IPO-bound MobiKwik bets on lending, financial planning to boost margins

“We have three areas. Payments, which continues to be the foundation for data and customer acquisition in India. Second is lending, which is a source of profit and margins," co-founder and chief executive officer Bipin Preet Singh told Mint in an interview. “Now in the last two years, we've started a third vertical, which is savings and investments."

While MobiKwik is the largest wallet in the country by size, and fairly sizeable in other areas of payments also, this business does not have margin, according to Singh. "So you have to do some cross-selling. You have to move up the value chain, which means launching some financial products," he said. “Our experience in the last 4-5 years has been that a lot of people need access to credit."

MobiKwik’s first secured credit card is a co-branded offering with SBM Bank India and is provided against a fixed deposit of at least ₹5,000. The card has relaxed eligibility criteria to enable self-employed and small and medium enterprise customers to get easy access to credit.

“If you're somebody who doesn't have a credit score, or a low or weak credit score, you can get it. The entire purpose of this card is that as you use it, the transactions get reported to the bureau and allows you to build the credit score. And it’s collateralised," Singh said.

The partner bank will take the FD and issue the credit card, while MobiKwik will be the enabling platform. Users can route all their UPI (Unified Payments Interface) transactions through the credit card with the ease and user experience of UPI. They will get points or rewards that they otherwise wouldn’t earn on UPI payments.

“It's not hitting your bank account and there’s a separate credit card statement, so the bank account is clean. As consumers start using it, they might become eligible for more credit cards, even unsecured ones," Singh explained.

The secured nature of the card eliminates the question of credit risk, allowing the platform to explore similar partnerships with other banks and look at a commercial version of the card.

“The margins are better in these (lending and financial planning) products, but we are only able to do it because we have a payments business. In the payments business, we acquire customers and merchants and get an understanding of their behaviour and payment track record, which is the foundation for underwriting," said Singh.

He said both payments and lending are linked and only if the platform can onboard people for payments can it offer them more high-earning products like loans.

Standard framework

The credit card business is just the start, given its more established model. MobiKwik is looking to explore ‘credit line of UPI’, especially through an open marketplace like ONDC (Open Network for Digital Commerce) or the recently announced Unified Lending Interface (ULI), given that it will address the challenges of infrastructure and partnering with multiple lenders.

“Once the framework is kind of standardised for credit line, then we'll be happy to partner there," said Singh.

As per the company’s IPO filings, revenue from operations for the six months ended September 2023 was ₹381 crore. Of this, revenue from payments was ₹137 crore and from financial services was ₹244 crore on the back of disbursements of ₹412 crore. Total credit partner assets under management stood at ₹169 crore and other income was ₹6.3 crore.

The lending distribution business grew the fastest - in “high double digits" in FY24 - and contributed 64% of the total revenue, Singh said. MobiKwik offers curated wealth and insurance products which had assets under management of ₹1,332 crore as of September 30, 18 months since launch, as per the DRHP filed.

MobiKwik posted earnings of ₹14.1 crore in FY24, its first full year of profitability, compared with a loss of ₹83.8 crore in the previous year.

Tough Business To Crack

While experts said the push towards lending and other businesses makes sense, they are not sure how successful it would be. 

According to Jyoti Prakash Gadia, managing director at Resurgent India, a SEBI-registered Category-I investment bank, platforms for payments and neo banks have emerged with some added services, but their limited domain is not taking them forward on account of cost inefficiencies and stiff competition . He said moving towards a financial planning model makes more business sense and is remunerative.

"By offering diversified and wider range of additional credit related and niche financial products/services on a single platform, a broader set of clientele can be attracted which will provide more revenue, economies of scale in comparison to those who are providing only payment-related services which have limited and narrower scope of earnings," Gadia said.

Ram Rastogi, digital payments strategist and chairman of FACE (Fintech Association for Consumer Empowerment), has his doubts. As government’s stance against imposing charges on UPI has led to a skewed ecosystem, fintech companies are strategically capitalizing on the UPI infrastructure and expanding into sectors like insurance, broking, and wealth management, where there are significant monetization opportunities.

But Rastogi questioned how feasible and sustainable these lending distribution models would be given that consumers typically associate secured products such as loans against fixed deposits with traditional banks. 

“A customer could visit SBI, pay an additional half a percent, and secure a loan, or [the bank] can provide an overdraft facility. However, how many individuals who have FDs would approach a third party for a loan? Moreover, why would banks allow customers to seek loans through alternative platforms? Banks already provide secured loans at competitive rates, matching the deposit rate, while fintech platforms would need to charge a premium due to their business model."

For MobiKwik, the newer financial planning segment is still more engagement-focused with the aim of retaining customers and getting access to sufficient information. The idea, according to Singh, is that most of the platform’s users--largely in the ₹30,000-1.5 lakh income bracket and in tier-II and tier-III towns and cities--want to save and want financial products but don’t necessarily want to invest in the stock markets.

The company had 146.94 million registered users and had enabled 3.81 million merchants to make and accept payments online and offline as of September 30, 2023, according to its IPO documents. Rivals PhonePe had 500 million registered users in FY23 and Paytm had 300 million.

“How can we bring in simple products that give 10-13% kind of returns but are much less volatile? That area is seeing very good traction," Singh said, adding that MobiKwik doesn’t want a purely transactional relationship but also wants “people to come and save money with us".

These could include investments in products such as digital gold, mutual funds, newer innovative products, or the recently announced FDs launched in partnerships with banks and non-banking financial companies.

Data power

To facilitate this, it has launched ‘MobiKwik Lens’ - an account aggregator feature that lets users track their expenses, income, bank balance and other financial details. These are analysed by MobiKwik, which can then offer personalised solutions.

“We recently even offered a tax-filing facility including information on how much tax users are liable to pay. We were able to understand the entire financial health - this is the kind of innovation on the power of data we are doing and that becomes the foundation for us to play on the investment side," said Singh.

MobiKwik’s financial planning business will compete with other traditionally payment-focused platforms such as CRED and IndMoney and aggregator entities such as Fi and Jupiter, which are trying to offer a similar array of payment, lending and investment solutions. These platforms are looking at additional lending and cross-selling opportunities to offer more holistic financial analysis and planning, given that pure-play payments have not been very monetizable or profitable so far, experts said.

MobiKwik launched its first lending product under the ‘Buy Now Pay Later (BNPL)’ category named ‘Zip’ in August 2023. Later, it started offering unsecured personal loans before venturing into small merchant loans through its QR (quick response) code.

The company is awaiting approval for its initial public offering. After initially submitting papers to go public in 2021, MobiKwik refiled the draft prospectus for an IPO in the first week of this calendar year. Singh said MobiKwik is "hopeful for a swift approval" and is looking forward to going ahead with the ₹700-crore IPO.

Co-founder Upasana Taku told CNBC-TV18 last week the delay in the IPO was because of heightened regulatory scrutiny after Paytm Payments Bank was asked by the Reserve Bank of India to shut down operations due to persistent non-compliance.

The company plans to use ₹250 crore of the planned IPO proceeds to fund the growth of its financial services business from FY25 to FY27.