A major theme on Daily Fintech is “first the Rest then the West” (for example in this post).
Countries such as China and India (and the rest of Asia, Latin America and Africa, together the “Rest Of the World”) used to be considered tech deserts that at best copied innovation. They are now the locus of innovation for a simple reason – leapfrogging. Unencumbered by legacy technologies, huge populations that are starved of services that we take for granted in the West are more open to innovation. This accelerates as their economies grow and productivity is prized by their people; something that used to take hours is no longer acceptable when “time is money”.
One place where we see this playing out is India, which is why India is the country to watch in Fintech.
We have profiled companies such as Paytm in India that have taken in huge amounts of Venture Capital. Today we look at MoneyOnMobile, a low profile mobile money in India venture, with a more capital efficient model, that is traded on the OTC market in America. Rather than compete with physical retailers, MoneyOnMobile works through physical retailers as a distribution channel. That explains their capital efficiency.
We have also often written about M-Pesa. This is a Fintech venture within Vodafone that is dominant in Kenya. M-Pesa is not a pure play Fintech stock, because it is controlled by a Telecom operator. A country such as India that has a highly competitive Telecoms sector, with brutal price competition driving adoption, does not want a single Telecoms company also having huge influence over financial services. So although M-Pesa is available in India, we do not see it having the dominance that it enjoys in Kenya. One way to look at MobileOnMoney is as a comparable to M-Pesa except for one crucial difference – they do not compete with Telecom operators.
Disclosure: MoneyOnMobile is a client of Daily Fintech Advisers. I am not a financial adviser, please do your own diligence before investing.
Made in India, listed in America
MoneyOnMobile is an unusual company. All their business is in India and they are proudly “made in India”. Yet the company also lists a Headquarters in Dallas, Texas and you can buy their stock on the US Over The Counter (OTC) market with the stock symbol MOMT.
AFAIK, this is the only pure play Fintech focussed 100% on India traded in the US.
We also like to track publicly traded Fintech companies (for example here). One publicly traded Fintech that we admire and that investors clearly like is Square. Their stock has been on a tear and the company is valued at nearly $11 billion as I write. MoneyOnMobile is a micro cap with a tiny valuation (less than $20m as I write). Yet one of Square’s founders, Jim McKelvey is on the board and in this video explains why he is excited by MoneyOnMobile Money.
India Macro View
China and India share characteristics as big growth markets. The India macro story is not as well known as the China story, yet it may be more interesting. The data is available from many sources (including here from OECD). The TL;DR summary:
- big population
- high GDP growth
- youth demographic (supporting high growth in future)
- weak infrastructure (gradually getting better)
- problems with corruption (which the Modi government is laser focussed on)
- services and software economy in contast to manufacturing in China
- a growth spurt that started later than China
- a messy democracy (maybe better in long run but slows pace at which change happens)
- English as a major language
- rule of law like UK (but slow and inefficient).
The macro part to highlight is the youth of the population. This is what will fuel future growth.
Foreign capital (including Chinese and Japanese) has flowed into India. This illustrates how open the Indian economy is to foreign capital, which we will explore in more detail later.
One reason that so much Chinese capital is flowing into India is that, in addition to understanding the macro view on India, they also understand the micro view about cash and payments in India.
Flipkart and the Cash On Delivery model
For a long time entrepreneurs tried creating the Amazon of (name your country). That fast follower strategy worked for while in other developed markets such as Europe that like the US had high Credit Card penetration rates. Eventually Amazon tends to crush these local rivals, but a copy cat geographic approach worked well for a while.
However it did not work well in countries such as India. The market there evolved differently through 3 iterations:
- Blind copy of Amazon. This did not last long – most consumers don’t have Credit Cards and the delivery infrastructure is terrible.
- Flipkart figured out how to make Cash On Delivery logistics work.
- Paytm and others figured out that the cash could be digital in a mobile wallet.
Today the big mobile money ventures all want to be like Amazon and Alibaba. It is no coincidence that Alibaba is the biggest investor in Paytm. This is a bet on e-commerce replacing physical stores. This is a high risk, capital intensive moonshot strategy.
The high risk, capital intensive moonshot e-commerce strategy
The phrase “Amazon of India” may have been replaced by the “Alibaba of India” tag, but the strategy is the same – to replace physical stores with e-commerce and leverage payments innovation to do that.
This is a high risk, capital intensive moonshot strategy. Huge success may go to the winner, but huge amounts of capital are put at risk to achieve that goal.
Some smart commentators are seeing that there is a gap between the 30,000 foot view (huge market for mobile money and e-commerce) and the on-the-ground execution realities of creating a profitable business. For example, see this article entitled Blood and Sand: The Moment-of -Truth for Mobile Wallets in Asia. Or see this article in Times of India entitled: digital wallets may soon run out of cash.
The reality is that cash remains alive and well in India. A big surprise from demonetisation was that most of the black money cash found it’s way back into the banking system. Another ground reality is the brutal price competition between mobile phone operators. This is great for consumers and drives the Modi government “digital India” agenda. However it squeezes the margins of e-wallet ventures which got started with mobile recharge.
This has led to some of the high profile e-wallet ventures diversifying (pivoting in venture speak). For example, Paytm has moved to become a small finance bank, and has started selling gold and Mobikwik has moved into insurance. This strategy requires a lot of capital and makes partnering harder.
When the easy money macro times end (as we all know they will even if we cannot know when) the race to deploy a lot of capital to get to scale even at the expense of profitability may give way to a focus on M&A, strategic partnerships and capital efficiency.
Mobile payments clearly is a scale game, dominated by network effects and data. Sub-optimal scale is the “kiss of death”. The question is how efficiently is that scale acquired. Not everybody can be like Amazon. For example, more investors are questioning whether Uber can really grow into that high valuation. At some point old fashioned metrics around customer acquisition costs and capital efficiency will be more highly rewarded. In that sort of market, investors will be paying more attention to Money On Mobile, which has some impressive traction statistics achieved in a short time with small amounts of capital.
Capital efficient scaling at MoneyOnMobile
- 200 million Unique Phone Numbers (more than 15% of the 1.3 billion mobile phones in India) within 5 years.
- 1+ million domestic money transfer transactions processed in August 2017; this is for a line of service introduced only 20 months ago.
- 335,000 retail locations.
- Five Straight Months of Revenue Growth (earnings presentation deck and call transcript is here).
One reason that MoneyOnMobile is growing so fast is that they do not rely on smartphones, which only has 27% penetration in India compared to 70% in China.The other 73% use feature phones and MoneyOnMobile also works on feature phones.
The MOM ATM
One part of the MoneyOnMobile (MOM) business that is scaling fast is a mobile ATM service. This keys into the reality that, despite what pundits have been saying, physical paper cash is alive and well in India.
Conceptually the MOM ATM is like the cash out services that Retailers in the West offer consumers at checkout. The Retailer gets cash in their account without loading up the cash truck to take to the bank (an expensive service because robbery is a real risk) and the customer gets a service that saves a trip to the ATM. Now translate that to India where 95%+ of transactions are still in physical cash and the ATM is a long way away (and maybe broken and/or out of cash) and you can see why the MOM ATM service is so popular with both consumers and retailers.
One number says it all – ATM density is less than 20 (per 100,000 users) in India vs 100 or more in America and Europe.
That is possible for a simple reason – MoneyOnMobile views physical retailers as partners/distribution, compared to the more high profile e-wallet vendors who view physical retailers as roadkill in front of the e-commerce truck. MOM ATM is one more service to the retailer. This is classic cross selling. Once MoneyOnMobile acquires a retailer, the revenue per retailer goes up as the retailer starts to use new services.
5 enablers for the Fintech revolution in India
– Aadhaar. This is biometrics based digital ID at massive scale – over 1 billion issued in 5.5 years, making it the fastest digital service growth in history. (Android hit 1 billion in 5.8 years; WhatsApp took 7 years.) This is transformative for millions of people.It is hard to overstate the importance of this. Without this, all the other enablers would only impact the urban middle class. Aardhaar really brings the power of digital to 1 billion people. It is an incredible achievement combining vision, tech smarts and drive.
– Mobile leapfrogging. There are 900 million mobile connections and Indians spend 45% of their incomes on mobile technologies and platforms (Americans only spend 11%), because mobile is the main point-of-entry to the Internet (PC penetration is 5% vs 75% for mobile).
– Immediate Payment Service (IMPS). This is a real-time inter-bank payment system through mobile phones that is a) net payment (unlike RTGS) and b) works 24/7. It was launched by the National Payments Corporation of India (non-profit, Government funded) in 2010.
– Payment Bank licenses. This enables entrepreneurs to deliver regulated payment services without becoming deposit taking banks.
– Unified Payments Interface. This enables Mobile wallet interoperability (read this post for why this is so critical).
This shows how positive change can come from the right mix of public policy, new technology and entrepreneurial drive.
The XXX Of India is XXX
It is common to refer to the Facebook of China or the Google of China or the WhatsApp of China. This is quite different in India where the Facebook of India is Facebook, the Google of India is Google and the WhatsApp of India is WhatsApp. In short, India is open for business. This reflects two realities in India. One is the Modi government Digital India strategy; digital adoption by the masses is more important than who owns a digital service. The other is the relatively weak capital markets in India; this may change, but for now the welcome mat is laid out for foreign investors.
Square for the Rest of the World
As Jim McKelvey explains in this video, MoneyOnMobile is payments for retailers where credit card penetration is weak. This is true in India, where Money On Mobile operates today but there are many other big growth markets with the same characteristics.
Publicly traded pure play Fintech with an inexpensive valuation
MoneyOnMobile is a pure play publicly traded Fintech focussed on India with a historically low profile and thus an inexpensive valuation today.
Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.