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This Bangalore startup will grant instant loans to SMEs via an app

Instamojo will deduct 25 percent of a day’s sale post the disbursement of loan, towards EMI, ensuring repayment of the loan.
Jun 13, 2017 / 06:23 PM IST

Bangalore based startup Instamojo is now getting into the SME lending space. In the next 30 days, Instamojo will adding a credit feature to its mobile app through which merchants will be able to avail low-ticket instant loans between Rs 10,000 and Rs 80,000.

Founded in 2012 by Harshad Sharma, Sampad Swain and Akash Gehani (inset above), Instamojo allows merchants with a mobile device and a bank account to accept payments using credit and debit cards, e-wallets, and UPI.

For the yet to be launched credit system, Instamojo will deduct 25 percent of a day’s sale post the disbursement of loan, towards EMI, ensuring repayment of the loan.

Instamojo has so far raised USD 2.6 million from investors such as Kalaari Capital, Blume Ventures, 500Startups, and others.

In another offering, the startup is tying up with logistics companies such as Zeppo and eCourierz.com to integrate courier services for home delivery for merchants.

“The services are in beta stage currently. We have tied up with various banks and NBFCs, as well as logistics companies. The structure will be the same. We will leverage the plethora of data we have on each merchant, which we will share with the partner companies, who will disburse loans in case of banks, and delivery services, in the case of logistics,” Instamojo founder and CEO Sampad Swain told Moneycontrol.

Recorded transactions worth Rs 600 crore last year

The startup typically caters to small businesses, such as tuition classes for children, home-based bakeries, mango sellers, even freelance writers, allowing them to accept digital payments.

As per government estimates, there are five million such small businesses in India.

The Bangalore-based startup that started as payment link generator five years ago, is now adding these value added services in order to expand its merchant network to one million from a little over 250,000 at present.

This will also accelerate the total volume of sales through its platform to about about Rs 1,600 crore by the end of FY18, Swain said.

In FY17, Instamojo recorded over 2 million transactions with a total volume of Rs 600 crore.

Over 65 percent of these transactions came from merchants residing in tier 2, 3 and 4 towns.

Rest are divided between top 10 metro cities. However, over 75 percent of buyers on Instamojo are accounted for by the metro cities, implying that sellers in smaller towns have found space in markets with high purchasing power.

Other rival startups in the digital payments segment include Paytm, MobiKwik, PayU India, Freecharge, Oxigen, among others.

The digital payments market in India is expected to be in the range of USD 500 billion by 2020, up from current estimates of USD 40-50 billion, according to a report by GSM Association and Boston Consulting Group.

According to Swain, unlike on other platforms, merchants on Instamojo can create a payment link in one step and share it with buyers via any messaging platform, social media, or via email, eliminating the need to set up a website or integrate payment gateway unlike in other platforms.

Merchants can also create a store on Instamojo’s website that allows them to catalogue their products, generate invoices, organize a customer grievance solving process, or choose from a host of marketing tools. Instamojo charges a 2 percent commission on each sale or payment collection.

Demonetisation aided startup's growth

Instamojo saw a 150 percent uptick in adoption post demonetization move by the government in November that gave a leg up to digital payments.

“We add about 1,500 merchants on an average every day, the amount of transactions jumped by 150 percent during demonetization. That has become a base now,” Swain says.

For the whole year, Instamojo saw a 160 percent increase in merchant registrations, while digital payments grew by over 178 percent.

“As we add more merchants, we expect our cost of acquisition to be zero, which is a huge competitive advantage, especially when we are expecting to reach profitability,” he added.

However, Swain expects the impact of GST implementation to be far greater.

“With GST you have to be legit, there is no two ways about it. With its roll out, those who are not already on digital platform will adopt it. And we will be at the forefront,” Swain says.

The startup has also tied up with tax consultants such as Cleartax, Vakilsearch.com, Legal Raasta, and Profitbooks.com, to offer accounting services to its merchants, in the face of GST.

The startup claims to be nearing profitability. Swain expects the break even to happen by FY19 on a whole year basis. By the month of July, Swain expects Instamojo to be cash flow positive.

first published: Jun 13, 2017 06:23 pm

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