Fintech unicorns slip deeper into losses in FY22 as ad spending soars

Explaining the rationale behind spending aggressively on promotions, Arun Iyer, founder and creative partner at Spring Marketing Capital, a skin-in-the-game marketing value-added investment firm, said that creating awareness about their innovative products is the most important thing for a fintech company.

According to him, educating users about the product in an ever-growing digital ecosystem where people might struggle to understand it is also essential for fintech companies.

"These are not companies that are super well known to all consumers. And for them to grow, consumers need to trust these companies with money. With advertising, it is a reassurance for the consumer that these seem to be good, solid companies," said Iyer.

Customer acquisitions

"In the funding summer and spring, if I may, the companies had enough access to capital. Companies were looking to aggressively acquire customers," Iyer added.

To be sure, these unicorns also spent aggressively on employees and other operational costs during the period, but advertising and marketing surged the most compared to other expenditure heads during the period. Advertising and marketing expenses also account for 24-60 percent of the companies’ total expenses in FY 22.

Kunal Shah-led fintech unicorn Cred, which is currently valued at over $6 billion, spent the most in the group on advertising and marketing during the year. Cred spent Rs 976 crore in FY 22 against Rs 324 crore in FY 21, according to the data.

The company’s promotional expenses were 2.5 times its revenue of Rs 393 crore for the year.

Cred also spent more than PhonePe on advertisements, which got recently valued at $12 billion after announcing a massive $1 billion fundraise from global private equity and venture capital investors.

PhonePe, Cred, Groww

PhonePe’s advertising and marketing spending grew the least in the group as the company spent Rs 866 crore, about 62 percent more on promotions from a year earlier. Uunlike Cred, PhonePe’s advertising expenses were half of its revenue of about Rs 1,700 crore.

Other than Cred, credit card platform OneCard spent more on advertising than what it earned as revenue. The company spent Rs 124 crore on promotions in FY 22 for generating revenue of Rs 98 crore.

Stockbroking and mutual funds platform Groww also spent nearly Rs 254 crore on operating revenue of Rs 351 crore in FY 22. Going forward, companies are seen cutting down their spending on branding.
"The environment has changed quite a bit with the entire funding winter upon the startup ecosystem. We will see an impact on how startups, specifically fintech companies, spend. There is a significant shift in the country now," said Iyer.

"We will also see it play out in FY23. Unlike the previous years, this year, even high-impact properties, like IPL, will face an impact. They were primarily led by startups. I don't think that will be the case now," he added.

Strong revenue growth

All the unicorns in the set reported strong revenue growth in FY22 over FY21. Groww reported the highest revenue growth of nearly 12 times during the year and PhonePe, already sitting on a higher base in FY 21 compared to other unicorns in the group, saw its revenue growing 133 percent, the lowest in the group.

PhonePe’s revenue was the highest in the group of nearly Rs 1,700 crore, followed by insurance technology company Acko, which managed to garner over Rs 1,350 crore during the year.