How Zomato-backed Magicpin is going all out on its ONDC bet

Magicpin CEO Anshoo Sharma

After the Open Network for Digital Commerce (ONDC) crossed 11,000 retail transactions on April 30, Gurugram-based e-commerce startup Magicpin claimed that it had a role to play in 10,000 of those transactions on that date.

It came as a bit of a jolt for some in the tech ecosystem. Perhaps if ONDC participants such as PhonePe and Paytm — fintech biggies with big bucks lined up — had made such a claim, it would not have seemed out of place.

But, Magicpin? It did not sound convincing.

It was, however, the truth. Magicpin is a touchpoint for the bulk of the retail orders on ONDC in three ways. So, in effect, it was participating in 90 percent of the transactions in one way or more.

Firstly, it is the biggest seller-side app on ONDC, with 40,000 sellers on board. On the interoperable e-commerce network, seller-side apps are responsible for connecting sellers to the ONDC network through their seller applications. They are also responsible for digitising the seller's catalogue and enabling payments to sellers. Additionally, they are required to train sellers on best practices in e-commerce to ensure quality fulfilment.

Next, Magicpin also works as a logistics aggregator for merchants. When an order is placed, it is Magicpin’s backend logistics platform that throws the order details at multiple last-mile delivery companies — as Uber and Ola do with taxi drivers. Based on an algorithm and availability of delivery partners, a rider from one of the last-mile delivery companies gets assigned to deliver the order.

Finally, Magicpin is also a technology service provider for buyer-side apps where consumers log in to discover products and make transactions. For example, when a user clicks on ONDC on the Paytm app, he is taken to an interface that says ‘Powered by Magicpin.’  While seller-side apps serve a B2B function on the network, buyer-side apps are B2C.

This readymade interface is a gateway of sorts — in a way, similar to what payment gateways such as Razorpay or Juspay are — and enables any platform that seeks to join the network as a buyer-side app to plug in and play.

“Paytm and Phonepe don’t need to reinvent the wheel and get into competition with us. They can just tag the wheel to their wagon. The wheel is magical, it is already there. And this applies across the board for everybody on ONDC — when you click on food on Paytm, the next screen that opens is on our server, via ONDC powered by Magicpin,” said Anshoo Sharma, the company’s co-founder and CEO.

These three touchpoints potentially open up multiple monetisation opportunities for Magicpin. As a seller-side app, it can charge a per-order commission rate to merchants on the platform. It can charge a fee from logistics service providers for passing on the orders to them. And, it can charge buyer-side apps for its readymade gateway on a per-order basis or even like a software-as-a-service (SaaS) platform.

Sharma said that the company is looking to sell the plug-and-play software platform for buyer-side apps to banks and consumer-tech apps planning to hop onto the ONDC bandwagon.

Also, with Magicpin itself having a consumer-facing app, it is just a matter of time before it becomes a buyer-side app on the network. While the company has brought on 40,000 of its restaurant merchants to the network so far, it plans to tap into its 250,000 plus sellers across categories such as fashion, grocery, electronics etc in the future.

“I think there’s an inflection point. This can scale up massively. And our role here is unique, which is that we are not competing with Paytm and PhonePe. What we are doing is that we are bringing the supply,” said Sharma.

Although the Magicpin chief is excited by the possibilities that ONDC is opening, he does not see it as a pivot.

Local focus 

From the time the company was founded in 2015, Magicpin’s main business has been to act somewhat like an online classifieds portal for hyperlocal deals across retail, food and entertainment categories. For example, a user can search for white linen shirts on the platform and he could be shown five stores in his vicinity selling such shirts. The company offers the user a discount if he goes to the store, buys the shirt and pays for it via the Magicpin app. Meanwhile, the store is also charged a commission by Magicpin for enabling the sale.

“The idea is to give the user a bulk of the value from the money we make as commission… As such, we are not really a classifieds platform. We are a transaction-based platform,” Sharma argues.

However, this online-offline hybrid business came to a screeching halt when the pandemic struck in 2020. Like many others in the start-up ecosystem, Magicpin had to quickly transition into e-commerce deliveries to keep the lightbulbs on as Covid lockdowns made shopping at physical stores impossible. However, Sharma contends that the transaction business at offline stores is back on and going strong.

He reeled off numbers to make his case — the company is currently operating at $3 billion annualised gross merchandise volume (GMV). Of this, 70 percent is on account of the offline transaction business and the rest is e-commerce deliveries. There are 10 million active users with at least six transactions on Magicpin every month. The platform has witnessed 2.5x revenue growth in 15 months.

In terms of future targets, Sharma said that the company is aiming to hit $12 billion in GMV by the end of 2024 and be profitable by the middle of next year.

“We've grown very rapidly — 2.5X since the last time we raised funds in 2021. And we've grown while being economically on the positive side of things; we make money post on marketing, and very few companies in the tech world are in this position. A large part of our cost is people cost, technology cost, and infrastructure costs which are part of the fixed cost. If I take out my customer acquisition cost, we still make money,” he said. For context, the company currently has a gross margin of 30 percent on each transaction, barring the customer acquisition cost (CAC). Once this cost is removed, the margin is 4 percent.

According to data published by financial news platform Entrackr, Magicpin’s revenue from operations grew 59.6 percent to Rs 233 crore in FY22. The company’s losses deepened 3.3X to Rs 145 crore during FY22 against Rs 43.7 crore in FY21. The numbers for FY23 are not available yet.

However, the important thing to note is that all these numbers do not bake in the ONDC impact, said Sharma. “That is something we are yet to do… We realise that ONDC might become really big for us. But, there is no estimation of how big, as of now,” he explained.

Fundraising potential

Given that the company has gained a first-mover advantage on ONDC, and the network is being seen as the unified payments interface (UPI) equivalent of e-commerce, is Magicpin looking to raise fresh funds?

The company last raised $61 million (around Rs 446 crore) in its Series D round, which was led by Zomato.

“Raising capital is not a priority for us. If the opportunity presents itself, we are not averse to it, but that is not our priority. See, I told you our core position is to give supply to ONDC and make a contribution margin positive business on all sides,” said Sharma.

However, industry watchers are predicting two different types of funding plays that seem possible.

“What has become apparent in the past couple of weeks is that the discount-led growth bug has hit ONDC. Now, if Anshoo can demonstrate that Magicpin is a leader of sorts in this ‘UPI of e-commerce’, he could very well go out and ask VCs to write a big cheque of $200-$300 million,” said an internet sector analyst with a brokerage firm.

“But, given that there is a funding winter going on and growth money has stopped flowing into the tech ecosystem, another possibility to look at would be stronger backing by Zomato. The logical next step might be a bigger strategic investment by Zomato in Magicpin so that it can get a window into ONDC, or even an acquisition,” he added.

As ONDC topped 25,000 retail orders a day, mostly consisting of food delivery orders, experts have pointed out that the network might disrupt the duopoly of Swiggy and Zomato in the foodtech industry. What remains to be seen is if this might prompt Zomato to consider increasing its 15 percent stake in Magicpin.