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Eko-ing Mass Financial Inclusion | Abhinav Sinha @ Eko India
140 Plays3 years ago
Is first mover really an advantage!
In this episode of Founder Thesis, Akshay Datt speaks with Abhinav Sinha, Co-founder, Eko India Financial Services, a company that envisioned the innovations FinTech brought in recent years, more than a decade ago.
Eko started operations in 2007 with an aim to bring banking to consumers 24X7 through a network of business correspondents. After numerous pivots and adapting to the ever-evolving market, today Eko has a vast chain of merchant outlets to provide banking services, especially to the economically weaker sections of the society.
Tune in to this episode to hear Abhinav speak about how Eko is working towards making financial inclusion a reality in India.
What you must not miss!
- The pilot that got funded by Gates Foundation.
- The journey from USSD to an app-based platform.
- Survival tip: Keep pivoting!
Recommended
Transcript
Founding Echo: Challenges and Opportunities
00:00:10
Speaker
Hi, I'm Akshay. Hi, this is Aurabh and you are listening to the Founder Thesis Podcast. We meet some of the most celebrated charter founders in the country and we want to learn how to build a unicorn.
00:00:25
Speaker
Hi, I'm Abhinav. I started Echo in September of 2007, and I did this with my elder brother Abhishek. It's the year 2007. Flipkart is still very much an idea in the minds of the Bonsals. Softbank is yet to invest in a single Indian founder. The word unicorn refers to a mythical horse. This is the era when Abhinav Sinha, along with his brother, started Echo with an ambitious idea of building a FinTech platform for payments.
00:00:53
Speaker
Being too early is as dangerous as being too late and Echo went through many near-death experiences simply because of bad timing. But through it all, the brothers persisted against all odds, even picking up backers like Bill Gates who is an early investor in Echo.
00:01:10
Speaker
Today, Echo is lifeline of payments for the masses with lakhs of merchants using the platform to process bank transactions and offer financial services to their community. And the brothers are as ambitious as ever about the way forward. Here's Abhinav Sinha telling Akshay Dutt about Echo.
Transition to Electronic Recharge
00:01:27
Speaker
If you remember in early 2000s, if you go to recharge your phone, you know, you had to buy a scratch card.
00:01:35
Speaker
Yeah, right. You have to scratch that scratch card 16 digit number, put it on an SMS and that SMS and it will get recharged. If you remember what has happened since then in the telecom world,
00:01:47
Speaker
is that the scratch cards have got removed and there is something called electronic recharge. You just walk into a store and say, I want to recharge for 50 bucks, 40 bucks, 38. You can recharge for any denomination these days. By the way, it's very core to how the prepaid telephony can scale because prepaid telephony, the supply chain got cheaper. There was no hardware. People could recharge in any denomination. It really went to tier 2, tier 3, all the way to tier 8 even in India.
00:02:13
Speaker
and all the retailers could start to participate rather than a few retailers participating in dispatch cards. So the beauty of that product, actually that product at my experience, so closely with the client side actually is the reason for the birth of my phone. So if you think about it, you know, electronic recharge, look at all what's happening, right? There is a person with a phone, walks to a retailer with a phone and says that, why don't you recharge my phone with 500 bucks?
00:02:43
Speaker
and he gives cash and he gets an SMS that says I'm recharged. Now think about it. I have used the word recharge, but I could have also used the word deposit. I could have said deposit 500 into my ATEL prepaid account. As soon as we kind of started to realize, oh, this is really a deposit transaction. Sure, a deposit transaction in a telecom world is called recharge. And the money that goes into that account is only being used for telefiction.
00:03:10
Speaker
But imagine if the same tech stack is put to a bank. What can happen?
Banking Vision with Electronic Recharge
00:03:15
Speaker
This tech stack is getting retailers to take in cash and make a deposit happen. Because we were techies, we could imagine the opposite transaction too, which was the withdrawal. Imagine if the same tech stack is put to a bank. Imagine how much of scale we could bring financial services to.
00:03:35
Speaker
Okay, quick question here. The retailer who's taking in the cash, how does he operate? He has loaded eval recharges. So, for example, what happens is, think of this as FMCG, right? There is a distributor who buys FMCG Protestant bulk, then sells it to the retailer. The retailer sells it to the end customer. Exactly the same way recharges work. There are distributors who buy bulk talk time.
00:04:01
Speaker
then they sell bulk talk time, a part of that bulk talk time to retailers, and retailers then sell individual talk time to customers. That's how it works. Imagine the same thing that there is a distributor or state bank of India who puts it value and then sells that value at the same price to the retailer, and then retailer does this cash-in and cash-out kind of thing. So we kind of knew. We figured this out. We were techies. We figured it out that this can work. But your brother was already a co-founder in a company.
00:04:31
Speaker
Why would he entertain anyone? I'll tell you. The original plan was not to build it outside 60 by the way. When we started to do better with prepaid recharge as a platform, once we implemented it in Muscat, I had fantastic opportunities. At that point in time, I forget the name of the operator, but that product gave me the opportunity to travel to Bangladesh, Indonesia, so nobody knew about it. It was like everyone was starting at the same place.
00:05:01
Speaker
And since because it was a new product, there were less number of people who knew about it. It just opened up the opportunity for me to start pitching as well.
Global Pitching and Insights
00:05:10
Speaker
And it also started because I started to pitch. But even when I started to pitch, I remember that didn't stop coding, because I just knew the product well. So I remember Abhilash then telling me that, hey, Abhinav, why don't you build a team around this product?
00:05:23
Speaker
Because now this product, maybe I'm mistaken, but I think this product at least started to bring back a lot of excitement back to 60. I think the other products were very, very competitive space. This was a new product. There were a lot more people asking for it. While I was there, maybe we just about managed one or two installations. But I think if there were two installations, there were at least 20 inquiries that were happening about it.
00:05:47
Speaker
And it just gave us a lot of opportunities. That one year in 2006, apart from traveling back to Muscat multiple times to make sure that the upgrades are happening, features are getting released, the client is happy, all that. I used to also travel to countries like Indonesia, Malaysia, Bangladesh, and within the country to start pitching. So I had kind of gotten used to this. I said, yeah, I know how to do this.
00:06:13
Speaker
What started to happen was by late 2006, like any startup, even 60 was going through a tough time. I think there was a lot of cash flow issues. So while there was traction to this particular product, it didn't really match with the cash requirements that we had at that point. So what happened was, once this product started to get built, I just thought that I wanted to give a name to the product. Otherwise, every name used to be, if it's for the SMS, it was called an SMS center.
00:06:41
Speaker
If it is USD, it was called USD. You're like, no, no, no, I just want to give it a name. You wanted some branding. Yeah, I don't think so. I just thought about branding, but I just thought that I want a name to this. So we could see that a recharge product, how could it morph to financial services, mobile commerce, mobile payment, we could start joining the dots. And I thought that I think I want to, I just thought that that should be a name to this. And luckily, I used to share my rented place with a friend of mine from school. And
00:07:10
Speaker
This guy, Balu, his name is Balchankar, we kind of call him Balu. Balu and I used to kind of live together. And I kind of reached out to Balu and he said, I said, you know what, I want a name for this. So one fine day, one Saturday, Sunday, don't recall. But we said, let's just start scribbling every word that's coming to our mind.
00:07:31
Speaker
And one of the many names that I ended up writing was the word echo, E-C-H-O. And Balu kind of turned around and said, this is a great word. It's a small word, but stylize it and don't spell it E-C-H-O, spell it E-K-O. So the pronunciation is echo. So I said, I want it to echo and I want it to go everywhere. But he kind of said that don't spell it E-C-H-O. I think it's a boring spelling. Spell it E-K-O. And that's when echo was a product.
Echo's Launch and Independent Journey
00:08:00
Speaker
in 60. It wasn't a company back then. And 60 is struggling at that point in time. So this happened in late 2006. And there were a couple of events that happened after that, which led to the split. When I say split, a few shareholders, including Abhishek, kind of exited out. Everybody who kind of exited out did not want to exit out.
00:08:27
Speaker
When the split happened, did the eco product go with you? That was one of the things that we told Abilash. And we told them that it's not that we want to do mobile recharge part of it. We really want to get into the mobile payments and financial services part of it.
00:08:42
Speaker
which 60 is not doing, I hope you're okay with that. At that point in time, I think Abhilash said, yeah, I'm not getting into financial services. I'm going to stick to telecoms have no issues with you guys trying your hand at financial services. We didn't get any part of code, but we had the IP and we said that there was no non-compete with 60 to not do it at that point in time. Both of us telling each other, first 30 days, you're not doing anything.
00:09:06
Speaker
it's just leisure time and I think it was those 30 days that I traveled to Japan and my father was there and I remember coming back from Japan and I'm like sure Abhishek have you thought about it we do this and I remember I think Abhishek said maybe I need another 30 days I don't want to do anything and we'll genuinely wild away time apart from doing some amount of whiteboarding
00:09:31
Speaker
So we were kind of really flirting with the idea, should we do it? Should we not do it? Let's whiteboard it too. And so all through February of 2007 to September of 2007, we spent a lot of time whiteboarding. And in this journey of about six months, we managed to go from two co-founders to four co-founders.
00:09:52
Speaker
First of all, Abhishek and I decided that we will work with each other. It wasn't a given at all. So we decided we spent some time whiteboarding. We kind of enjoyed. We said the two of us can work together. And so we can decide that we will do it. This base in 2007 was so new that if you go ahead and
00:10:13
Speaker
people wouldn't get it at that point in time. I remember we got introduced to a gentleman by the name of Sanjay Bhargav. Sanjay Bhargav was coming from PayPal exit experience.
00:10:26
Speaker
He had worked at Paypal. So his background is he worked for, I don't know, about 30 years in Citibank, in India, Southeast Asia, finally at the New York office. Then he went from Citibank to X.com. Which was Elon Musk. Exactly. I think Sanjay was the 10th employee of X.com. X.com got acquired by Paypal.
00:10:51
Speaker
Sanjay and Sanjay's wife, Anita, both were working for PayPal at that point in Silicon Valley. I think maybe the transaction or whatever it was, they finally decided to come back to India. I think Sanjay and Anita's parents were both getting old, and they wanted to make sure that they are here for their parents. So they came back from the US to India.
00:11:15
Speaker
I don't recollect how we got introduced to Sanjay. Somebody kind of said that, hey, this gentleman by the name of Sanjay Bhargal, why don't you guys speak to him? He's had the PayPal experience. Why don't you go and have a chat, right? So we ended up having a chat with Sanjay. And Sanjay initially said that, I'm happy to become an investor in you. And we said, you know, before we kind of taken your money, why don't we kind of spend some time more whiteboarding with you?
00:11:40
Speaker
Can you push this in the right direction you know we didn't really know about financial services don't know banks you definitely understood a lot more than water be shaken. You know he was the guy who kind of got me what are the bits and credits from a banking perspective so after spending like couple of sessions with us on whiteboarding and such a new idea at that point in time.
00:12:03
Speaker
that Sanjay actually one day told us that rather than being interested in being an investor, he wanted to be a co-founder. And that's how we went from two to three.
00:12:16
Speaker
If you like to hear stories of founders, then we have tons of great stories from entrepreneurs who have built billion dollar businesses. Just search for the founder thesis podcast on any audio streaming app like Spotify, Ghana, Apple podcasts, and subscribe to the show.
00:12:36
Speaker
What was the first product? What did you launch with? So the first product was that the platform had the capability of opening up a bank account. So imagine a retail outlet. The retailer could open up a bank account within a few minutes for a walk-in customer. And then that customer using his mobile or her mobile phone could do deposited withdrawal transactions. Is this like through smartphones? No, feature phones, 2007.
00:13:04
Speaker
2007, iPhone got launched in 2007. Right. Yeah, right. Absolutely feature for I'm not getting into the details of how we actually thought about the UX of that it was beautiful the way we kind of track that piece too. And so the first product really was that if we sign up for the bank, we can enable bank with the platform, wherein if you sign up retailers on the other side, retailers could open up bank accounts, and then each of these customers could do deposit and withdraw transaction.
00:13:32
Speaker
Now imagine at that point in time, you could only get bank accounts if you walked into a bank branch or the bankers came to your office or home. It is unimaginable that bank accounts are getting opened at retail outlets. It is unimaginable for people to be using their feature phones to do deposit withdrawal, remittance kind of process. Unbelievable at that point in time.
00:13:52
Speaker
And so we kind of took this to a few banks, including Citibank, that Sanjay had advised us. We were only shown the door. We were only shown the door, and we said, hey, what the hell are you guys talking about? This cannot happen in banking. It is regulated. We are no fly-by-night operators that we can do anything on the mobile phone. We can't do it on the retail. What if the brand gets misused on the retail? So there were many, many, many questions. And certainly, we didn't know all the answers.
00:14:19
Speaker
And so what happened was that all the big banks said no to us. Every big bank said no to us. We then got introduced to a gentleman who was a CTO at a bank called Centurion Bank of Punjab. I don't know whether you remember this was a bank. I remember the name Centurion Bank. I didn't know it was Centurion Bank of Punjab. Yeah, it was Centurion Bank of Punjab and Centurion Bank was a small bank. They wanted to scale in some manners and they thought
00:14:47
Speaker
that this is an interesting low-cost way of scaling it up. You can open bank accounts, you can do deposit withdrawal without setting branches, ATMs, anything that can happen. So we signed up with Centurion Bank of Punjab in early 2008.
Regulatory Hurdles and Partner Disappointments
00:15:00
Speaker
And they said that we are ready for a pilot. Happy to do it.
00:15:03
Speaker
How would the KYC happen in this? We would collect the documents. We would collect address proof and ID proof, physical documents. There used to be a back end process where we would kind of seal it and send it to the bank for their approvals to happen. But I think if I'm not mistaken, the rule was that we would allow people to deposit and withdraw until the bank has approved it. If the bank approves it, the customer keeps going. If the bank does not approve it, as soon as we get the news, the customer is asked to withdraw all the money. You're not allowed thereafter
00:15:33
Speaker
Keep money in the bank account you are asked to let me close the bank as simple as that so we had the platform you can demo to a couple of times there a couple of maybe offline integration that were done how does the reports flow here and there super exciting times super exciting times a lot of learning how banking works and things like that.
00:15:54
Speaker
I don't recall the date, but maybe it was 9 February. I think it was February. This launch happened. I think it's not very difficult to find the actual date because the day we were supposed to launch the pilot, that's the day it was announced that HDFC Bank acquired the Nigerian Bank of Punjab. So initially, our initial thought was, wow, this is fantastic, right? We partnered with a small bank and see what happened. We got ourselves a big bank. So the launch started.
00:16:21
Speaker
One question here. This is dependent on you onboarding retailers, right? It is. So it's not a pure software launch. No, it wasn't. How did you onboard the retailers? We went on the ground.
00:16:32
Speaker
So we started a pilot in a locality in Delhi called Uttam Nagar. We acquired each of the founders, each of the colleagues who were back then, pitched to retailers. We had 30 retailers signed up with us who were trained on the platform and who were then asked to start to do this. So think about it. We had learned it from the mobile network operator.
00:16:51
Speaker
The mobile network operators, it was a very physical, digital kind of setup, right? So we learned it that way. You know, if you wouldn't recall a lot of companies that are completely digital back then. So you launched with those 30 retailers. Launched with those 30 retailers. And if I'm not mistaken, about 5,000 bank accounts were opened over the next two months. And people started to do deposit withdrawal. Maybe this was like transaction value of about maybe a couple of lakhs in a month. That's the scale that we got to.
00:17:20
Speaker
What was super hard work? This wasn't easy. This wasn't only software. This was hard work from an operations perspective. This was hard work from a partnership with a bank perspective. This was hard work from just understanding banking. It was just hard work that we had to put in to get it live. What was the monetization? We charged for the bank account. We charged a little bit of transaction pricing, something like that, because we had to pay to the retailers as well. If they were opening a bank account, we had to pay them.
00:17:49
Speaker
So I think maybe there were a couple of transactions where we were out of pocket. We had funded. Abhishek and I had some money. We had put in some money. Sanjay had put in some money. Bandharanjan had put in some money. Unlike 60, which started with no capital, that was not the case today.
00:18:03
Speaker
Echo had capital in the bank. So maybe there were a couple of transactions that we said we'd pay out of our pockets. And there were some things that we charged the customers. So the big event then was about two months into the pilot, when HDFC got to know about the pilot, they kind of asked us to kind of visit them in Bombay. And they communicated to us that they were not interested in taking the pilot forward. The reason quoted to us was that they were thinking of a similar partnership with Vodafone to do this, because Vodafone in Kenya had launched M-Pesa.
00:18:35
Speaker
So HDFC said that we are aware of MPSA. We are in talks and partnership with Vodafone to do MPSA in India and therefore we don't want you guys. That was one and the other thing that said at that point in time, opening up of bank accounts at retail outlets was not a part of the regulation. It wasn't allowed. We had taken a one-off approval from RBI. We had not since Turin Bank of Punjab had taken a one-off approval.
00:19:00
Speaker
And HDFC, being the bank, said that, you know, I'm not going to play in gray waters. So I don't want this pilot. So whenever that news was communicated to us, we were told that don't open any more bank accounts. And there was a date given to us and we were told them that, you know, every of the customers was transitioned from, let's say, branchless banking that we were providing them to branch banking. So all those 5,000 customers
00:19:26
Speaker
were sent off to the closest HDFC branch where they had to open their bank accounts and get started with usual banking. So the pilot got shut. I don't recall them. Maybe June, July time. We started in February, but maybe July, August timeframe, we were shut. So think about it.
00:19:45
Speaker
We have done a pilot and we are out again. But what had happened by then was that at least we had some validation that we can do this. Because the community at that point in time was very, very small, there was a little bit of news that had spread, saying that Echo is doing branchless banking absolutely on the mobile phones. One such organization, apart from many, which got to know about this, was an organization called SeaGap. SeaGap is a world bank body.
00:20:15
Speaker
And CCAP stands for Consultative Group for Assisting the Poor. And CCAP does a lot of work across the globe even today in the space of financial services for the poor. And they got to know about the work that we were doing. So they visited us a couple of times and we were not operational.
00:20:32
Speaker
These guys wanted to kind of know what is happening. They came, visited us. We kind of told them the entire story. We showed them how we were doing transactions, and they were like super impressed. They were like, oh my God, nobody is thinking the way you guys are thinking. Nobody has cracked the transaction and the ease of the transaction on a feature phone that you guys have done. So they were like super impressed. And the policymakers were starting to talk about financial inclusion. You know, national rural employment guarantee scheme, UPA, all of this was getting to start up
00:21:02
Speaker
Talk about financial inclusion was being talked about.
00:21:05
Speaker
And so what happened was that Seagap had a fund. It was called Seagap Technology Fund. The Seagap Technology Fund had two limited partners. One was the World Bank, the second was Gates Foundation. But luckily what happened, so we were shut. Seagap was super impressed with the work that we were doing. And what happened was one of the gentlemen in Seagap mentioned to Abhishek in late October that they are keen to talk about our project to the Gates Foundation.
00:21:34
Speaker
So I remember that we had a couple of people from the Gates Foundation also came down and kind of spent some time with us to figure out what we are doing. And maybe a couple of weeks down or maybe a month later, what happened was I think the Gates Foundation people or SIGAP told us that Bill Gates is on a personal trip to India and he has half a day empty in his schedule.
00:21:58
Speaker
and the Foundation and the Gates Foundation has asked Seagate, is there anything interesting that Mr. Gates can see in that pre-half day that he has? And eventually, amongst many candidates that they must have evaluated, they said Echo is the place that Bill Gates should visit. A lot of things happened in that prep, but on 8th of November,
Bill Gates' Visit and Grant
00:22:20
Speaker
In 2008, we hosted Bill Gates for about two hours in our office, took him to the pilot site. What kind of office did you have that time? That's a funny story. Madhavan Jain's father-in-law had a house in Uttam Nagar. His house was our office. So that house is in close vicinity to the market in Uttam Nagar. So we hosted Bill Gates in Uttam Nagar.
00:22:44
Speaker
We got him to visit our office. We got him to visit at least one retail outlet. These retail outlets were still transacting? No, they were not. It was all closed. But we could make our platform live, right?
00:23:00
Speaker
Not that our platforms were really integrated to the core bank system in that point of time. We had the ability to do demo transactions. So anybody, whether it was an investor, whether anybody who wanted to visit us, we had the capability to take people out and see the pipeline. So that's what we ended up doing. That Kirana store owner must have become your best friend. The first Kirana store was a guy called Sumit Gupta.
00:23:29
Speaker
Bill Gates visited Sumit Gupta's shop. Sumit Gupta was super excited. We were super excited. Sumit is a small investor in Echo today. So that was a huge event and a huge validation that we were in the dry track. But the reality of the business was that we were still not live. While Bill Gates did come, what that visit got us to do was because he was very impressed with the work that we were doing. Seagap was very impressed with the work that we were doing. Gates Foundation was impressed with the work that we do.
00:23:57
Speaker
We eventually got ourselves a grant of about 1.8 million dollars from the Gate Foundation. This was, if I'm not mistaken, this money probably hit us sometime in 2009.
00:24:09
Speaker
maybe 2009, late 2009, don't really recollect now. So late 2008 was important for us because this Bill Gates visit happened. And the second thing that happened was because the news of what Echo was doing had spread a little bit, what had happened was there was a gentleman of State Bank of India. I think I remember the story correctly. The gentleman was a deputy general manager
00:24:35
Speaker
But he hailed from it. So in one of his holidays, you know, he picked up this general story within the market that there is branchless banking happening. He then got to know about us and he first reached out to us and then got us in touch with the right gentleman in State Bank of India.
00:24:53
Speaker
And then we started to pitch to State Bank of India. So State Bank of India had started a similar program with a different company. This was around branchless banking. It had nothing to do with mobile phones. This was to do with biometrics. So Adhar had not come at that time. So this was offline biometric. Hardware was being used and stuff like that. And we were completely based on the mobile phone.
00:25:17
Speaker
So State Bank of India, while they had already started a program with another company, they thought that it would be nice to also evaluate Echo because Echo's model is very different. So what had happened was, because we came from Delhi, we started the program in Delhi, and we said that branchless banking is a need not only in rural parts of the country, but also in the urban parts of the country.
Partnership with State Bank of India
00:25:39
Speaker
while the other program the state bank of india was running was rural so we first of all positioned ourselves as the technology platform which is running the front end was on mobile phone and second it was urban and the gentleman in state bank of india thought that our proposition was strong enough to be evaluated and tested out within state bank of india
00:25:59
Speaker
So we started to talk to State Bank of India again in late 2008. We got our contracts done in January of 2009 and again in February of 2009. Exactly a year from the start of the Sichuan Bank of India's pilot, we again started our second pilot with the State Bank of India. And we've never kind of stopped after that. So that was really the genesis of how this business started. Now, even with State Bank of India, it was just 2009. Think about it.
00:26:29
Speaker
maybe the first iPhone that just started to come in. I think we were using Blackberry phones back then, so there was no Android. Yeah, that was the cutting edge. And so we built for the feature phone, we innovated for the feature phone. We shaped from all the way from 2002, was thinking about feature phones. I was thinking feature phones from 2005. And now it's about 2009, 2010 kind of timeframe, right?
00:26:53
Speaker
And that's where the first pass, if I can say, was missed. Because when the smartphone started to come into India, we thought that this was only for the well-off. And I don't think so. It was a wrong assumption. But the speed at which it started to increase
00:27:12
Speaker
And the speed at which products started to be built on smartphone in 2010-11 timeframe was also fairly fast. And by 2010-11, I think we were fairly deep into State Bank of India trying to do this branchless banking for, let's say, the low and moderate income. So even if the smartphone penetration had started to happen for the top end, we still kind of held our beliefs that we can continue to build for feature four.
00:27:38
Speaker
I think that's where we made our first mistake first big mistake. That we didn't catch the fundamental changes that were happening in the text. I think even in twenty twenty one there may be a startup which is building for the future for but it's not the future it's not the future right and even the wedges space.
00:27:59
Speaker
and all of that because our argument with the venture space was our space is big, right? Venture space, I think we understood this later, said, you are not the future. I think both of them are true even in 2021. My space is big, but I'm not the future, right? We were late to react to smartphones. We kind of changed our tech stack closer to, I think, 2000, late 2013, 2014. By then, it was late.
00:28:25
Speaker
What was the impact? There were less people who were using eco-brandless banking. None of that. It was increasing. The VC investing didn't happen. Exactly. Exactly. So we raised capital in 2011, but we were never able to raise subsequent funds. Because we raised that capital, let's say, in June of 2011. Let's say if we wanted to raise again in 2013. In 2013, I think there were not too many people who wanted to hear the feature form story.
00:28:55
Speaker
I am certain in 2013, 80% of Indians had feature phones. More number of feature phones were being sold than smartphones. But I think the writing was on the wall that feature phone is still not the future. We certainly didn't react well in time for that.
Pivoting to Money Transfers and Market Adaptation
00:29:11
Speaker
The way I kind of think about this problem is that when we started Echo, the most admirable company in India by then was Echo. And we thought, let's build Echo for the financial services.
00:29:22
Speaker
Imagine leaving 2021, but even if you think 2017-2018 timeframe, entrepreneurs coming into financial services, fintech, are not thinking at all.
00:29:34
Speaker
They are thinking Flipkart. They are thinking, let's build Flipkart kind of stuff. Let's build something like Uber. Let's build something like Ola. Let's build something like Swiggy. They are not thinking physical acquisitions. They're not thinking feature phones. Not that we were thinking feature phones in 2017. Their learning stack is very different than my learning stack. So for a couple of years, we had the argument to say that my space is very big and there's full of cash. It's not going to go anywhere.
00:30:02
Speaker
Not that we were wrong. Even in 2021, India is only saying that we have a lot more cash than what we had in demonetization. Not that we have been proven wrong. However, the investor community has taken a view that this is not future. When I take a step back and I say, yeah, they're right. When I'm doing it and I'm very close to the situation, I'm very close looking at a course, sure.
00:30:29
Speaker
I feel bad about it and I can defend it endlessly. But when I take a step back, I say, sure, they were right. This is not the future. We've pivoted many times since 2011. Even after 2011, when we raised our capital, it is 10 years of that too. Who was the investor in 2011? How much did you raise? We have an investor by the name of Creations Investment. They are based out of Chicago.
00:30:54
Speaker
And in totality, I think they've invested about six and a half million dollars. So we've been fairly frugal if I continue to scale and grow over the last 14 years, just not having been on the right side of the investor community. But I had to pivot a lot of times. What were the pivot like, if you could like headline? The first pivot was don't open bank accounts, but get into a transaction called domestic money transfers.
00:31:25
Speaker
That's not their problem. But the problem that they were facing was migrants wanted to send money back home. First big pivot that happened in 2010, 2011 was we moved away from opening up a bank account business to domestic money transfer business. The second pivot that happened in about two years time was to move from feature phones to smartphones. The third pivot was to not partner with banks, but to get ourselves a wallet license.
00:31:54
Speaker
and do the business ourselves, the problem that we were solving was remittances. So one was go from account opening to remittances. Second was go from feature phones to smartphone. Third was don't be dependent on bank partnership, but get yourself an independent license so that you can operate as an independent operator.
00:32:12
Speaker
That means you can do any bank account, like transfer from any bank to any bank. Yeah, there were multiple advantages. You could decide your own product, you could decide your own pricing, you could decide your own branding, you could do it to multiple bank accounts, many other things. So by the time we kind of finished this third pivot and started to scale, that's when demonetization happened. And demonetization was not too kind to us. So while it kind of really helped the digital players a lot,
00:32:37
Speaker
It significantly affected our business because... You were in the business of moving cash from A to B. A to B, right? And cash got disrupted. So one big problem that we faced was end of 2016. When we lost about six to eight months, the business went down and just to recover back, it took about six to seven months.
00:32:58
Speaker
That was hard. Then we started to scale again. And all through 17, 18, 19 was all scale, scale, scale, scale. This is all still dependent on retailer type. Yeah, we got efficient with it.
00:33:11
Speaker
We opened up different ways. So before COVID hit us, we had about 200,000 2,000 retail outlets. We were processing close to about 2,500 crores of transaction processing a month. In FY20, the retailers had serviced a little less than 2 crore end consumers from their side. So that was the space that we were kind of operating. That was the scale at which we were operating COVID.
00:33:36
Speaker
COVID has been brutal, super brutal because you and I can work out of homes. But again, retailers, small businesses, low and moderate income people, people employed and formerly earning in cash, it's been brutal. It's been certainly a very tough last 12 to 18 months. The fourth pivot that we've managed to do is that now it was only in
Digital Onboarding During the Pandemic
00:34:00
Speaker
COVID
00:34:00
Speaker
that I just felt that it was philosophically wrong for me to personally continue to work from office and ask my sales colleague to go out there and acquire retail outlets. I said, I will never do this. This is just so unfair. So over the last six, eight months, that's been another pivot, which is to say, completely digital.
00:34:20
Speaker
So today, I'm happy to share that it's been about six months now that every retailer acquisition that we do is 100% digital. That's amazing. I don't think any of the FinTech companies have managed to achieve 100% digital. They certainly have not. And so while they position themselves as fairly digital companies, I don't think they're very digital from an ops perspective. I think they're very, very, very manual.
00:34:43
Speaker
They may be signing up their customers digitally, but we are a team of only about 50 people and we have gone completely digital. What is the secret sauce behind digital onboarding of retailers? I mean, why is nobody else able to manage it? How did you manage it? How do you reach them first? Is it Facebook ads? Yeah, Google Facebook. Google Facebook. Okay. See, getting ads and getting downloads is okay.
00:35:09
Speaker
but ensuring that the signups, the approvals, the ops behind it is also digital and automated is the tough part.
00:35:18
Speaker
I think that's where people are making a mistake. I think what is happening is everyone's spending on Google and Facebook. Everyone's getting their apps downloaded. But I don't think so. They are ensuring that the processes at the back end are also automated. See, a lot of fintechs have got a lot of money as a result of which they have the ability to throw people at the prop. Since we are not sitting at those kind of luxuries, we'd really try hard to throw tech at the prop. Now, certainly it's not easy because, you know,
00:35:44
Speaker
There is a time to build it, there's a time to test it, there's cost to it, and sometimes if you just put people to the problem, you might face the eventual scale with a lot of difficulty, but the initial scale is a lot easier, right? How is the retailer onboarding journey different at Eco as compared to, say, Bharat Pais? Very similar. I am certain that Bharat Pais' journey is better than us.
00:36:07
Speaker
So I'll tell you two things. One is, in the broad FinTech context, there are a lot of people who are doing digital acquisition. But in the broad FinTech sector, my exact sector, people that I directly compete with, are still not into digital acquisition. So Bharatpay is not a direct competition to me.
00:36:28
Speaker
But I was also like merchant. I mean, they're targeting merchants. They're certainly targeting merchants, but we're not remittances. They're not targeting remittances or other kinds of services, some of the services that we do. Right. So the question is, they're not competing with us today. We are about to compete in six months time and I have no doubts in my mind about it because everybody is attempting to go much deeper into the relationship with the retail outlet. Now, why would you not do a remittances or why would you not do not five other things that that we do?
00:36:57
Speaker
Or why will Echo not think about doing the five other things that let's say Bharat pay or a Khata book or somebody else? Everybody will do it. So like any competitive world is going to be competitive world. So I think what has happened is, is people who have a lot of money are certainly doing digital acquisition. My sub sector is not betting big on digital acquisitions today. But I'm very sure that that since we are showing the path, there'll be a lot of people who kind of follow it.
00:37:24
Speaker
Who is directly competing with you in terms of remittances? For example, there's a Fino payments bank, there's Airtel payments bank, there's Paytm payments bank, there's a company called Spice Mobile, there's Pay Nearby, another company based on Bombay. So there are many more, many more, many more.
00:37:40
Speaker
See, if we get to scale, people in the industry will get to know about it and people will copy it. I have no doubts about it because it is certainly a much more scalable process, even if it is not a cheaper process. It is certainly a much more scalable process. And that's what we are experiencing right now. That's been the latest pivot. The other pivot that we've also managed in the last six, eight months is that today we do not position ourselves as a money remittance company.
Diversification into Opportunity Stack
00:38:05
Speaker
Today, we position ourselves as an opportunity stack for, let's say, the sellers on a platform.
00:38:11
Speaker
We don't even call them retail outlets or merchants. We call them sellers because the remittances, while it's one of the most popular services, it's not the only service now. There are a few more services that the seller is able to do.
00:38:24
Speaker
So there is remittances, there is cash out, there is insurance, there is utility bill payments, there's recharge. We are also working with EdTech platform. We work with entertainment platforms. All of these brands are also interested in acquiring. You could pay for a Netflix subscription. Bang on. So if you go in that direction, you can almost partner with almost every other app which is present on the Play Store or the App Store, right? Because many brands wish to collect their money from their customers who continue to earn in cash or who are comfortable with cash.
00:38:54
Speaker
So one side of Echo is transaction processing, which is like opening up a lot of transactions. But our business is about lending. So what we do today is that this is all the data, transaction data and all the engagement data that gets collected over our platform. What we do is really lending to the sellers. So if you think about it, when I use the word opportunity stack, there are three parts to this. As soon as we venture into digital acquisition, what also happened is that retail is not the only cohort of sellers to sign up with us.
00:39:22
Speaker
We've got 30% of our sign-ups on a daily basis is individuals. So women, housewives, men, students, retired governments. These are like micro entrepreneurs. Ultra small entrepreneurs may or may not have a shop rent. But they have a network.
00:39:41
Speaker
they want to offer this to them. Absolutely. So if it's a retail outlet, the walk-in is the natural flow. If it's an individual, they kind of create a community of customers around them. So today we kind of sign up both the retail outlets as well as individuals through our digital process. The offer and your signups are like what, tier one, tier two, like across, across, across. So about 30%, about 30, 40% are also tier three, tier two, tier three downwards.
00:40:09
Speaker
So we are signing up in Delhi and we are also signing up somebody in Patna and also 50 kilometers outside of Patna. We are doing all of that. Digital acquisition kind of helps us go across. So opportunity stack converts into a digital store for the seller. This digital store has three parts to this. One are transactions which increase your revenue. For example, you can sell insurance, you can sell a network product, you can sell an engineering product, you can do remittances, etc. Then there's a part of product which is to digitize your own business.
00:40:39
Speaker
which is to say that, which is to say QR codes, which is to help you file your GST returns. So let's say if you have five people who work for you, pay their salaries digitally rather than cash. So more transactions, newer transactions for you to earn more money, digitize your business, and base all the transaction, the engagement data that gets generated over the first two pillars. We've created a proprietary underwriting algorithm to lend to our sellers.
00:41:08
Speaker
That QR code product is like same as what Bharati is offering. Absolutely. So many solutions. So think about many solutions to increase your revenue, many solutions to digitize your business and to get access to credit. That's really the three hours. So in a way Bharati would become your closest competitor. It will. In many ways, so will Khattabu. So will Pagaru. So will Bharat. So there is. But are you offering like Khattabu kind of like digital legends? Not yet. Not yet.
00:41:37
Speaker
But it's in the pipeline. We are thinking about it. There is a ledger kind of a product which is there between our distributor and retail outlets, but it is not open between the retailer and the end consumer. So there are many ways to think about this actually, right? How do you compete?
00:41:52
Speaker
with Katabuk who has so much of money behind it and brand and power. So I think there's a handful of things that we have to think about for the next 10 years for us to survive. Let's see what we do. Okay. In the last 10 years, you have not raised any funds. No. The same investor did a follow-up round in 2017 as well.
00:42:13
Speaker
But, I mean, considering the space that you're now in, like, you know, that Bharati Khattabukh kind of a space, I guess there should be pretty strong investor interest, no? Are you, like, having conversations? Our legacy also doesn't work for us, right? They are, like, super young. The likes of Abhinav in 2016-2007 are opening up Khattabukh right now, right?
00:42:38
Speaker
Very, very bright entrepreneurs, very bright entrepreneurs with all the energy to go on for the next 10 years. So not only we have to fight for our space in terms of ideas, we have to fight our legacy, we have to fight. We always have to answer for why has our journey been the journey that we have been on. So a lot of people kind of come and tell us that, you know, you guys can race around very quickly, but why don't you start again, rather than continue to build on equity. So, you know, there are options on the table that one has to explore and see what's best for us.
00:43:08
Speaker
So let's see what happens. What is your advice to people who are dreaming about starting up? Start early. It takes time, right? It really takes time. And I often used to say that I wish I was 24 again with all the information that I have right now. So my one singular advice is just get started. I actually don't know how an entrepreneur who's starting off today is thinking about it, right?
00:43:33
Speaker
Because in our times, it genuinely was jumping off the cliff, right? And building your plane on the way down. Yeah. And all for the good reasons, you know, the VC community is much stronger, the entrepreneurial support structures are much stronger. Sometimes it feels that access to capital has certainly become a lot better. So I think the times are only continuing to get better.
00:43:55
Speaker
So that was Abhinav talking about his journey of scaling up Echo. If you want to know more about what all Echo offers, then check out echo.in. That's e-k-o dot i-n.
00:44:25
Speaker
Thank you.