profitable or what do you see as? Yes, we've been profitable for a while. What is your top line? So we are like cashflow positive. We add cashflow to our bank account every month. And what's your top line? What are you expecting to close this year at or what did you do last year at? Yeah, so I can give you the numbers. But they're just mined in gold. We make like tiny margins. So because we sell the gold, the top line sounds very artificially inflated. Not artificially, it's actual soil.
01:00:07
Speaker
It's not represented over the scale. So we did.
01:00:10
Speaker
About 2,500 crores for the year ended March 22. We did 400 crores the year before that. And our run rate, we should do about 6,000 to 7,000 crores this year. You would be adding about 1% or so in that. We make basis points of this. We make it not even after you have to take out all the Kartha. But I think the key is, if you do not spend on marketing, then it's a fixed cost business. You have people, you have AWS. So the only thing that really goes up, so I have to pay all my distribution partner. That's all a direct variable cost, whether I sell 100, whatever, X percent goes there to
Funding and Future Expansion Plans
01:00:39
Speaker
payment gateway.
01:00:39
Speaker
Did you need to raise funds for this or did you self-fund it? No, it was a little bit self-funded in the beginning, but we've got three investors who have a minority stake, which is the World Gold Council, which was the seed investor. And then there are two VCs, Pravega and BNEX. So that would have been a strategic investment.
01:00:57
Speaker
The World Gold Council is a very strategic investment. It's not so much financial. Then we raised some VC money in 2019, which is the year after we started, which is from Pravega and BNEXT. And after that, we've never raised. Then it's small. Our total fundraise to date is 16 crores, and we have maybe 12 crores in the bank today. So we spent all of 4 crores of our total fundraise.
01:01:16
Speaker
There is no need for you to raise also now because the path you're choosing is not a hybrid path. No need. We might raise at some future thing for the international business. So of our 16 crores that we've raised, we've put four crores in the international business and there are new markets. I think in India you can scale a little bit faster. So I don't think we'll ever be going down the path of raising 100 million dollars, 50 million dollars, all of that. We might raise more money if we can accelerate it, launch a range of new products, stuff like that.
01:01:43
Speaker
What is your global plan? Do you have a market in mind that this is going to be the first few markets and will the product be the same? Thailand, we're already live in Thailand. Thailand is the per capita highest consumption of investment gold. I think per capita is the highest in the world. In Asia, it is one of the highest per capita. To give you a sense of it, they have a 60 million population and we have whatever 1.5 billion, whatever our population is.
01:02:10
Speaker
We as a country consume, forget jewellery, because jewellery is not in our direct target segment. We consume about 150 tons of bars and coins every year, which is worth roughly 10-12 billion dollars. Thailand with a 60 million population does 100 tons of bars and coins. So, it's a very high investment demand for gold market and the jewellery is in fact much smaller.
01:02:28
Speaker
So I think the first few markets suggest Asia because if you start with telling people, hey, I have a digital currency, come buy it, you can do things with it, the regulators will freak out, the customers will say, I don't know who this guy is, he's a wet job, all of that. So I think the aim is to go and offer it as an investment product where people have a natural affinity for buying gold as a more efficient way to accumulate gold. Once you've got enough people who got it,
01:02:52
Speaker
subject to the regulatory sort of approvals you can get, then give them things that they can start doing with it. So I think Thailand, UAE is the next that we have in line where we are working, where we've applied for licenses. It's still pending and Singapore is the other place where we've applied. That is the strategy. And probably you would want inter-country interoperability also, like someone from Thailand is able to redeem it in India and vice versa.
01:03:16
Speaker
That's why Singapore and UAE and all are great countries because they have no taxes on gold. There's completely free interoperability. So then you can start doing the funky stuff in terms of send it instantly for imitances and things like that. I love the long term game that you're playing. The vision is amazing. Essentially, you are doing like a safer version of Bitcoin.
01:03:35
Speaker
Huh, say for compliance, so you go through the headache of each country regulator, they have different questions and this and that, go through that headache.
Competitive Landscape in Gold and Crypto Markets
01:03:41
Speaker
So it'll take time, but hopefully someday when you turn the switch on or it starts becoming valuable. Are there any competitors in your space? I'm assuming it might be like... Unfortunately, see, there's no direct competitor, but there are in some ways direct. So you've got in India, there are two gold refiners, people who import gold refiner, who have also started doing this.
01:04:01
Speaker
So I would say maybe 60-70% of the market share in India is ours for the digital gold. There is one other company called MMTC PAMP, which is a gold refiner. They are the ones on PTM and on Google. So if you buy digital gold on PTM or on Google Pay, it is powered by MMTC PAMP. So they are our only real significant competitor. You can't go, you can't get a loan against it. You can't redeem it at a jeweler's shop. You can't do anything with it. You can buy the gold and they'll send you a coin.
01:04:27
Speaker
And because that is their business model that they make gold and they sell gold, this is one more channel to sell gold. That's like their e-commerce arm in a way. That's their e-commerce arm, not to say that they won't try and do it, they're a big company, they have a lot of resources, all of that stuff. And then they have a bunch of their report, I'd say at any given point, there are at least eight or ten other bullion traders who launch their apps and try and go and do this and all and every year to two years, most of them shut down, then some new ones come up and also that's maybe four, five percent of the market that is there.
01:04:53
Speaker
In places like the UAE and Thailand, there are no direct competitors that we know of. But like Teetha, you were talking about that stablecoin. Teetha has a global gold back token. Paxos is another one that has a gold back token. Now, those only trade on crypto exchanges. They've not gone and integrated with a bank or an Amazon or someone like that because those are now that's in the realm of crypto.
01:05:12
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.