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As small businesses digitise, startups in this space see new business opportunities

OkCredit, Khatabook and Vyapar are seeing traction return on their platforms as the economy recovers from the disruption caused by Covid and the lockdown

December 18, 2020 / 12:56 PM IST
Based on the PwC analysis, Indian firms fare much better in implementation of AI across the firms.

Based on the PwC analysis, Indian firms fare much better in implementation of AI across the firms.


As the economy limps back to a new normal, the retail small-business segment, the backbone of the country’s economy, is seeing a steady revival. Startups helping small businesses digitise their systems and transactions say that over the last 3-4 months, there have been definite signs of revival with business clawing its way back to pre-Covid volumes.

Digitisation of small businesses was an area that attracted a lot of attention from investors, techies and entrepreneurs through the pandemic. As the government locked down the country, consumers switched to online platforms for their food and grocery. This threw up new business opportunities for tech startups to help small merchants set up digital storefronts and accept orders online.

“Our transactions had fallen significantly in the first few months of the lockdown. Now, we are seeing some recovery and have surpassed our pre-Covid volumes,” said Harsh Pokharna, cofounder, OkCredit.

Bengaluru-based OkCredit is a digital store book where businesses can record their transactions and send payment alerts and reminders to their consumers. It is currently being used by around 5.5 million merchants actively and the platform is processing close to $7.5 billion in monthly transactions, Pokharna said.

Another Bengaluru-based player in a similar spectrum is Vyapar, which helps digitise businesses that have to report GST but have a turnover of less than Rs 5 crore per annum. Even Vyapar reported a sharp fall in transactions during the lockdown months. Things improved after lockdown restrictions were eased.

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“The rate of digitisation in this segment has sped up because of Covid-19. Overall the share of digitised businesses is still very low and there is massive headroom to grow here,” said Sumit Agarwal, founder, Vyapar Tech Solutions.

Vyapar targets wholesalers and general traders who need to file GST returns. They can use the app to record their transactions, manage inventory, digitise bills and file their GST return. Vyapar is backed by IndiaMart, India Quotient and Axilor Ventures.

Agarwal said that within his merchant base, the grocery and medical businesses have definitely been doing well, whereas garment sellers are facing severe headwinds. Consumption had picked up during the festive season but the recovery has not been very consistent.

Khatabook, which helps small businesses digitise collections and payments, also saw a fall during the lockdown months. However, currently, the company is reporting transaction volumes higher than its pre-Covid numbers. Ravish Naresh, Chief Executive Officer of Khatabook, said that it has around 9 million monthly active users, which is 40 percent more than in the pre-Covid days.

Entering new territory

While these players started with a digital ledger, they are all expanding their scope of operations. Khatabook, for instance, has launched MyStore to create a digital storefront for retail businesses. It has also launched PagarKhata for employee management systems for these businesses.

Similarly, Lightspeed- and Tiger Global-backed OkCredit has launched OkShop and OkStaff, through which it is trying to create alternative use cases for its users as well. With OkShop, traders can set up a digital storefront and accept orders online. With OkStaff they can manage the attendance and salaries of their employees

“We have created more than one million stores on MyStore in three months of the launch,” said Naresh of Khatabook.

Pagarbook, which helps employers with staff management solutions, is set to add credit and payments on the platform.

Eventually every business will find options to lend to small businesses. By tracking their daily turnover, cash-flow based lending is the way to make money in the future.

The fear of missing out

Industry observers Moneycontrol spoke to pointed out that there is massive ‘Fomo’ in this sector, where entrepreneurs and investors fear missing out on the wave. India is a country where roadside traders and kirana shops are the go-to points for millions of households. Organised and online retail is still a miniscule portion of the country’s grocery market.

A Boston Consulting Group and Retailers Association of India report released earlier this year stated that the size of the Indian retail market could reach $1.8-2 trillion from around $700 billion now. Organised large retailers can increase their market share to 10-12 percent from less than 5 percent currently. This shows that organised retail will expand its presence, but a massive country like India will always have its small businesses running the show.

“In India we have always leapfrogged; I believe even in this sector there will be rapid digitisation. All businesses might not need all the modules, but overall there will be some level of digitisation across merchant categories,” said Bhavik Hathi, Managing Director of Alvarez and Marsal.

Challenges aplenty

Digitising merchants is a proposition that sits excellently with the overall Digital India narrative. But it is easier said than done. The founder of a startup that works with small businesses said that these business owners might adopt technology solutions, but do not get traction online all the time.

“Due to Covid many people were ordering remotely. Now that restrictions have been relaxed, people still prefer to visit shops physically,” he said.

Just setting up an online shop is not enough. The need is to have a complete ecosystem where consumers can order through social media channels and deliveries can be done at the doorstep.

“Maybe something like a WhatsApp for placing these orders makes more sense than a complete digital storefront. These thought processes need to be tested and only then will they evolve,” he said.

Besides the challenge to onboard merchants, competition in the space is very strong. While the three startups mentioned in the story have been around for some time, Pagarbook and Dukaan burst on to the scene this year.

Pagarbook raised $15 million in its series A round from Sequoia Capital and India Quotient. Dukaan got $6 million in its seed round from Matrix and Lightspeed. Many entrepreneurs have thrown their hats into the ring. Further Entrackr wrote recently about OkCredit being in talks for an acquisition.

“This space will definitely grow. There will be mergers and acquisitions here, but as a business proposition, this is bound to work and is very attractive,” said Hathi.
Pratik Bhakta
first published: Dec 18, 2020 12:56 pm

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