Fintech Tracker: Instamojo Wants To Help India’s Five Crore Small Businesses Transact Online
Digital modes of payment are becoming ubiquitous, riding on the government’s less-cash drive after demonetisation. Yet, Instamojo, a Bengaluru-based fintech company, feels not enough is being done for small businesses.
The company wants to help India’s micro, small, and medium enterprises receive payments online in a simple, hassle-free manner, said Sampad Swain, one of its founders and also the chief executive officer. The government last year projected that the number of such businesses has grown to over 5 crore.
At last count, Instamojo, which started operations in May 2013, had a little over 2.5 lakh merchants on its platform. To explain how it helps such small companies and budding entrepreneurs, Swain uses an example.
“In summer, we have a few hundred sellers of Alphonso mangoes, typically from Maharashtra. The Alphonso seller’s problem is that he wants to sell a crate of Alphonso mangoes to Alex in Mumbai, and say this guy (seller) is sitting in Ahmednagar,” said Swain.
The mango seller’s options are rather limited: the primary ones being a bank transfer and shipment through a delivery service. But if the buyer wants to pay by a different mode, say a credit card, it complicates matters. That’s where Instamojo comes in.
Just Send A Link
The only two requirements for the company’s service to work is that both parties must have a mobile number and a bank account.
“If the mango seller wants to use our platform, he has to first do an e-KYC, which takes a few minutes,” said Swain. This can be done either through a mobile application that can be downloaded from the Play Store, or on Instamojo’s website.
The seller then generates a link by providing information on the ‘purpose’ of the transaction, and the amount that the buyer has to pay. In this case, the purpose would be a crate of alphonso mangoes, and the price would be Rs 1,700, Swain explained.
Once the link is generated, the seller can forward it to the buyer by any messaging mode, like WhatsApp, Facebook, email, or even an SMS. When the buyer clicks on the link, he or she is directed to Instamojo’s website, where a number of online payment options are available. These include debit and credit cards, internet banking, UPI (unified payment interface), and even an equated monthly instalment option for large payments.
The amount is collected by Instamojo on behalf of the seller and is then credited to the seller’s bank account within one to three business days.
The Revenue Model
“Today, the revenue model is simple and straightforward. Ours is a success fee commission model,” said Swain.
For all categories of products and services that are bought using Instamojo, the company charges a fee of 2 percent of the transaction amount. The amount is deducted by Instamojo before the amount is credited to the seller.
The company is also looking to increase the number of value-added services it offers, something it hopes will differentiate it from other players in the market.
“For a small business, the payment is only part of the problem. The other major challenge is shipping the product once the sale is complete,” said Swain.
To fix the problem, Instamojo has tied up with a few delivery partners. It intends to tie up with a few more top-notch delivery services and plans to add a delivery option to its platform within the next two quarters. Merchants will then pay Instamojo a charge on every shipment.
Another potential revenue stream has Swain excited. He plans to leverage the data collected by Instamojo on the merchants on its platform to facilitate lending by its banking and non-banking finance company partners.
If you have engagement of a large number of SMEs on a platform, the potential is huge... So we get to see a pattern, because understand, Instamojo sits in between receivables and payables. So we know who paid to whom, with what instrument, how much from where.Sampad Swain, Chief Executive Officer, Instamojo
With banks and NBFCs looking for better models to price risk when lending to MSMEs, such data could help. A merchant on Instamojo’s platform could apply for a loan from one of the company’s banking or NBFC partners, and for this the fintech company would charge a processing fee in line with industry standards, said Swain.
The Expansion Plan
While Instamojo’s primary focus will be to increase the number of merchants on its platform to 10 lakh by next year, it is also trying to beef up its value-added services.
For merchants, the company has launched the option of an “online store”, where they list their product offerings, instead of creating a link every time they have to sell a product or a service. Also, for companies that have built their own websites, Instamojo is working on integrating its payment option as an application program interface (API).
And Swain wants to take Instamojo global, with plans to enter markets in South East Asia in a year or two.
The company will look to raise funds again in six months. So far, apart from the initial capital provided by the founders, the company has raised around $3.5 million in two major rounds of funding.
At this point, however, Swain feels that Instamojo is not in dire need of capital. The business, according to him, is growing organically and will turn EBITDA-positive in the next quarter.
Differentiation is Key
While the payments space is over-populated, there are not a lot of players that are catering specifically to small and medium enterprises, said Vivek Belgavi, partner-financial services and technology consulting at PwC.
“The strategy they (Instamojo) seem to have ticks the box. I think it is good that they are diversifying. The value-added service is important. You monetise the service better by introducing lending,” said Belgavi.