31 highlights
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And yet with the worst numbers on the scoreboard, MobiKwik has decided that it will go public. The move gives rise to several questions—most importantly, why now?
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It eventually lost in the wallet play to Vijay Shekhar Sharma-led Paytm, which became an overnight sensation after onboarding the Alibaba group as an investor back in 2015. And that’s how MobiKwik’s struggle began.
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The public markets are on a high right now, and it seems like MobiKwik is in no position to raise any more funds from the big private market and venture capital investors.
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With the market awaiting a slew of tech IPOs, it is an opportunity for which the company has been waiting at least a year.
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We took a look at the company’s draft prospectus and the state of its three business lines:
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Consumer payments, which is what the company is calling the mobile wallet business
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BNPL, short for “buy now pay later”, the buzzword globally in fintech credit
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Payment gateway services, under subsidiary ZaakPay, which is MobiKwik’s smallest revenue line
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“Initially, MobiKwik was quite gung-ho about the Bajaj partnership, however MobiKwik was not able to leverage the Bajaj partnership because they had a lot of issues initially. Whatever lending scaled up, there was no phenomenal contribution from Bajaj,” according to a person aware of the matter
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“Then there was some tiff on the control of the customer and the data. Bajaj had invested Rs 225 crore, so they wanted control of data and users; but MobiKwik wanted to do things differently. At one point, MobiKwik was very keen on getting its own NBFC [non-banking financial company] licence, but that didn’t go through for reasons known to the founders,” this person adds.
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A former Bajaj Finance executive shares that MobiKwik did try getting its own NBFC licence, but it apparently didn’t get an okay from Bajaj Finance, which owns a 13.86% stake in MobiKwik.
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However, the instant loans offering saw far higher bad loans or non-performing assets, NPAs in banking parlance. According to the people we spoke with, MobiKwik saw about 7-8% of its loans turning into NPAs.
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“Buy Now Pay Later was started 9-10 months later on 100% FLDG and we were doing some Rs 2-3 crore a month initially,” says the former MobiKwik executive.
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In the case of a 100% FLDG deal, the fintech company is essentially willing to take on all the losses.
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MobiKwik Zip is an interest-free product that competes mainly with the likes of Simpl and PayU-owned LazyPay.
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This product works as a combination of credit and payments, with MobiKwik charging merchants (e-commerce sites, food delivery services, etc.) a payment fee, usually 2-3% for this kind of product.
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There is competition aplenty and e-commerce giants such as Amazon India and Flipkart are coming up with their own BNPL and EMI products; and because of that the fintechs have relaxed their underwriting rules.
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This is a high NPA model somewhere above 10%. This model works on defaults and late fees, just like credit cards. The company doesn’t make money if you are paying on time.
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In analysing all of MobiKwik’s three business lines, the “segment results” figure is very important, since it effectively represents the company’s net revenue of sorts. That is, for BNPL, this is the income it has left over after deducting the cost of capital from its lending partners and the cost of guaranteeing defaults (remember the FLDG arrangement).
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It’s important to note at the outset that the company’s mobile wallet and payment gateway business segments are, in a way, intertwined.
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This revenue is essentially the payment fees that MobiKwik charges to merchants who accept its wallet as a payment option online or offline.
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Again, the future of the wallet business is a little dicey, given that the industry has been overshadowed by UPI.
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With new revised guidelines, though, digital wallets, or rather prepaid payment instruments, as the Reserve Bank of India calls them, have regained interest in the market. A PPI or digital wallet licence is now seen as only one step down from a bank account, in that it will be part of the UPI network and have a maximum deposit limit of Rs 2 lakh (the only limitation is that a PPI cannot offer interest on deposits).
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“Today, MobiKwik’s entire business is on MDR, they have MDR on all entry and exit points,” says the former Bajaj Finance executive quoted earlier; MDR or merchant discount rate is what companies charge merchants as payment fees.
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Zaak ePayment Services was incorporated by Singh and Taku in 2010 for payment gateway business—that also fetched seed investment from Sequoia in November 2011. This was well before any of the top payment gateway players such as Razorpay or Citrus Pay (merged into PayU) existed in the market.
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The payment gateway business only generated Rs 19.32 crore in revenue from operations (i.e. excluding its revenue from the parent company’s wallet payments) in 2020-21, down from Rs 51.1 crore in 2019-20.
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They started well and even got the licence before Paytm. Sequoia was the first investor but somehow, they were not able to capitalize on that. Even on the payment gateway side, they were the early entrants, but still they were not able to capitalize.
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India’s capital markets may have been going through a different phase altogether, but does it make sense for a company like MobiKwik—which is neither a leader, nor a complete failure; which is just surviving somehow in a cut-throat market—to go for an IPO?
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The company has gone to nuts. It has to move to the retail investors now because this is the only way out for MobiKwik, otherwise there is no chance of survival. To raise Rs 1,900 crore in the retail market is not a big deal, the point is the founders were not able to do anything despite trying hard, still it is a name in the market.
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Paytm and MobiKwik need funds and the capital market is always cheap, but it brings a lot of scrutiny.
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“First time in my 20 years of working on the internet, a phenomenon I have never witnessed where revenues and users have been coming down for three years and still companies are going for record IPO ambitions. Loss-making is still fine but top line and users should always be up—but with these three IPOs, even these two metrics have gone for a toss,” says the founder of an NBFC.