MoneyOnMobile (MOMT) is the ladder to the middle class in India

India lower middle

Both China and India have a population of about 1.3 billion; India is forecast to overtake China in the not too distant future (based on a younger demographic).

But GDP per Capita (how individuals are doing) tells a different story. In Purchasing Power Parity terms, China is $12,880 vs $5,855 in India.

For GDP per Capita comparison:

  • Switzerland:$61,400
  • America: $59,500
  • South Korea: $39,400

In short, India has a lot of catching up to do. Looking just at GDP growth rates this catch up seems possible as India is growing at 8.5% compared to China at 6.9%.

For GDP growth rate comparison:

  • Switzerland: 1.3%
  • America: 1.6%
  • South Korea: 2.8%

Message for investors = buy into growth in China and India.

If GDP per Capita rises in India, it will be a huge market opportunity. That means that millions of individuals need to climb the ladder of opportunity from subsistence living to a middle class life with assets, credit and disposable income.

The question is how will this happen? This post argues that this ladder will be enabled by mobile money from a company called MoneyOnMobile (that is traded on the OTC market under the MOMT ticker symbol). This post will address:

  • The ladder of opportunity in India and who serves the different rungs
  • The End of New Normal and the rise of the Rest as the engine of growth
  • Why MoneyOnMobile’s ability to make money on a $0.05 transaction is so game-changing
  • How a focus on old-fashioned Merchant Acquisition led MoneyOnMobile to a powerful revenue model.
  • How do you buy into growth in China and India at a good price?

Disclosure: MoneyOnMobile is a client of Daily Fintech Advisers. I am not a financial adviser, please do your own diligence before investing ($MOMT).

The ladder of opportunity in India and who serves the different rungs

For a more detailed description of middle class life in India, please see this post in Quartz India.

The ladder of opportunity looks like this:

  • Subsistence, barter & remittance recipients. About 44% of Indians work in agriculture (down from 63% in 1990). Some are in the lower middle class but many work at the subsistence and barter layer. This is the world of aid, both government and private, but technology and new models are bringing change to remittances (which is critical because remittances bring the first cash into a subsistence & barter economy). Cross border remittances is still highly regulated and expensive, but MoneyOnMobile is doing very well in the domestic remittances business.
  • Lower Middle Class – spending between $4 and $6 per capita per day. This is a core customer for MoneyOnMobile. There are many terms for this including unbanked and underbanked, but that implies that they are defined by their lack of traditional banking. When they move up the next rung of the ladder they will probably keep mobile money services, rather than going to a traditional bank branch or credit card rails; those legacy economics do not work in this world.
  • Upper Middle Class – spending between $6 and $10 per capita per day. this is a world similar to what people in the West understand with bank accounts, credit cards and e-commerce. This is the market in India that the likes of Paytm, Mobikwik and Google Tez fight over, along with banks, credit card networks, BigTech from America and China and global brands. Everybody is searching for growth from “the next billion” to enter the global middle class.

The End of New Normal and the rise of the Rest as the engine of growth

Mohammed El Erian invented the term New Normal, so when he tells us that it is time to put the phrase into the dustbin of history, we should all listen carefully:

“Today, the notion of the New Normal has become conventional wisdom and it acquired two other names: Secular Stagnation or, as the IMF calls it, the New Mediocre. A lot of people are extrapolating forward the New Normal, but I can’t. The reason why is because the New Normal has the seeds of its own distraction.”

In short, stagnation in the West leads to a declining Middle Class and growth in the Rest (of the World) makes that that locus of innovation and the engine of growth.

As El Erian puts it, the stakes are high:

“We either tip into high and inclusive growth or we tip into recession with renewed financial instability.”

High and inclusive growth translates into millions of people climbing that ladder of opportunity and the key to that is a service provider that can can make money on a 5c transaction.

How making money on a 5c transaction is game-changing

You know those signs that say something like “cash only for transactions below $10”? Imagine that in a country where $10 is the upper band of what you spend in a day.

MoneyOnMobile can make money on a 5c transaction. So they can profitably serve the lowest rungs of the ladder – aka “the bottom of the pyramid”.  You either find a way to serve them profitably – as MoneyOnMobile have done – or you ignore that market.

What is not so obvious is that the upper middle class also hate wasting money. Indian frugality burns deep. Yes they will splurge and have fun with money, but spending 50 rupees when the same product is available for 5 rupees is deeply upsetting to most Indians. You cannot turn payment into a high status brand. So while you can sell one shampoo for 10x another shampoo you cannot justify charging $0.50 to process the transaction to purchase that shampoo if somebody else will process that transaction for $0.05.

That is why those who climb the ladder of opportunity are likely to keep the mobile money services that helped them get there, rather than desert them for old fashioned branch networks and credit card rails. Everybody wants that next billion consumers and that means reaching them when they are building the habits that will last a lifetime.

How a focus on Merchant Acquisition led MoneyOnMobile to a powerful revenue model.

It is unusual for the leading mobile payments business for the lower middle class in India to be served by a US publicly listed (OTC) company. How did we get here?

This is the story of how a veteran of the US Credit Card business called Harold Montgomery spotted an inflection point in the market, had the courage to seize it and the management skills to pull off a tough transition.

InsiderBuyingReport has a good summary of how MOMT came to be:

“Harold Montgomery, now the CEO and Chairman of MOMT, was running Calpian, a credit card processing company in the U S with high volume and a very low margin business. He has been in the POS payment processing business since 1987 and was a resource for the Federal Reserve Bank Card Payment Center in Philadelphia.

While running Calpian, he identified a rare opportunity in India, MoneyOnMobile. When Calpian initially acquired a stake in MOMT they had 45K affiliated retailers, and offered a mobile payment service for those 600M consumers without a bank account.”

This is where Harold’s background in traditional credit card payments matters. That business is driven by merchant acquisition. Harold saw the same happening during the transition to mobile money. As InsiderBuyingReport put it:

“What Harold saw was every one of those 45K retailers as a “bank” and credit card processing business. As an additional positive from this arrangement, the retailer gets more foot traffic and commissions every time money gets digitized, bills get paid, or purchases are made.

Think about it.  Every retailer has an incentive to offer the MOM platform in their store.”

 Note: those 45k retailers is now 350k retailers.

A glance at the picture at the top of this post explains why this merchant partnership model is so critical. A massive 30% of those lower middle class work in those vendors who are the distribution channel for MoneyOnMobile. The merchants live in the same world as their customers.

How do you buy into growth in China and India at a reasonable price?

Most investors know that with those GDP growth rates, it is smart to invest in China and India.

The question is how do buy into growth in China and India at a reasonable price? This is harder than it sounds because:

  • valuations in private ventures in this space are very high and you need special access to be able to invest.
  • by the time these private ventures reach the public markets via an IPO, where anybody can invest, they are even more richly valued.

For example, look at two private ventures serving that upper middle class rung of the ladder:

  • MobiKwik with revenue last year at just over $6 million (half MOMT), with losses of $18 million (almost triple MOMT) is valued at almost $400 million (about 7x MOMT).
  • Paytm has a valuation around $10 billion.

Google Tez has entered their market (the upper middle class rung of the ladder) while MoneyOnMobile has almost no competition in the lower middle class rung of the ladder.

Links for more research

For more about MoneyOnMobile on Daily Fintech:

First The Rest Then The West: The MoneyOnMobile Leapfrog Story In India.

MoneyOnMobile is an open alternative to MPesa For The Unbanked And Underbanked.

MoneyOnMobile Is Poised To Win In The Giant India Remittances Market.

Valuing MoneyOnMobile On The 10X Revenue Club Attributes

Moneyonmobile The Next Billion And The Future Of Democratised Investing

For more about Fintech in India on Daily Fintech:

1 Billion On Aadhaar Fintech India Could Be A Model For Financial Inclusion.

The Battle For The Next Billion: Payments In India Heats Up With Google Tez.

Why India Is The Country To Watch In Fintech.

(Or just search on Daily Fintech for keyword India for a lot more).

MoneyOnMobile site and their stock symbol (MOMT) on Yahoo Finance.

Image Source.

Bernard Lunn is a Fintech deal-maker, author, adviser and thought-leader.

You can reach out directly to discuss our market development services by sending an email to julia at dailyfintech dot com

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