File photo of Upasana Taku, co-founder of MobiKwik
On October 8, digital payments and Buy Now Pay Later (BNPL) player Mobikwik became one of the first payment fintechs to receive a nod from markets regulator the Securities and Exchange Board of India (SEBI) for its Rs 1,900 crore initial public offering (IPO).
The company was started by husband-wife duo Upasana Taku and Bipin Preet Singh back in 2009, when digital payments were at a nascent stage in India. Taku, in fact, said she had to fight with her parents to leave her comfortable job at PayPal in the US to start the company from her home in New Delhi. Over the years, Mobikwik has survived multiple upheavals, while fending off larger and deeply funded rivals such as Paytm, Google and PhonePe.
Mobikwik’s key verticals now are its wallet and BNPL businesses. While the former still contributes over 70 percent of its revenue, it is betting on the latter as an engine of growth in the coming years. The company also saw its valuation touch the $1 billion mark this week, joining India's ballooning unicorn club.
In her first interview post the SEBI approval, Mobikwik co-founder Upasana Taku spoke to Moneycontrol’s Chandra R Srikanth and Priyanka Iyer on investors’ concerns around profitability and plans for the wallet and BNPL verticals. Edited excerpts.
SEBI has given the go-ahead for Mobikwik’s IPO. It is going to be the first payments company to get listed this IPO season. But, have you decided on the timing of the IPO? Is this going to be a pre-Diwali listing?
So, nothing happens automatically. We worked very hard to be the first of the fintech companies to file our DRHP back in July. We are very glad that we are also the first to get the green signal from SEBI. But there are some more steps in the IPO process, both with SEBI and with the Registrar of Companies (RoC). One can plan for a tentative range, but since the decision making for approvals is not in our hands, we can't really commit to a timeline. We are working hard towards it. We are close, but that's all I can say.
Working hard towards a Diwali listing?
Let's hope so. Fingers crossed.
You and Bipin have been building this company for 12 years through multiple ups and downs. From those struggles to becoming a publicly listed company now, do you feel vindicated? And it will only get more intense, because you are going to face more scrutiny now. How are you preparing for that?
Yes, there is no concept of overnight success. We started from very humble beginnings, from my living room in Dwarka. Much like the journey of any other founder. One has to take ‘no’ for an answer several times, get rejected multiple times and yet keep chugging along. I am very thankful to all the early as well as current employees of Mobikwik who believed in our vision and have helped us reach where we are today.
When we started 12 years ago, India did not have more than 10 million digitally paying users. Today India has 250 million digitally paying users and 108 million of those are on the Mobikwik platform itself. So, we feel that we have made a dent or an impact on millions of Indians.
But this is going to be the beginning of a new journey, which we are going to play out from a public scrutiny perspective. It is going to be good because all of our businesses are in very high-growth markets. Only 250- 300 million Indians have access to digital payments, so there are a billion more people to reach out to.
For Buy Now Pay Later (BNPL), too, we are taking a fairly strong role in building the market. Only 35 million people have access to credit cards in India and only 70 million to credit products overall. So, these segments are hundreds of billions of dollars in terms of market opportunity.
We are very kicked to go to the public markets, build trust, raise growth capital and then continue building. You will see us founders and the entire team for the next 12 years, too.
So, how do you see these verticals growing for Mobikwik in the next two to three years, with both the digital payments and BNPL markets seeing changes?
We have seen stupendous growth in all businesses in terms of revenue. All our businesses have been contribution-margin profitable. The only reason the whole company is still not profitable is because of the fixed costs, which are mostly people, engineering costs etc. From a focus perspective we will be focusing on all of our three businesses — the consumer business (wallet), BNPL and payment gateway — and not venturing into anything new.
From a strategy perspective, the consumer business will continue to be our customer acquisition funnel. Just in the first quarter of FY22 we acquired about 7 million new users on our platform. At this rate we will add at least 28 million new users this financial year. So, the payments business drives 70 percent of our revenue.
However, the BNPL business has a lot of structural advantages. It has access to over 100 million users for free. We already have a very large merchant footprint of about 3.5 million merchants. Most importantly, consumer spend data, where the user has been paying with the Mobikwik app, is a gold mine. That is the basis on which we actually give pay later.
But BNPL is just one-fifth of your revenues. Are you expecting the revenue contribution from BNPL to increase? Because that is already a very crowded space with many players.
BNPL is currently 20 percent of our revenues. We expect that in the next few years BNPL will increase very rapidly. It is already increasing rapidly every quarter. The margin in the payment business is almost half of the margin in BNPL.
I disagree with you in terms of competition. What other players offer are all higher-ticket EMI-type loans and not a 15-day Rs 3,000 offering. That is the first difference.
Secondly, they are all going after the top 100 million users in India, who have very good credit scores. We are not going after these top 100 million. They are already well served by the banks, credit card companies and NBFCs.
We are targeting the next 500 million Indians, who are earning between Rs 20,000 to 50,000 every month. Our competitors don't have data on these users because they don’t have a credit score on credit bureaus. So, we are not directly competing with them because we are not doing Rs 50,000 but anywhere between Rs 500 to 30,000 worth of BNPL.
But doesn't that also expose you to the risk of default if you're saying that these are not top-tier customers with a credit history?
Not really. Because we pre-approve these customers based on our own credit scoring. We also track user behaviour. So, for example, if a user is spending Rs 5,000 already on our platform, we can extend credit worth Rs 2,000. Secondly, the tenure is 15 days, so our exposure for every user is for just 15 days. In every cycle, we have a very strong repeat rate of 82 percent of customers. Once they have started building their credit score, users don't want to ruin it by not repaying.
What is the outlook on your Non-Performing Asset (NPA) levels for BNPL?
We have made precautionary provisions for any credit losses. Our provisions for FY20 were at 1.89 percent and we increased it to 5 percent in FY21 because of the impact of COVID-19. We expect our provision to be somewhere between those two numbers.
The other aspect is financials and profitability. According to your latest public filings, Mobikwik recorded an operating income of Rs 288 crore, a loss of Rs 111 crore. We understand this is also because of the unprecedented Covid-19 impact. But going forward what is your path to profitability going to be? How are you going to ensure that you have sustainable operations and healthy cash flows?
Firstly, we also have some other incomes due to which our total income for the year is at Rs 300 crore. We have losses, but each of our segments are contribution-margin profitable. The wallet business has had a positive margin of 10-15 percent in the last two financial years. The margin in the BNPL business in FY20 was around 33 percent, In FY21 that reduced — because of the COVID-19 impact — to 1 percent. We expect the BNPL margin to be at around 20 percent in a normal scenario. The payment gateway business has a contribution margin of around 5-10 percent.
The losses are mainly because of our fixed costs. Our fixed costs will not grow at the same pace as our revenue, so we expect to turn profitable overall.
Will you also consider scaling up your mutual funds and insurance offerings?
Mutual funds, digital gold, deposits and insurance are very early-stage businesses for us. The revenue contribution of these businesses, along with payment gateways, will remain at only 20 percent while the wallet and BNPL businesses will contribute the rest.
Your GMV had also fallen, but are you seeing a pickup now in terms of payment volumes?
Yes, in fact, in the first quarter of FY22, the GMV of all our businesses is at an all-time high. It is already much higher than the pre-Covid levels. The sharp recovery in GMV across businesses started as early as last Diwali itself.
You will be one of two women founders leading an IPO this year, along with Falguni Nayar of Nykaa. At a personal level and as an entrepreneur, what's going through your mind as you take Mobikwik public?
We have a WhatsApp group of women founders and we were discussing how there are two IPOs expected prior to Diwali and both have women as founders. I wish all the best to Falguni and her team.
There have been many bad ups and downs in this journey. The jumps are very high but the lows are also very difficult. So, I hope that this brings enthusiasm and encouragement to all those women founders, and those who are yet to start. I hope it makes them believe that it is possible to overcome every obstacle and reach your destination.