India GST – One Nation One Tax Model could be a boost for Start ups


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The Goods and Service Tax (GST) was implemented by India on 01 July, in line with a One Nation One Tax Model. GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Historically the taxation of goods and services in India followed its federal structure, with various state regimes co-existing with the central tax rules. One of the key advantages of this unified tax model is to ensure businesses could have tax neutrality wherever they do business in the country. Such a big revamp doesn’t happen without its challenges, however the benefits are immense.

GST is a mechanism of seamless tax-credits throughout the value-chain, and across boundaries of States. This doesn’t mean that there wouldn’t be a state tax. There will be two components of GST – Central GST (CGST) and State GST (SGST). Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State. The input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST on output.


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At the heart of the GST  implementation is a state of the art IT infrastructure. The tax-payer gets a single GST portal and can manage all their GST related reporting. The system supports connecting through mobile, tablets or even through API integration. The system also provides end to end automation for tax authorities, with capabilities such as reporting and analytics.

In the past, businesses could tell their auditors the amount of tax they wanted to pay for the year, and the books were prepared accordingly. That is no longer possible. For every transaction reported by a business, there would be need to be a matching transaction from a supplier or a buyer. However, this also removes the bureaucracy and the complexities for businesses that constantly have to do inter-state transactions.

For an SME that is looking to VAT register across multiple states, GST allows a simple central process of registering itself. They don’t have to navigate through the complexities of different state tax regimes anymore.

GST also extends the basic exemption limit to pay VAT from a previous Rs.5 Lakh per annum to Rs.20 Lakhs per annum. These rules are slightly different in some states where the exemption is at Rs.10 Lakhs.

GST views goods and services components as one and the same, which means there is no confusion around what is a good vs service. This not only simplifies the process massively for the tax payers, but will also stop instances where accountants used the ambiguity between the two (Goods and Services) to evade taxes.

However, more importantly in my view, start-ups/SMEs can expand operations across multiple states without the burden of tax on interstate sales. With GST, tax credits would be transferred irrespective of where the transaction happened in the country. This is a whole new landscape that businesses would exploit.

Arunkumar Krishnakumar is a Fintech thought-leader and an investor. 

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Cyber Attacks in Cashless India – Ransomware just the start


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In November last year India went through a demonetization drive when the government banned the Rupees 500 and 1000 notes. It caused a lot of near term pain with some serious liquidity crisis in a primarily cash driven economy. However, sanity returned in a few months with various private and public sector initiatives driving the move to a cashless economy. But the lack of governance and awareness on cyber has left the consumers and banks exposed to large scale cyber attacks. The recent ransomware attacks were very successful in India, and that feels like just the start.

Attacks by Country

Wannacry Ransomware attacks were reported across about 48000 computers in India with 60% of targeted victims being institutions and 40% being consumers. On investigation, it was revealed that the weak link that allowed many of the attacks was Windows XP and unpatched Windows operating systems used by institutions. However, about 70% of the country’s ATMs run on these operating systems and largely remain unpatched, hence posing a huge risk to consumer banking credentials.

During the attacks, Cyber Peace Foundation (CPF), which is running a research project monitoring cyber attacks, saw nearly a 56-fold increase in breach attempts at sensors installed across eight states in the country. Computer Emergency Response Team (CERT-In) asked the Reserve Bank of India (RBI), stock exchanges, the National Payments Corporation of India (NPCI) and other vital institutions to safeguard their systems against the ransomware.


Just a few weeks after the demonetization announcement, Prime Minister Mr.Narendra Modi announced the BHarat Interface for Money (BHIM) mobile application, which was downloaded 17 Million times within two months of launch. PayTM, India’s leading mobile payments service crossed the 200 Million users mark earlier this year, and have most recently launched PayTM bank with about $1.4 Billion raised from Softbank valuing the firm at $7 Billion. The “Jan Dhan Yojna” scheme successfully brought about 200 Million unbanked consumers into banking. Post demonetization, bitcoin has started to be more widely used.

This is all great news, but it feels like the country is doing it all too fast, without the right governance, and more importantly consumer awareness on cyber risks. Over the last few years, India has consistently been identified as one of the most vulnerable countries to cyber attacks as the digital infrastructure was growing at a crazy pace without the necessary controls in place. The country has about 300 Million internet users of which about 150 Million are only using mobile internet. However many of these phones use vulnerable operating systems and are easily hacked.

One of the common modes of cyber attacks in the country happens through malicious applications on smart phones. This occurs when users download mobile applications that come with some online offers, and allow access levels to the applications that in turn allow the hacker to ask the users’ contacts to make payments using mobile wallets. With a booming e-commerce industry projected to reach $64 Billion by 2021, banks and payments providers lack the capability to keep Cyber attackers at bay.


Challenges in handling cyber attacks are different depending on if the victim was a bank/firm or a consumer. The problem with banks is the secrecy they maintain about cyber attacks on their systems. A few months ago, data of about 3.2 million debit cards was lost in what is claimed to the India’s biggest breaches. SBI, HDFC Bank, ICICI, YES Bank and Axis were all hit by the breach of debit cards. RBI has hence mandated banks to reveal any cyber attacks that banks have had to suffer. Cyber attacks cost Indian businesses about $4 Billion every year as per latest estimates.

Banks in India have also managed to set up shadow or decoy systems which resemble the actual systems and have developed honey pots to trap such hack attempts. However, they still lag behind their western counterparts in sophisticated techniques and forensics needed to counter cyber attacks.

Still, banks are much more prepared to handle cyber attacks than consumers who are easily manipulated. This is primarily because consumers lack awareness of cyber attacks and social engineering techniques by the hackers are getting more and more sophisticated. There are measures from the government (unlike old times) to bring awareness to people on Cyber risks. 90% of the consumers are unaware that the government runs a 24X7 TV channel “Digi-Shala” that focuses on digital payments.

When Demonetization was announced, the Modi supporter in me felt super thrilled about the possibilities as the economy accelerated towards a cashless state. Even the near term pains faced by the common man felt justified in some ways, but it feels like India is ill-prepared to take on cyber risks inspite of efforts from the government and central bank. Watch this space.

Arunkumar Krishnakumar is a Fintech thought-leader and an investor. 

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Religare is one of the biggest exits so far in InsurTech and it is from India



The biggest Insurtech exit to date just happened. The news is public. This is no scoop or insider information; that is not our game at Daily Fintech. Yet despite the story “hiding in plain sight”, it did not receive much mainstream media attention. That is our mission at Daily Fintech – to find the needle of insight that is hiding in the public domain haystack.

In this post we look at the big trends behind this news.

First, a bit of deal background explanation is needed.

A Unicorn valuation funding round makes headlines, but what matters is realized value at exit.

It is no secret that VC money is pouring into InsurTech. As any deal guy knows, getting a big headline valuation (the “PR deal optics”) is easy. We will be getting a lot of InsurTech Unicorn headlines. What follows explains how some of those PR deal optics are constructed. Looking below the PR deal optics to the reality will help see why the Religare story is significant.

As an entrepreneur, if you want that Unicorn headline you simply give away egregious preference terms. Say an entrepreneur wants to sell 20% in that round and the investor really thinks you are worth $100m (keeping to round numbers to keep it simple) and the entrepreneur is asking for a $1 billion Unicorn headline. The investor is willing to put in $20m for a 20% stake. To get to your $1 billion valuation you either need the investor to put in $200m or to accept a 2% stake. Both are showstoppers. If the entrepreneur offers 10% Preferential Equity terms, the headline can say “Hot Venture x raises $yyy at $1 billion valuation from Hot Fund z”. When you look at funding valuation data, you see a lot of deals at exactly $1 billion for this reason. Entrepreneurs need to get the amount invested from $20m to more like $100m for the headline optics. Then the headline is “Hot Venture x raises $100 million at $1 billion valuation from Hot Fund z”. Naïve journalists may extrapolate a 10% stake from that headline. With 10% Preferential Equity terms and an exit in 10 years at $300m, the actual realized value at exit for that investor (keeping it really simple and only assuming one round) is 86%. Run a simple compound interest calculator to see that. That 86% looks bad, but it gets worse if you count the more egregious terms where investors get their $100m back before calculating the compound interest at 10%. If you factor that in, or factor in multiple rounds with a whole preference stack at different dates, you can quickly see how an entrepreneur has to build an incredible amount of value for their founding stake to be worth much and why many entrepreneurs walk away with zip after a headline that makes them look vastly wealthy.

Unless the entrepreneur gets to a really big valuation or does it really quickly. Yes, that is really, really hard to do and happens very rarely.

All of this kind of deal optics fancy dancing stops at exit. Then somebody is paying hard cash and what you read is a real number. That is why we track real exit value (whether by IPO by trade sale). This is when the tide goes out and you can see who has been swimming naked.

My reason for giving that lengthy explanation is to make sense of what is not a sensational story, but which is a big deal in real terms. The Religare exit is not a Unicorn – ho, hum, click away now. Yet it is the biggest exit in InsurTech to date and that is a real story. (If anybody knows of a bigger one please tell us in comments).

If my explanation saves any entrepreneur from 10 years of “blood, sweat, toil and tears” for minimal financial benefit, I am happy.

The News

On 9 April, Religare Enterprises Ltd sold an 80% stake in Religare Health Insurance Co. Ltd (a standalone health insurance company), to a consortium of investors led by True North, a private equity firm. Religare will get about Rs1,040 crore for the deal and the health insurance company is valued at Rs1,300 crore. Religare Health Insurance is owned by Religare Enterprises (80%), Corporation bank (5%), Union Bank of India (5%) and the remaining 10% is by the employees of Religare through employee stock options.

Decrypted. Converting Indian Rupees to a well-known global currency like USD, EUR or Bitcoin is simple. But then you have to deal with Lakhs and Crores. When I negotiated my first deal in India that threw me for a loop momentarily (I had my pricing in GBP and was used to negotiating in USD and had the conversion to INR figured out but when the buyer started talking Lakhs and Crores I was blindsided for a moment). A Lakh is 100,000 and a Crore is 10,000,000. To really confuse non-Indians, a Lakh is written numerically as 1,00,000 and a Crore is written numerically as 10,00,00,000. The USD to INR conversion as I write is 64.47. So (rounding to nearest million) that makes the cash portion of the deal worth USD 161m (Rs1,040 crore) and the realized exit valuation worth USD 202m (Rs1,300). Those calculations throw algo-driven reporting for a loop. I saw this reported as a deal worth $10 billion and knowing that Indians don’t tend to pay bubble value this surprised me. So I dug in and I found that the data was incorrect as reported.

In the future, when Bitcoin is mainstream, we will convert Indian Rupees to Satoshis and Crore Rupees to Bitcoin; but that is another story!

Religare Healthcare is what we categorize as Full Stack HealthInsurTech. They offer Health Insurance policies to consumers.

News link is here.

Why mainstream business media missed the significance of this news

We are now accustomed to looking for mega funding events from China. We also look for mega HealthInsurTech deals from America. We have reported on both. These trends jump out of the data. This was a big exit, but it was from India and so it is not a story unless you are in India, or from India (as my fellow Author Arun is) or into India having done a lot of business there (as I am).

And on top of that you would have to decrypt Lakhs and Crores. In short, the story was ignored outside India.

The Three MegaTrends behind this news

  • First the Rest then the West.
  • Corporate (aka Strategic) Funding is getting more prominent.
  • Innovation capital formation is starting in the Rest

MegaTrend 1. First the Rest then the West.

This is a theme that we have been writing about for years (example post here). For most of the 20th century, technology was limited to the West. Countries in the Rest (formerly known as developing, then emerging, then rapid growth economies) were “tech deserts” until those economies started to open up (first China, then India, then Africa). Then technology adoption started to flow from the West to the Rest; the last decade has been a boom time for Western tech firms selling to the Rest.

Now the flow is reversing as technology adoption starts in the Rest and then goes to the West. For example, look at Xiaomi to see the future of mobile phones and Alibaba for the future of e-commerce or PayTM or M-Pesa for the future of mobile money.

This megatrend is not limited to Fintech, but within Fintech mobile payments and mobile e-commerce is the big disruption and that is happening first in the Rest and then will flow to the West.

Technology adoption flowing from the Rest to the West is one of the big 21st century megatrend stories.

Note that I am referring to technology adoptionWhere something is invented matters a lot less than where and how it is adopted, as Steve Jobs taught us after wandering around Xerox Parc and seeing the first graphical user interface and using that insight to change how we used personal computers. Adoption, whether through network effect or any other customer acquisition technique, has replaced patents as the technology moat and competitive advantage.

Adoption drives value creation and adoption is happening faster in the Rest.

Now look at Healthcare and HealthInsurTech within this context. Where would you prefer to build value:

  • Option 1: a Red Ocean market where there is a lot of entrenched competition (such as America).
  • Option 2: a Blue Ocean market where demand is small compared to established markets but is growing very fast and where there is very little entrenched competition (such as China, India, Africa and the other Rest).

Corporate (aka Strategic) Funding is getting more prominent

This is particularly true in China, where we see massive rounds done by corporate parents. For example, Zhong An (see our post where we describe their upcoming IPO as the Netscape moment for InsurTech). For more, see our Fintech China Week coverage. We are also seeing this trend in Europe where a lot of the InsurTech ventures are being funded by Insurance or Reinsurance companies rather than traditional Financial VC. This is what we have observed as Reinsurance As A Service. The old idea that the Corporate or Strategic investor is always the dumb money at the table that signals a bubble phase, needs to be re-evaluated.

The Religare story shows this. There are no VCs benefiting from this exit.

The Religare Healthcare exit beneficiary, the company that created the value, is called Religare Enterprises Limited (REL). This is a holding company/conglomerate. The mantra in the West for decades was that the holding company/conglomerate model is dead (core competency focus was the mantra). This deal makes one re-evaluate that mantra (as do other deals in China and India). REL got $160m in cash by selling 80% and kept 20% to ride for future upside. That is value creation.

India innovation capital formation

For a long time, Venture Capital fundamentally meant Silicon Valley. Entrepreneurs everywhere else had three lousy options:

  • Move to Silicon Valley where your costs are far higher and you don’t have a network and where you don’t understand the culture that you are selling into.
  • Find the local subsidiary of a Silicon Valley VC fund. Many Silicon Valley VC funds don’t even bother globalizing, because it is too hard and there are plenty of deals at home. The ones that do have a local Fund often lead to long decision cycles that kill a deal – first you convince the local guys, then you fly to Silicon Valley to convince the global Partners.
  • Find a small local VC that has very little expertise and/or only a small fund.

What the Religare story indicates is pretty significant which is the formation of more Innovation Capital locally. REL will have $160m in cash from the deal and a successful formula to follow. One assumes they will be hungry for more. That is one part of the story. The other part of the story is about the True North private equity fund that bought Religare Healthcare. True North, formerly India Value Fund Advisors, is a local Private Equity fund that started in 2000.  You can see their Fund size growth below:

Screen Shot 2017-04-15 at 11.29.04

The history, as per their site is interesting:

“True North came into existence with the power of one crucial decision. Mr. Gary Wendt, then Chairman and CEO of General Electric Capital Corporation (GECC), decided to set up a US$ 2 billion private equity fund with a focus on transforming businesses in a variety of global markets, one of which was India. Impala Partners, a US-based boutique investment and M & A advisory firm founded by former senior GECC executives, was chosen as a global partner for the venture.

The fund was focused on investments in Japan, India, Israel, Poland and Mexico, and sought local partners in each country. In India, Mr. Wendt tied up with Ambit Corporate Finance and subsequently HDFC to form GW Capital with Vishal Nevatia as CEO. Later, Mr. Wendt took up other responsibilities, and though he and Impala remained as investors, the new company developed a strong local identity, and was reborn as TRUE NORTH in 2004. With its new identity in 2016, True North will continue the company’s journey in transforming businesses.”

It will be interesting to track the value creation of Religare Healthcare after the acquisition by True North.

Note: I use the term Innovation Capital rather than Venture Capital because the term VC implies only one business model (2 and 20, LP and GP) and a lot of the action today is in areas such as Corporate funding, ICOs, Family Office Club deals and so on. All these can be called Innovation Capital, but calling them Venture Capital would be confusing.

American investment bank J.P. Morgan acted as the exclusive financial adviser to Religare Enterprises.

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

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Effects of Demonetisation on Microfinance in India


This is a guest post by Arunkumar Krishnakumar, who is deeply involved in the early stage Fintech scene in London but was raised in India. So he is highly qualified to write about this important and controversial topic.  

Muhammad Yunus, who was awarded the Nobel Peace Prize for founding the Grameen Bank and pioneering the concepts of Micro Finance, said:

“I did something that challenged the banking world. Conventional banks look for the rich; we look for the absolute poor”

The Micro Finance industry, despite being hailed as a saviour of the poor, has had a turbulent ride in many parts of the world. There have been various incidents in the emerging markets where farmers have committed suicide when they haven’t been able to pay off their debts. As a result, the industry was regulated in some parts of the world, and institutions offering Microfinance had to adopt different credit strategies. While the focus of many of these institutions have moved away from achieving volumes to offering affordable micro-credit, the global average rate of borrowing is about 30%.  Micro Finance in India has been no different and has had its ups and down. The recent Demonetisation (DEMON) drive in November 2016 looks like a setback to the primarily cash based Microfinance industry.

Microfinance in India:

In India, pioneer Micro Finance Institutions (MFI) operated as non-profit, non-governmental organisations with a strong social focus. They developed new credit techniques; instead of requiring collateral, they reduced risk through group guarantees, appraisals of household cash flow and small initial loans to test clients. In recent times, MFIs have transitioned from non-government organisations to nonbanking finance companies (NBFCs). As a result, once primarily donor-led, MFIs are now increasingly funded by banks and private and shareholder equity.

The Indian Micro Finance industry hit its peak in 2010, when SKS Microfinance, one of the industry leaders had its IPO. Muhammad Yunus, hailed as the father of the industry, criticised the move as the IPO was fundamentally conflicting with the principles of Micro Finance. The IPO offered at $350 million was 13 times over-subscribed. But due to reckless lending and strong-arm collection tactics that followed, strict controls were imposed on the business and loans written off which resulted in a slump. However, over the past few years, regulation of MFIs has been centralised in India and the industry growth stabilised. By 2016 the size of the industry in India was about $8.2 Billion serving over 40 Million customers. About 40% of this industry thrives in the four southern states of India.

In a country traditionally notorious for lack of women empowerment measures, MFI has been a shining light. About 70-80 per cent of the customers are women with a repayment rate of about 95 per cent against repayment rates of about 70 per cent for middle class men who form the primary borrowers for commercial banks.


In November 2016, the Indian government launched a huge DEMON drive when they banned 500 and 1000 Rupees notes. In a country where 69% of the population lived in rural areas and 90% of the transactions are cash based, the move was paralysing. For the Micro Finance industry this came as a blow too. Most of the borrowers of the MFIs are based in rural areas; they borrow in cash and repay in cash. Typically, MFIs that have had a repayment rate of 99% have had a fall of upto 12% in repayment rates. For many MFIs the non-performing assets (NPA) have risen by 7-10%.

For a discussion of the impact of DEMON in India please go to this thread on the Fintech Genome.

What does this mean for the MFIs? It might just be a short term blip, rather than a long term trend. However, these MFIs could be affected by the DEMON drive, and the resulting non-payments by their borrowers. While the borrowers will have some negative effect on their credit scores, it might be a bigger issue, if that affected the credit worthiness of the MFIs themselves.

What does this mean for the borrowers? Particularly farmers and SMEs that make up most of the customers are affected in a big way. The drying up of liquidity that the DEMON drive has caused has affected cash dependent rural communities in a big way. Especially in the southern states of India, the drought this year has made matters worse. In Karnataka, about 800 farmers committed suicide in the 12 past twelve months due to the drought and mounting debt, although what percentage of that is due to pressures from MFIs is unknown. In TamilNadu, my home state, farmers-suicide due to debt issues is almost a daily occurrence. There have been several cases where farmers have had to borrow from local lenders at higher rates, to pay off the MFIs, as MFIs tend to be stricter on their debt collection dates.

What can be done about all this? While these are certainly tragic incidents, there are various avenues the government and the MFIs have explored and continue to explore. One positive outcome of it all is that, the top 8 MFIs in India that hold about 40% of the market share, have now been provided the small finance bank licenses. Which would mean they can have their own cash out points and the DEMON drive is very likely to increase usage of their accounts. MFIs have also been lobbying with the Reserve Bank of India (RBI) to extend deadlines for the usage of the banned currency notes and farmers have had some special exemptions to this extent. RBI has also provided MFIs with a further 90 days extension before classifying loans as NPAs, if payments were due in November and December 2016. There have been some signs of recovery in certain parts of the country where repayments had fallen immediately after DEMON. However, most industry experts expect that there would be a further increase in NPAs before the industry recovers.

While the industry shows every sign of recovery, the livelihoods of drought stricken farmers are still up in the air.

PS: I am a big fan of Narendra Modi and his DEMONetisation measures. However, these were some of the unintended effects of such a huge initiative in a land of 1.3 Billion people. The human cost is clearly terrible, yet we have not seen the final chapter in DEMON. If it leads in the end to a more efficient digitized Micro Finance industry, it will have a positive impact on the poor in India and will be studied by other countries facing a similar mission.

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How the humble QR code may usher in the cashless society, starting in India



Clay Shirky, in Here Comes Everybody, writes

“Communications tools don’t get socially interesting until they get technologically boring.”

QR Codes are a good example. This post describes:

  • QR Codes 101 including who controls QR Codes and why QR Codes matter
  • Why India QR is a game-changer
  • QR Codes for Bitcoin payment
  • Fintech and the new government infrastructure investment

QR Codes 101

A Quick Response (QR) code is a machine-readable code made up of black and white squares read by the camera of a smartphone or other device reader.

QR Codes originated in Japan in 1994 to track vehicles during the manufacturing process. Now you see them everywhere – such as URLs in print ads, boarding passes, Bitcoin public keys. The key is the ubiquity of the smartphone camera that can read them. There are specialized QR Code readers (think of boarding pass readers at airports), but the key is the ubiquity of the smartphone camera that can read them.  The reader can be held by a consumer or an employee working retail. For example, that is how Swiss Railways check a ticket that you bought with your mobile phone.

Who controls QR Codes?

A Japanese company called Denso Wave invented the QR Code technology and owns some patents and trademarks, but has chosen to waive its rights to a key patent and offers a free license as long as users follow the standards.

Details are at

The mass adoption is creating an ecosystem of companies offering services such generating QR Codes, such as this company with pricing starting at EUR 5 pm.

Why QR Codes matter

They are simple and free and can go on any form factor, from mobile phone to paper or plastic. So while they are technically boring, their mass adoption makes them interesting.

QR Codes for Bitcoin Public Keys

If you want somebody to send Bitcoin to your account, just go to and key in your Bitcoin public key address and then put that QRCode wherever you want like your website or business card.   Yes it really is that simple and simple can change the world.

Why India QR

News: On Feb 20 2016, the Reserve Bank of India (RBI) launched the IndiaQR (or in Hindi BharatQR), a common QR code jointly developed by all the four major card payment companies – National Payments Corporation of India that runs RuPay cards along with MasterCard, Visa and American Express. It will also have the capability of accepting payments on the Unified Payments Interface (UPI) platform.

MasterCard  is promoting the standard through ‘Masterpass QR’.

Customers make payments by scanning the QR code and entering the transaction amount. The amount gets transferred directly from the bank account without the need of a swiping machine.

This replaces credit card Point of Sale devices with anything that can generate QR Codes (which is a dirt cheap capability). That is an important benefot but the reason this is so disruptive is in one word – interoperability.

Before rail gauges were standardized, trains could only run on tracks from that train company.

Currently, QR Codes can be processed on closed systems, such as mVisa, for Visa cardholders, or via mobile wallets such as Paytm, as long as both parties have a Paytm account.

The key to interoperability is the standardisation promoted by the Indian government and codified in the  Unified Payments Interface. This enables Mobile wallet interoperability (read this post for why this is so critical).

Banks and Card networks are on board

On launch day they had 15 banks signed up for IndiaQR (household names if you live in India such as Axis Bank, Bank of Baroda, Bank of India, Citi Union Bank, DCB Bank Ltd, Karur Vysya Bank, HDFC Bank Ltd, ICICI Bank Ltd, IDBI Bank Ltd, Punjab National Bank, RBL Bank Ltd, State Bank of India, Union Bank of India, Vijaya Bank and Yes Bank). Visa, MasterCard and Repay (India specific credit card network) have been integrated and American Express is in the final stage

Paytm has said it plans to invest Rs 600 crore (about $90m) in the next 10 months to further enhance its QR code-based payments solution.

Another mobile wallet contender, MobiKwik, is also backing the standard

The new digital national infrastructure investment

This is an example of how governments can create digital national infrastructure. In ye olden days, infrastructure meant roads and railways and airports – think post war America. In that arena, India can at best play catch up. However in the digital arena, India can lead. The press release mentioned an “insignificant cost” for this QR initiative. It was really the role of government to create interoperable standards that matters. This another example of why we believe India is the country to watch in Fintech. 

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The dabbawalas in India point to future e-commerce and payments


If you spend any time in India, you will often be told that home-cooked food is far better than restaurant food. As the restaurant food is so delicious, this is hard to believe, but it is true.

In Mumbai, India, 200,000 workers get fresh home cooked food every day. In this relatively impoverished city, workers get better food that is totally customized to their individual needs than the most pampered workers in Silicon Valley and other wealth hubs.

Investors and entrepreneurs who have spent $billions on food and grocery ecommerce should take serious note of how this is done.

Policy makers might also pay attention as this is good for the environment and for jobs.

The future of e-commerce is mobile. The future of payments is also mobile. So these two worlds of e-commerce and payments are converging around mobile phones and Internet Of Things devices. We see this convergence in companies such as Uber, Amazon, Alibaba and Paytm.

 In short, it is time to take note of what Mumbai’s dabbawalas are doing.

Once again this illustrates our theme of First The Rest then the West – that countries formerly known as emerging aka the rest of the world are leapfrogging the West thanks to not being invested in legacy technologies, processes and models.

Dabbawala 101

A dabbawala (aka tiffin wallah) is a person in Mumbai, India, who collects hot food from the homes of workers in the late morning, delivers the lunches to the workplace and returns the empty boxes to the worker’s residence that afternoon. They are also used by meal suppliers in Mumbai, where they deliver cooked meals from central kitchens to the customers and back.

Dabbawala translates to lunch box delivery person. “Dabba” means a box (usually a cylindrical tin or aluminium container aka tiffin) while “wala” is a suffix, denoting a doer.

These tiffins have become fun gifts in the West. Some parents use them for their kids lunch box.

Hot VC sector

The food and grocery delivery space has been hot. For a good analysis in 2015, read this post on Techcrunch by a VC. VCs put in more than $1 billion in 2014 with a big acceleration in 2015. A few successful IPOs such as Just Eat and Grubhub/Seamless led to a rash of similar ventures.

There has been a cooling in 2016 as some ventures inevitably failed and VCs focused on a few late stage deals. However, the window is still wide open with the online penetration % in low single digits.

The first generation was simply an online ordering layer (replacing phone orders with online orders). The second generation of restaurant marketplaces includes behemoths such as Uber and Amazon that compete on logistics through a network of independent couriers. The logistics network creates a powerful moat and a correspondingly higher commission around 25%.

It is this second generation, competing on logistics, that should be studying the dabbawala network. Actually they probably already know about it and understand its disruptive power (and would prefer if it stays in Mumbai). It is the third generation that will use the ideas behind the dabbawala network to create a new wave of digital cooperative network.

Indian frugal innovation

The dabbawala network is a good example of what has been termed “jugaad” in India which translates to “frugal innovation”. This became fashionable to study in the West around 2011 when big companies and universities (such as Santa Clara and Stanford) strove to understand how to reduce the complexity of a process by removing nonessential features. This becomes critical in serving mass market consumers at razor-thin margins without reducing quality.

Also in rich countries

Switzerland could not be more different from India – a tiny country with a high GDP per person.  Yet we see a dabbawala network operating here.

The appeal of fresh, delicious, nutritious food cooked with love and care is universal.

Better for the environment

The packaging wastage around today’s e-commerce (big disposable cartons) upsets a lot of people. If this upsets wealthy people who are influential this can damage the bottom line of the e-commerce marketplace. The dabbawala tiffins are reused every day.

Pave the cow paths with proven digital innovation

The dabbawala network started in 1890 with 100 delivery people (it now has about 5,000). So this was hardly a tech startup. Yet one Silicon Valley mantra is to “pave the cow paths”. This means adding innovation to whatever is already working.

There are 5 tech innovations that are already proven which would add a digital layer to a dabbawala network to make it massively scalable:

– QR code to replace the unique ID stamped into the tiffin.The current system is well thought-through and would translate easily to a QR code.


– ChatBot UI for service inquiries and exception handling. Lets say you want to change the the location to your friend’s office or cancel for a few days next week when you are travelling.

– Mobile payment at delivery time (with auto routing of payments to the cook and the delivery person).

– RFID sensors in the tiffin so that the whereabouts can be tracked automatically (your phone pings you to say that lunch is in the lobby and getting into the elevator).

– fully electric cheap cars and scooters for delivery (cannot rely on trains in many countries and many delivery people will object to pedal powered bycicles).

Delegate don’t micro manage

Ordering takeaway food online rather than by phone increases efficiency, but adds to the tyranny of choice. What shall I eat for lunch today that is a) delicious b) nutritious c) avoids any dietary or religious prohibitions? How much nicer to have somebody who really understands all those needs decide for you and occasionally surprise you within those constraints.

For a lovely movie about the romance of this, watch The Lunchbox.

Put in more MBA terms, it is surely better to delegate this task rather than to micro manage it.

Digital Cooperative Future

The dabbawala network grew in an era and culture where/when men worked for pay and women cooked at home. Today, those roles could be reversed or both could be working and the cooking is done by somebody else.

The Gig Economy is the new normal for a large % of the population. The only question is, do we have a power law society (with the lion’s share of the economic value of these networks going to the network operator) or a bell curve society where the broad mass of people get most of the benefits of these digital networks? The latter is the vision of a digital cooperative future. Many of the blockchain startups envisage a future like this, but the beauty of the dabbawala network is that it does not require any technological breakthrough.

Look at the dabbawala network in the context of recent digital innovation compared to Uber:

  • Each dabbawala is required to contribute a minimum capital in kind, in the form of two bicycles and a wooden crate for the tiffins. This is like an Uber driver owning their own car.
  • Each dabbawala is required to wear white cotton kurta-pyjamas, and the white Gandhi cap. Rich people will pay more if their Uber driver looks like a chauffeur and that branding also helps the network operator.

Here is the fundamental difference with sharing economy network. Each month there is a division of the earnings of each unit. This is a cooperative, not simply individuals using a common system and brand.

At a human level, this enables the connection that people make with their postman or Fedex or UPS driver (or going really far back, the guy delivering milk). The same person comes every day. For humans who like humans, this is more appealing than drone delivery.

Doorstep services is not just for food

This is why Uber got into food delivery. If you have a logistics network, you can use it for anything. This is simply a networked, free agent model of Fedex and UPS. Entrepreneurs in India have figured this out. For example, Anulom uses the Aaadhar unique ID and the dabbawala network for the paperwork around rental service agreements. This earned them a tweet from the Prime Minster, Narendra Modi.

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Mobile Wallet Sumo wrestlers face off in India


We are mixing our cultural metaphors here. Yes, Sumo wrestling is from Japan and this post is about mobile payments reaching a tipping point in India. Yet the Sumo analogy fits when we are talking about the mobile payment giants of India such as Paytm, Chillr and Mobikwik. Without regulation, this would be a winner takes (almost) all market based on network effects. However, India has some Tech Smart Regulation called Unified Payments Interface that levels the playing field so that the whole economy benefits. 

Paytm – aggressive growth

There is a a fierce battle for market share in mobile payments in India. This is where the winners emerge and those winners use a mix of aggression and smarts enabled by plenty of capital. We start with Paytm because they were the first Fintech Unicorn in India to hit our radar screen; we expect to see more Fintech Unicorns emerge in India during 2017.

Paytm is a kludgy name that stands for Pay Through Mobile. Who cares about kludgy names if it is so successful? They claim 120 million users, up from 12 million only 2 years ago and having been founded only in 2010. Post demonetization, Paytm was processing more than 7 million transactions per day.

That is phenomenal growth by any standards.

This growth upsets people, including some global players. Paypal accuses Paytm of Trademark infringement. There is also a battle with Uber. Within India we see criticism from rival Mobikwik about what they describe as capital dumping via China.

All those critiques come with being a leader. However, it is possible that, like some people say about Uber, Paytm could be buying a dollar for 99 cents through incentives. This is the norm in market share battles and the prize is big enough, but entrepreneurs have to know when to pivot when capital starts demanding profits. I suspect Alibaba, a big shareholder, takes the long view as does the big Indian shareholder, Tata. However, growth through incentives is a bit like steroids for an athlete – dangerous if you come to rely upon them.

Paytm has become a Payment Bank. The way they present their mobile wallet it is like a current/checking account – you can Add Money, look at your Passbook and Redeem loyalty points.

Then you can pay bills for everyday items. This is where you see the original driver which is paying your mobile operator. You simply enter your number, the Operator, the Amount and whether it is Prepaid or Postpaid. You can choose Fast Forward to pay directly from your Paytm balance. Paying your mobile operator may not seem like a big deal, but this is a mobile leapfrogging story. Indians spend 45% of their incomes on mobile technologies and platforms (vs only 11% in America). because mobile is the main point-of-entry to the Internet (PC penetration is 5% vs 75% for mobile).

Then you can pay for your DTH Satellite TV and Electricity. In a uniquely Indian spin, you can use it to buy Gold.

However, then you see an e-commerce service. In the West we grew used to payments (Visa, Mastercard, Amex, Paypal etc) being different from ecommerce (Amazon, eBay, Uber etc). China and India do it differently. Alibaba is Amazon + Paypal. Paytm is Paypal + Amazon; the placing of the + makes very little difference but the combination is game-changing. It is no coincidence that Alibaba is a big investor in Paytm.

Just after phone recharging and utilities, Paytm offers a lot of services that are part of everyday life in India – movies, bus, flights, trains. Buying these does not entail any supply chain logistics.

To put that in context, that would be like Amazon selling your air flights or train tickets.

Below that you can see a conventional online shopping mall. This could be Amazon or Alibaba or Flipkart. The key is that Paytm is an online shopping mall offered by a payment company.

This would be like Visa or Paypal offering an online shopping mall. This is ecommerce merged with payments. This is likely to be the future of both ecommerce and payments. This may drive mega mergers in America, but it is more likely that the real innovation will come from China, India and Africa (a leapfrogging First the Rest then the West story).


Mobikwik is another major contender with serious traction and plenty of capital. It looks like a bruising street fight between Paytm and Mobikwik. Literally, the action is on the street as both ventures win by signing up merchants. Merchants can accept more than one – this can be a Visa vs Mastercard story. Or the UPI standard could commoditize the whole Consumer To Merchant (C2M) business; when we use physical cash there is no transaction fee.

Mobikwik is also taking hard shots at Paytm for their ties to China via Alibaba.

“We must be sensitive to companies, especially those that have massive foreign investments,” said Singh. “They can come into the country, dump capital and gain access to data.”


Chillr has a different strategy to Paytm and Mobikwik. They don’t go after the Consumer To Merchant (C2M) market (apart from the ubiquitous phone recharging), but stay focused on Consumer To Consumer (C2C) payments.

Their lead investor is Sequoia Capital. Their massive win was Whatsapp and the assumption of many has been that Whatsapp will monetize through C2C payments, so this will be interesting to watch.

Chillr are getting distribution through partnerships with Banks. All transactions on Chillr are initiated directly from the users’ bank accounts and authenticated by a secure PIN provided by their banks.

Examples of Bank partners include HDFC and Federal Bank.


OxigenWallet competes with Paytm and Mobikwik. Like Paytm, they have received in-principle approval from the Reserve Bank of India to operate under the Bharat Bill Payment System (BBPS), which will allow people to pay utility bills from anywhere at any time.

Oxigen expects BBPS to help more than double the company’s wallet user base to 50 million by December next year.

UPI Commoditizing the payment layer for the banked

The bad news about Mobile wallets is that if network effects rule – and they usually do – we might miss the credit card networks as we end up dealing with one or two behemoths that control cash, credit and e-commerce. The alternative scenario is that we all have mobile wallets that work with every other mobile wallet (just like physical wallets). That will be good for consumers, but it will force mobile wallet ventures to add value elsewhere.

There is a lot at stake in the geeky subject of mobile wallet interoperability.

So the Reserve Bank of India (RBI) was farsighted when they launched the Unified Payment Interface (UPI) in April 2016.

In the scenario where one or two behemoths rule, our wallets will be determined by our mobile phone operating system. Merchants will accept both Apple and Android/Google like they accept Visa & Mastercard today.

That scenario is unlikely in India, thanks to UPI. We believe that India leads the way on this Tech Smart Regulation front and other countries will follow.

Dominance by Apple and Android/Google is also unlikely because the other Global Big Techs – Facebook and Amazon in GAFA and BAT (Baidu Alibaba TenCent) – won’t sit still for dominance over something as critical as payments. Neither will Visa & MasterCard and the banks.

India does not want payments & ecommerce dominated by a few global players. India is sensitive to “digital colonialism”. They don’t want their digital life – which now has such a huge impact on the economy – controlled by companies based in America or China (i.e. GAFA and BAT).

There is as yet no GAFA or BAT equivalent acronym for India. We have had various incarnations of acronyms for the outsourcing giants such as SWITCH Satyam Wipro Infosys TCS HCL. However, the new Digital India behemoths are companies like Flipkart, Paytm, Snapdeal and Mobikwik. Somebody who is good with crossword puzzles will put them into an acronym.

The point of lumping Flipkart, Paytm, Snapdeal and Mobikwik into one category is that payments and ecommerce is converging, thanks to Alibaba.

How Alibaba changed the game

The lazy way to describe Alibaba was the “Amazon of China”. However, it would be more accurate to describe them as the Amazon + eBay + PayPal of China. It is not just that Jack Ma is hugely ambitious – he clearly is – but also that digitization erodes barriers between previously distinct categories. Payments and e-commerce are inextricably linked. Actually, to really describe Alibaba’s ambition, you would have to talk about the Amazon + eBay + PayPal of the world. In that game, India is the arena. The Indian government understands this and has been tech savvy and proactive.

This merging of payments and e-commerce has already played out in India.

An early mobile wallet pioneer was FreeCharge, which started out, like Paytm, enabling you to recharge any prepaid mobile phone, postpaid mobile, electricity bill payments, DTH and data card in India. Paytm moved into e-commerce and then Snapdeal Acquired FreeCharge in April 2015.

Moving upstream post UPI

If the payment layer is commoditised, which is what consumers want, mobile wallet ventures need to move upstream to become either banks or e-commerce portals or both.

Paytm has already become one of the 11 new licensed Payment Banks and a quick look at their site reveals an e-commerce portal.

UPI is about bank payments and millions Indians are still unbanked (233 million as per a PwC India report). Plus, cash is still king & queen. Yet India’s 150 million smartphone users is expected to grow to 500 million in the next few years.

Upasana Taku, co-founder of MobiKwik, which has 30 million wallet users cites Reserve Bank of India data showing mobile wallet growth to be four times more than mobile banking.

The on-ramp to financial services for the unbanked will clearly be mobile wallets. The future maybe less about adding a mobile layer to banking than adding a banking layer to mobile. India is where this will play out first.

UPI also makes mobile wallets work better, because it works quicker than the Immediate Payment Service (IMPS) that banks use for instant money transfers. UPI will make it faster to get cash to  merchants and to load cash into consumer wallets.

Who will be the Alibaba of India?

In China we talk of the Google of China, the Facebook of China, the Amazon of China and so on.

In India, the Google of India is Google, the Facebook of India is Facebook, the Amazon of India is – maybe Flipkart and maybe Amazon and maybe Alibaba.

Flipkart understood that Cash On Delivery (COD) was essential in India. You could not simply replicate Amazon in India. Flipkart grew huge by innovating on the logistics front.

However, what happens when that cash at the door is a guy with a mobile phone and a mobile wallet? That is where the race to get consumers to sign up for a mobile wallet is so key. The mobile wallet is the key to the e-commerce universe.

You can see why Alibaba invested in Paytm and why Mobikwik is playing the made in India card (i.e saying that Paytm is too close to China).

It is a sign of the changing times in the Asian Century that we ask who will be the Alibaba of India?

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