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Hungry for Southeast Asia, Foodpanda to eat into Grab and Gojek’s share


One decade but 50X the growth. It’s not often one sees numbers like that. And yet, that is the projected rate of growth for the food delivery industry in Southeast Asia, one study shows. This mammoth potential market is the one that trouble-ridden European food delivery firm Foodpanda wants to crack.

Founded in 2012, the company had quickly established a wide footprint across Asia and some Eastern European countries before it hit a rough patch in 2016. It shut down its business in Indonesia and sold its Vietnam and India units.

It looked like defeat.

But in late 2019, the year in which ordering food on-demand went from being a once-in-a-while activity to a regular habit for many, the tables turned.

Foodpanda’s parent company Delivery Hero, founded in Germany and listed in Amsterdam, acquired South Korean food delivery firm Woowa Brothers in a $4 billion deal. And Southeast Asia’s little red dot, Singapore, is the headquarters for the new Woowa-Delivery Hero Asia joint operations, making the region the epicentre of this food delivery empire.

Foodpanda 2.0 anyone?

Southeast Asia represents a big growth opportunity for the sector. East Asia countries like South Korea, Taiwan, and Hong Kong are considered relatively mature markets and Woowa has been operating profitably at home for some years already.

“In more mature food delivery markets […] food delivery is estimated to make up around 10-15% of the overall F&B spend,” a spokesperson from GrabFood, on-demand platform Grab’s food delivery arm, told The Ken. Grab offers food delivery in six countries across Southeast Asia at the moment. “In Southeast Asia, this number stands at less than 5% […] there’s significant headroom.”

Indeed, the combined total value of online food orders (called gross merchandise value, or GMV) is poised to hit $5.2 billion by the end of the year, the joint study by Google, Temasek, and Bain projected—more than doubling in size from 2018.

By 2025, this number is projected to breach the $20 billion mark.

And Foodpanda is getting ready for it. The company is moving its R&D centre from Berlin to Singapore and wants to develop its own mobile wallet, a former Foodpanda employee told The Ken.

It also wants to make big investments in cloud kitchens, a form of business that rents out fully functional kitchens to restaurants. Foodpanda is aiming to go from the “handful” of cloud kitchens it operates now to 100 in the region in 2020.

Cloud kitchens represent a critical new phase in the evolution of food delivery business models. They can help delivery platforms save on costs and let restaurants produce food cheaper. As a result, the format got a lot of attention and funding in 2019. One only has to look at Rebel Foods, India’s largest cloud kitchen startup, to understand why. And Rebel Foods, best known for its brand Faasos, is entering the region in partnership with Gojek, Grab’s biggest rival.

In order to navigate this landscape of opportunity, Foodpanda’s second act will need to learn from past mistakes. When it retrenched in 2016, it was because of the rise of on-demand platforms like Gojek and Grab, which had introduced the concept of offering food delivery alongside transportation and other services. Grab and Gojek expanded so quickly that Foodpanda struggled to keep up.

Now Foodpanda will have to face-off against these two—especially Grab, which is the only challenger in the area with a regional footprint comparable to Foodpanda. In addition, its appetite for Southeast Asia will affect Gojek, whose expansion into Thailand and Vietnam is still in the early stages. Indonesia, the region’s biggest market for food delivery, might well turn out to be the weak spot in Foodpanda’s plans for a comeback—the company no longer has a foothold in the market since its troubles in 2016.

For parent company Delivery Hero, which cut its losses in Germany and is now looking towards Asia, this is a battle it cannot afford to lose.

The Woowa factor

Investors seem confident of Delivery Hero’s chops, however.

The company’s share prices skyrocketed after the deal with Woowa Brothers in December.

Prices reached 70.80 euros ($79.01) per share at close on 3 January 2020, up from 50.16 euros ($56.20) on 12 December 2019, the day before the deal was made public.

This is despite Delivery Hero Group’s overall losses. The firm’s latest Q3 2019 statement reveals that it is hundreds of millions in the red, with an EBITDA of negative 420 million euros (-$468 million).

By offering consumer finance, Byju’s helps parents break the accessibility barrier


A detailed analysis of the 110 complaints The Ken analysed has thrown up worrying evidence: 54 of the complainants, claimed to have had no idea they were signing up for a loan to buy their subscription. The average ticket size of the loans were Rs 66,000 ($952), and down payments ranged from Rs 1,000 ($15) right up to Rs 60,000 ($864).

“Subscriptions sold through Capital Float accounted for almost 70% of our total sales. We would take any amount, even 5% of the total subscription fee as upfront payment, if it would help us close the sale. So on a Rs 60,000 packet, I’ve come away with as little as Rs 100 in upfront payment,” said the Haryana-based BDA.

The Ken interviewed 22 individual complainants to understand how the sale unfolds. Inevitably, the problem starts when parents realise they have been signed up for a loan. Or, in the case of parents who knowingly took on a loan, were asked to pay EMIs despite asking Byju’s to cancel their subscription.

Efforts To Make A Conversation

“I have sent countless emails and made phone calls to Byju’s. I want to cancel my subscription. But they haven’t entertained my request and the EMI process has been triggered. Neither was the loan mentioned during the sales pitch, nor the 15-day trial period,” says a Pune-based complainant.

In fact, she claims, even on pointing out that the Byju’s terms and conditions stated a 15-day trial period, she was assured by the BDA that this cancellation would be done “anytime”. The person requested anonymity, claiming they had been physically threatened by Capital Float’s collection agency for non-payment of dues. Other complainants also report being repeatedly harassed by lenders to complete EMI payments. From the 110 complaints analysed, 22 parents claim to have been misled by the Byju’s sales agent about the 15-day trial period.

BDAs The Ken spoke with admitted to playing fast and loose with the 15-day trial period. And it has led to some particularly thorny issues for both parents and lenders. While clearly mentioned in Byju’s terms and conditions document, sales agents often give parents the impression that cancellations can happen even after the 15-day mark. If parents do reach out to customer care beyond this time frame, they are told in no uncertain terms that cancellations are now impossible.

Seems like good, old-fashioned miscommunication. But on closer scrutiny, a definite pattern of selling is discernible.

Meeting The Targets

Remember Byju’s BDAs have aggressive and unforgiving weekly meeting and sales targets? That means BDAs often obfuscate the loan part of the process for fear of losing their customer’s built-up interest. In addition to not being explicit about the loans, the BDAs admit they never make parents aware of the nature of the documents they are asked to sign. The whole process, claim complainants, is rushed. After spinning a three-hour sales pitch, the documentation process is a measly five minutes.

It’s a textbook example of how to use behavioural economics and nudges to your advantage. Human beings have a limited amount of mental energy to spend during a given period of time. If you wear it down through activities or conversations that use the brain (like a two- to three-hour long sales pitch featuring educational concepts and career decisions), then it will be easier to get people to gloss over the final five minutes.

Most commonly, the signatures are obtained on electronic clearing service (ECS) forms, which trigger the EMI process, and feature the name of the third-party lender. The details often escape the parents’ attention. “I trusted the sales agent because his pitch was detailed and he was an IIT graduate,” says the Pune-based complainant quoted above.

The Ken’s conversations with both current and former Byju’s BDAs revealed a particular context for the sale. Most sales agents, or counsellors, exhibit a deep understanding of the subject matter, promise personalised guidance throughout the subscription period and build personal relationships with the family. By the end of the pitch, most sales are a simple matter of signing up in good faith.

In most cases, the lender approves the loans even before the 15-day trial period is over. Without any real recourse to cancel subscriptions, most customers were doomed from the start.

“Even if a customer requests a cancellation within the 15-day period, the BDA doesn’t entertain their request. They stop answering calls or responding to emails. By the time the parent finally gets through, the 15-day trial period is over, and cancelling the subscription becomes almost impossible,” says the Delhi-based BDA quoted earlier.


How Is Life Actually At Byjus?


“Those who didn’t meet their weekly targets of Rs 2 lakh were chastised in front of their whole team. We operated in a sense of total fear,” he adds.

To cement the aggressive sales target is an elaborate sales pitch, with certain features baked firmly in. It starts on an introductory call with a lucrative offer of a “scholarship”: a discounted price in exchange for a multi-year Byju’s subscription. On these calls, explain the agents, the parent is made to believe that their child has been “selected” out of a huge group, to qualify for a “free” counselling session by a Byju’s subject expert.

A veiled sales pitch, each counselling session takes between two and three hours, and is a monologue about the ills of the Indian education system. The Ken has accessed a recording of a Byju’s sales call in progress, with a pitch that can be broken into three distinct phases: quizzing the child, counselling the parent and making the sale.

“We’re even trained to ask a particular set of questions, which we know are difficult for the student to answer. For instance, fractions are a huge problem area for students. So we might model a quiz on that,” says the Haryana-based BDA quoted above. Other team favourites are: What is the shape of a rainbow? What role does chlorophyll play in photosynthesis? How is a rectangle different from a square?

The Actual Gain

“The aim is to expose discrepancies in the child’s concepts and link it to their performance in higher classes. That’s how we make a play for multi-year subscriptions. We tell the parents that opting for Byju’s now will help the child in higher classes and competitive olympiad exams,” adds the BDA.

Throughout the recording, a Byju’s sales agent can be clearly heard pushing for a multi-year subscription as a replacement for all other tuition or coaching classes. “It’s your responsibility to make sure that your child does well in 10th and 12th standard. That she doesn’t take humanities instead of science,” says the agent, playing on Indian parents’ fundamental fears. The parents, desperate for a suitable option for their 10-year-old, are coaxed into buying the product.

Sales agents have an arsenal of such tricks up their sleeve, according to BDAs The Ken spoke with. One is the promise of a customised learning path, suited to the child’s comprehension levels. Others include support from a subject matter expert, a dedicated mentor, daily lesson plans, coaching over the phone and a personalised Android tablet loaded with course content.

And of course, discounts—multi-year subscriptions are bundled together into an attractive, all-inclusive package. In the recorded call, the sales agent offers an eight-year mentorship subscription, from class 5 to class 12, at Rs 1.2 lakh ($1,726) instead of the retail price of Rs 2.4 lakh ($3,453).

All these elements and sales tactics combined, the BDAs say, are used to convince parents of a progressive, cutting-edge platform to help their children learn. All just to get by in a cutthroat sales world.

The Sale

“The main aim is to close the sale on the spot. There is no other option,” says a second Delhi-based former BDA, who sold over 300 subscriptions during his one-and-a-half-year tenure with Byju’s. A steep sales target cements this drive to sell no matter what. “From the minute I walked into a pitch meeting, my job was to determine the spending capacity of these potential customers. From the make of the TV to the parents’ job profiles, I’d use every bit of information to position my pitch.”

Multi-year subscriptions are not an easy sell at Byju’s as it typically expects to be paid in full for its products at the time of a sale, even when their service stretches over as much as five years. And few families can afford to pay as much as Rs 2 lakh ($2,880) at one go.

The solution? Byju’s decided to offer consumer loans to prospective customers. That way, it would still get paid in full upon a successful sale, but parents could then pay monthly loan instalments over the years to lenders. And the customers pay no interest on these loans, which is borne by Byju’s instead.

“The loans increased the ticket-size of my subscriptions from Rs 50,000 to Rs 1.5-2 lakh,” says the BDA quoted above.


Revenue Growth Of The Carousell


This writer wrote about advanced conversations between Naspers and Carousell in June 2018, but an investment wasn’t completed and announced until April the following year. Prior to the deal becoming official, OLX had intended for Carousell to become a proxy in Southeast Asia, with the investment eventually leading to a full majority ownership in the future.

Such is its familiarity with classifieds in the region and its deal-making nature that there’s a case to be made that OLX may have played a part in the 701Search merger. That the deal came little more than six months after OLX became a Carousell shareholder and board member only adds weight to this argument. OLX had, as mentioned, cherry-picked two 701Search businesses to merge with its local entities in Thailand and Indonesia, so why not finish the job and pin the remainder to its Carousell asset. However, Malani, the Carousell CFO, claimed OLX was not actively involved in facilitating the merger.

“It wasn’t OLX that got the deal to the table,” he explained. “It was a direct conversation that we were having with Telenor. Once we started the dialogue [and] sensed that there was an interesting combination and interesting mix, we took the matter to the board, where OLX is present.”

Regardless, OLX and its “diverse experience” worldwide has provided strong input for Carousell, though Malani stresses its involvement is only at the board level rather than operational. It’s a similar situation with Telenor, which has board representation through investment executive Svein Henning Kirkeng and Johan Rostoft. The latter leads the telco’s online classifieds business and was previously the managing director of 701Search.

Future in motion

The next phase for Carousell will likely focus on developing strong premium verticals. The business has become popular with younger audiences because of its mobile-friendly design. However, the investor quoted earlier suggested that it may need to embrace a more traditional, web-based approach if it is to tap lucrative verticals the way 701Search has.

In the global classifieds space, the traditional money-spinners have typically been real estate, automotive and recruitment. Craiglist Inc, which started in 1995 and is one of the originals in the space, is estimated to have crossed $1 billion in annual revenue last year despite the growth of social media, e-commerce and other modern-day internet services. A whopping nearly 70% of its sales are said to have come from recruitment listings, according to figures released by analyst firm AIM Group earlier this year.

These verticals, however, are not nearly as lucrative in Southeast Asia. Singapore—Carousell’s home market—is dominated by influential players in those sectors, including market leader JobsCentral in the jobs space, billion-dollar firm PropertyGuru in real estate, and, in automotive, ambitious startups like Carro–which has raised over $100 million from investors. That said, Malani claims leadership in property rentals in Singapore. The company also acquired automotive portal Caarly in 2016 on undisclosed terms in a move to kickstart its monetisation push—it is unclear how that acquisition has developed. 701Search’s assets and experience, though, could be a massive boost in these areas.

Malani said Carousell plans to work closely with 701Search to share ideas and best practices across various business units, but that’s dependent on a successful integration.

Inspiring Factors

Carousell has come a long way. While it will forever be the plucky startup that inspires a new generation of Singaporean founders, the business today is unrecognisable from what it started as. With OLX and Telenor among its core shareholders and through investment and consolidation deals, it has picked up enough speed to become a part of the global classifieds elite. How it fares following this merger will dictate whether Carousell continues in its current guise and adds more pieces through deals, or whether the company itself becomes a building brick in someone else’s classifieds wall.

Anyone looking for clues on possible outcomes should recall that OLX took full control of Russian classified giant Avito in January 2019 for a cool $1.16 billion. Avito’s own growth took off following a 2013 merger between two OLX properties, and a $50 million capital injection that valued the new entity at around $570 million. Already, many of the ingredients required to follow that recipe are firmly in place.

Merging Of Carousell With Telenor


The new entity has taken a flat valuation. Carousell commanded a valuation of $560 million in April following the investment from OLX, while 701Search was valued at $330 million after Telenor bought out partner Singapore Press Holdings (SPH). Following the merger, 701Search accounts for 32% of the newly-combined company—that’s $272 million—with Carousell representing the remaining $578 million.

An $850 million valuation gives a very generous multiple of over 20X of revenue—it’s typically 10X in classifieds—but there’s a belief that revenue can continue to grow. However, the deal reflects that Carousell may be the better positioned of the two entities to do so. Malani explained that the two companies will run as standalone operations to “preserve momentum”, but that opportunities to collaborate will be explored further down the line.

“We’ll also look at what are the things that we can do better,” he added. “[So] something that one asset has figured out that another asset six hasn’t yet, or something that is working insanely well in Vietnam that we should bring to the Philippines.” For Carousell, the deal makes it the undisputed market leader in the region, but it also represents a period of potential stability for 701Search.

Musical chairs

Unlike Carousell’s new-age beginnings, 701Search has a far more orthodox origin story. It was born out of the digitisation of the listing business in SPH’s traditional print business. Since then, things have become a lot more complicated.

Its acquisition by Telenor in 2017, for example, isn’t exactly what it may seem on the outside. Telenor bought out shareholder partner SPH, which owned one-third of the business. But its deal to take over the stake of Norwegian media major Schibsted—the third partner in the business—is more intricate.

Schibsted gave up its 701Search stake in exchange for Telenor’s share of the joint venture—SnT Classifieds, which operates in Latin America. The agreement saw Telenor net $406 million overall. That swap deal challenges assumptions that Telenor merely acquired the 701Search business. It was instead an asset swap driven by its partner’s desire to grow in Latin America.

Then there’s the issue of the countries that 701Search doesn’t cover.

The relationship between Telenor and Schibsted is complicated, and it spans many parts of the globe. SnT Classifieds covered Bangladesh and Brazil, while 701Search—which also includes SPH—covered businesses in Thailand and Indonesia.

And this web only became more convoluted.

In a major piece of global consolidation announced in November 2014, Naspers bought into all four of the businesses mentioned above through OLX. While the businesses in Bangladesh and Brazil were never part of 701Search and are not relevant to the Carousell story, the deal did mean that the services in Indonesia and Thailand—Southeast Asia’s two largest economies—were removed from the 701Search business. 701Search remains a shareholder, but those stakes were not subject to the Telenor buyout and therefore continue to be jointly owned by Schibsted, SPH and Telenor.

No Longer Involved

Overnight, the 701Search business that Carousell now owns was no longer involved in Southeast Asia’s two biggest markets.

One can speculate about the impact of that deal—the Indonesia entity actually competes with Carousell today—but the fact that OLX chose those two countries over the others reflects that it considers them to be of greater importance. Following the deal, what was left in 701Search was less premium.

One rival to keep an eye on may be OLX Indonesia, which counts both Telenor and OLX as investors. Data from Similarweb suggests the OLX business enjoys a significant lead over Carousell. There is no suggestion that a tie-up between OLX Indonesia and Carousell will happen. However, classifieds is an inherently acquisitive space, and such an alliance could benefit Carousell significantly while also serving to tie-up investments for Telenor and OLX.


xto10x is entering a space that is flooded with such tools


The company was founded and is run by executives who have seen scale and understand it. The team consists of folks from Flipkart, India’s largest startup ever, and Carousell, Southeast Asia’s largest classifieds company.

Also, by not investing in companies attending its school, xto10x ensures that their incentives are not purely financial. It can guide them to attempt purposeful product-led growth rather than purchased capital-led growth.

The scaling wall

The idea for the company was born out of a breakfast meeting between Bansal and Krishnamurthy in September 2018. “We wanted to start something that could be bigger than one company and have a wider impact,” explains Krishnamurthy. The duo brought on board Neeraj Aggarwal, the former VP of supply chain operations at Flipkart, as co-founder and COO.

Earlier this month, xto10x also hired Jia Jih Chai, former senior VP for growth and strategy at Carousell and previously Airbnb’s managing director for Southeast Asia.

They believed the time for doing something like this was right as post-2015, the Indian startup ecosystem has really come of age. “Pre-2015 was all about building the ‘Amazon of India’ or the ‘Uber of India’. But companies now are looking at every corner of the economy and building solutions that don’t have any parallels and are unique,” says Krishnamurthy.

Among startups today, there is plenty of vision and funding to go around, but what startups lack is tactical expertise. While investors do offer strategic advice, startups can’t rely on their VCs to completely solve their problems. “They wouldn’t want to be completely vulnerable and share all their troubles with their VCs as it could affect their future round of funding,” says Aggarwal.

For instance, companies that have signed up for this program have significant operational challenges. Hyperlocal delivery company Dunzo is reportedly in the middle of scaling back operations in parts of Bengaluru, Mumbai and NCR to optimise its delivery fleet. While others like bike taxi company Rapido are operating in a regulatory grey zone without any clear operational rules.

After nearly 50 conversations—each lasting about two hours with different types of startup founders—the xto10x founders found that there are 10 recurring challenges that are common to those who have achieved a product-market fit. These include challenges related to strategy and business design to hyper-growth and customer experience. “These ‘10 pillars’ are our North Star,” says Krishnamurthy.

These pillars are addressed and handled in a six-month bootcamp for startups—the 10X Academy.

Payment gateway Razorpay, tax-filing platform Cleartax, meat and seafood company Licious, self-drive car rental company Zoomcar and bike-taxi company Rapido are some of the companies who are part of the current second cohort at the Academy. While companies like social commerce platform Meesho, online marketplace for gold loans Rupeek, ed-tech company Vedantu, and Dunzo are some of the companies that attended the first cohort earlier this year.

So, how exactly does this bootcamp work?

The un-Shark Tank

It begins with xto10x inviting startup founders for a “vision challenge” round. In an informal two-hour conversation, the three co-founders of xto10x challenge the startup’s ‘vision’ and identify the drivers and bottlenecks of the startups.

In each cohort, eight founders are chosen to be part of the 10X academy. After both parties agree mutually on the problems, a structured six-month program is set into play. All the eight founders meet for a weekly roundtable every Friday to discuss one of the challenges from the 10 pillars. Like culture or organisation design, and the roundtable serves as a cross-learning platform. Besides Bansal, Krishnamurthy, and Aggarwal, external experts like Rahul Chari, CTO and co-founder of PhonePe, also advise the companies on their challenges.

There are also one-on-one sessions with mentors. “This way, it is not a theoretical exercise,” says Vidit Aatrey, co-founder and CEO of Meesho.

At the end of three months, a blueprint for execution on the top challenges is designed by the startup founders. Krishnamurthy, Bansal and Aggarwal then assess how the startups are sticking to the plan and change course if needed through the next three months.

Aatrey says they also present the blueprint to the other companies in a mock boardroom discussion. This helps figure out flaws in the execution strategy. “Though we guide them, we don’t promise to be there for them always,” says Krishnamurthy.

Startup school to SaaS: Binny Bansal’s xto10x stepping stone


What do Indian startups like Razorpay, Meesho, Cleartax, MyGate, and Vedantu have in common? A school called xto10x. Let us explain.

Most people would agree that all they have successfully reached initial product-market fit—they’ve found a large set of customers who have an urgent problem and developed a product that solves it in a meaningful way.

In startup lore, reaching product-market fit is considered as a rite of passage. A majority of startups fail to cross this “chasm of death” and the ones that do, find themselves courted by investors chasing the next big thing.

So all the startups mentioned above have duly raised tens of millions of dollars from marquee investors at valuations well north of $100 million.

But startups are hard

Crossing the product-market fit hurdle does not make things easier. Most of these startups’ challenges pertain to scale—the topline without sacrificing margins, its product portfolio without losing the core original value proposition, the organisation itself to handle hypergrowth?

There are no easy answers to any of these questions and getting even one of them wrong can potentially derail a startup.

So what did Razorpay, Meesho, Cleartax, MyGate, and Vedantu do?

They all enlisted themselves into the startup school xto10x Technologies. Founded by Binny Bansal, Flipkart’s co-founder and former chief executive, along with some former colleagues from the e-commerce company, xto10x is a Bengaluru-based entity. It helps companies like the ones named above manage scale and growth.

So far, this nearly-one-year-old company has been a bit of an enigma. Most people in the startup ecosystem that we reached out to—from startups to venture capitalists—didn’t even know about it. We were met with responses like “I have no view on it” or “I have no idea about it”.

But the most interesting part about xto10x is not what it is, but rather what it isn’t.

It is not an investor.

It is not an accelerator.

Neither is it the “SAP of startups” providing enterprise software tailored for growing startups.

It wants to, however, build software. Starting with a tool to manage OKRs (objectives and key results) by April 2020. The tool, it hopes, would help it translate the strategic priorities for hundreds of people in an organisation. (OKR is a goal-setting and performance management tool that was popularised by Google. Leading social media companies like Twitter and LinkedIn use it. OKRs help understand organisational bandwidth for tasks.)

But why is any of this interesting?

The exit from Flipkart in 2018 made Binny Bansal one of India’s newly-minted billionaires. Most people would have expected him to morph at least partially into an angel investor deploying his new-found wealth into other startups. Much like his erstwhile partner Sachin Bansal—he’s an investor in ride-hailing company Ola, scooter rental startups like Vogo and Bounce, among others. But while Binny Bansal has made a few personal angel investment bets, he has deliberately chosen not to fashion xto10x as an investment vehicle.

Saikiran Krishnamurthy, co-founder, and CEO at xto10x (and formerly the head of Flipkart-owned logistics company Ekart) says that xto10x has a rule about investing, “We won’t invest, we don’t give any capital neither would we be present in investor meetings or take part in fundraising conversations.”

Why this rule?

To answer this question, we need to look at the current state of the startup landscape in India.

The funding-execution chasm
Perhaps for the first time ever, India is in a funding market where there is no scarcity of capital. While seed-level, early-stage funding might still be a challenge, later-stage funding for companies that have found the initial product-market fit is abundant and easily available. Several home-grown, as well as international funds, are jostling to invest in companies that can potentially conquer sunrise sectors in India, the next big market after China.

But there are two problems here.

First, India is not China. The markets are different in every aspect and the playbooks for scaling are not comparable. In India, there are very few startups who have scaled to hundreds of millions of business units, be in terms of users or transactions or topline.


Escalating Bad Loan And Liquidity Crisis


Ironically, the hoopla around fintech lenders was that their algorithms and machine learning could accurately identify the creditworthy, resulting in lower NPAs. Similarly, tech would reduce operational costs.

If tech and underwriting prowess were the markings of a true fintech, the one successful lending fintech to emerge out of 2019 has been the 10-year old Bajaj Finance Ltd.

Bajaj benchmarks itself against Amazon, Netflix, say former employees. It studied Netflix to see how the streaming company uses algorithms to serve different content to different users. Similarly, Bajaj starts all users with consumer finance loans and then puts its algorithm to work to see which would be the best loan to cross-sell to its borrowers.

Although consumer finance loans account for only 12% of its income, Bajaj is able to leverage and sell other consumer loans, which make up 22% of its income. Almost 60% of the total loans it has sold are from cross-selling, according to its latest quarter of earnings in September 2019.

Impact On The Physical Distribution

Fintechs, emboldened by tech-based lending, have also underestimated physical distribution. Bajaj, which isn’t online-only, doubled its presence to 100,000 touchpoints in two years. Combine this with its cost of borrowing. NBFCs’ cost of borrowing is about 10% while fintech NBFCs go as high as 22%, said the founder of a fintech lending company, who didn’t want to comment publicly. Because of this advantage, any operational efficiency tech can generate can’t compete with NBFCs’ cost structures.

That is why even in the toughest of environments for all lenders in 2019, the gross NPAs for Bajaj stood only at 1.54% in the year ended March 2019, with public sector banks at 9.3%. With such a business, Bajaj Finance is valued at $32.4 billion.

Fintech lenders are now playing catch up. LendingKart, for instance, relies on agents to source loans. Consumer finance companies like ZestMoney are going offline to lend. Fintech lenders are searching for niches missed by Bajaj Finance and banks. But the catch here is that once a niche is identified, and a segment has been verified as risk-fee, Bajaj Finance could swoop in to snatch the best borrowers.

It is a vicious cycle that can only be broken with a highly differentiated product. Some startups have their hopes pinned on tech.

Razor-sharp tech focus

Any feature that any tech company launches gets democratised in a matter of months. But payments aggregator Razorpay and discount broking startup Zerodha want to take those fleeting advantages.

Total digital payments volumes in 2019 grew to 31.3 billion transactions, 51% over last year. This momentum has been the wind beneath Razorpay’s wings. Razorpay helps businesses accept all modes of digital payments—from credit card to Unified Payments Interface (a real-time mobile-based payments system).

Up until 2014, two companies held the digital payments volume pie. Billdesk, which earns Rs 1,000 crore ($140 million) by processing utility payments, and Naspers-funded PayU, which accepts payments from the internet economy. In the five years that Razorpay has been around, it has made 8-year-old PayU uncomfortable.

It is on the back of this that Razorpay doubled revenues to Rs 193 crore ($27 million). A feat few Series C funded startups can claim in the year ended March 2019. Razorpay’s growth stands out because it comes at a time when there is large consolidation among online players, leaving few opportunities. That makes retention of those merchants that much harder.

To hold on to merchants, Razorpay is banking on new products—loans, current accounts, corporate credit cards, payment pages for offline stores accept payments, etc. According to Mathur, one of the most valuable metrics for the company is the number of products per customer. Mathur says this has grown from 1.5 last year to 1.8, with the ideal number being 2.5. At that level, Razorpay can better retain customers and close the gap with PayU.

It is this feature-focused approach that also led to one of the biggest fintech successes in 2019, where a startup grew bigger than the traditional incumbents.

The legend of Zerodha

If there is a fintech that is both profitable and fast-growing, it’s Zerodha. It took 10 years for Zerodha to become the largest discount broking company in 2019. A company, which, by charging only Rs 20 ($0.28) for trading, outgrew other broking behemoths like ICICI Direct and HDFC Securities in the last financial year. Zerodha, as of 2019, had 1.8 million active clients racing ahead of market leader ICICI Securities with 924,585 clients.

Indians make $60 billion worth payments in a year, half of which happen online. Razorpay claims it processed $10 billion worth of payments in 2019. A 500% growth over last year. This growth was driven in part by digital adopters spending more online. That alone made for 30% of the growth, said Harshil Mathur, co-founder and CEO of Razorpay.

Bajaj, Razorpay, Zerodha carry the Indian fintech torch


There’s always a sector that’s the apple of the investor’s eye. In the first half of the last decade, that position was held by e-commerce in India. In the second half, fintechs became all the rage, attracting millions of dollars. Among the top 100 global companies by market capitalisation, financial services are worth $3.7 trillion in market capitalisation. That makes for 17.6% of the $21 trillion that the top 100 companies are valued at, says a report by consultancy firm PricewaterhouseCoopers.

With that kind of billing, venture capitalists believe fintech challengers like lending startup Capital Float, payments firm PhonePe, and mutual fund distributor Paytm Money can face off with traditional firms—banks like HDFC, or payments companies like Visa.

Nearly $10 billion has been invested in fintech in the last decade. That’s nearly as much funding as has gone into food tech, hyperlocal delivery companies, and ride-hailing put together in the same duration, according to venture capital data tracker Tracxn.

Less Success Ratio

But very few viable business models have come out of this fintech hype machine.

“The hype sets in when investment dollars take over reality, and that leads to business running ahead of fundamentals,” says Kunal Walia, partner at Khetal advisors, a boutique investment bank. Over the last 15 months, the real picture behind fintechs’ hyped growth has been emerging.

Fintech apps—like payments apps, wealth tech apps—spend Rs 150-300 ($2-$4) to get one app install in India, but 59% of those apps are uninstalled in a day, says AppsFlyer, an app analytics firm. Fintechs aren’t any closer to cracking their core businesses. For example, payments companies like Paytm*, PhonePe, Google Pay, BharatPe bank on the richness of transaction data to then monetise that data through ads or credit. But ironically, fintechs solely focused on credit—like Capital Float—are struggling.

Still, hype has its uses. “It is only when there is enough hype in a sector does it get a lot of dollars and only then those dollars reach those few worthy companies that otherwise may not have got the money,” says Walia.

Besides, it also brings the focus on who’s bringing value to users. And who isn’t.

Should, say, a Paytm, which grew to 140 million users by offering cashbacks to get people to choose its app, really be more valuable than traditional credit card payments company SBI Cards? SBI Cards has an 18% market share with 9.4 million cards but profits worth Rs 863 crore ($121 million). Paytm, on the other hand, saw losses double to Rs 3,960 crore ($555 million) in the year ended March 2019. And yet, Paytm has a $15-billion valuation while SBI Cards, at best, hopes to record a $8.4 billion valuation in its upcoming IPO in the year ended March 2020.

So, while the hype draws attention to the sector, lift the veil and the imminent future of (and threats to) fintechs becomes clearer.

Bajaj’s offline gameplay

The financial sector is reeling from a $200-billion bad loan nightmare. It began with infrastructure lender IL&FS running out of money to pay its dues in 2018. That along with bad loans that Yes Bank and public sector banks made to corporates has choked the supply of capital to fintech lenders, sparking a liquidity crisis.

“No one expected to have a down cycle this quickly [after the financial crisis of 2008]. So a lot of investment went chasing lending companies and that’s why lending till now was loan book led. We are in a down cycle and it will go down further in 2020,” said the founder of a lending fintech.

While the public sector banks mostly face the heat for the extent of bad loans, fintechs’ bad loan skeletons are not fully out of the closet. Yet. A prime example of bubbling bad loans among fintech lenders is Capital Float. The company, which personified fintech lending, saw its gross NPAs (non-performing assets) double to 6.8% in the year ended March 2019 from the previous year. (Gross NPA as a % of AUM was 4.8%), according to ratings firm ICRA. It also wrote off 1.8% of its assets under management, as of September 2019. This, while its loan book grew 2.5X in just two years to Rs 1,403 crore ($196.5 million).

The liquidity crisis should have sent fintech lenders into conservation mode. But fintechs that relied on external capital didn’t want to sacrifice growth. So those like Capital Float wrote loans to users of edtech companies like Byju’s, but suffered defaults thanks to the sales tactics of the company (we wrote about it here. Capital Float itself wrote about what went wrong here). This has left Capital Float with far-from-desirable asset quality.

The Tectonic Changes Of Transforming A World’s Largest Government Insurance To Digital Revolution


The crunch, though, has forced hospitals to get creative. Some, like Max Healthcare, found other avenues for profit. Max took the home delivery route. As of April 2018, Max’s home health business unit was one of the largest players in Indian home healthcare, and their diagnostics arm was one of the largest in the National Capital Region (NCR).

Going online

Healthtech startups, meanwhile, went one step ahead and pulled the sector online. Consultation, prescriptions, doorstep delivery of drugs, sample collections for lab testing and delivery—you name it, there’s a startup out there doing it.

The government, too, seemed keen on the digitisation of the healthcare space but seemed to lose its appetite as it focused on Ayushman Bharat. Take the Integrated Health Information Platform (IHIP)—a health data hub meant to digitise personal healthcare information—for example. A senior executive at one of the three consortiums that sought to build the hub told The Ken in May 2018 that the IHIP file stopped moving once Ayushman Bharat was announced.

The IHIP itself had its roots in the Electronic Health Records (EHR) Standards 2016. The EHR required all patient medical data be uploaded so they could be accessed by any medical personnel, thus promoting interoperability.

While the IHIP is now gone, the EHR Standards 2016 are still only voluntary.

In the private space, however, the digital march was unceasing. Today, there are online pharmacies that deliver drugs to your doorstep, websites that facilitate online consultations with doctors, give you basic and accurate medical information in regional languages, and more.

E-pharmacies, in particular, have had an eventful few years. In October 2015, the Indian Internet Pharmacy Association was set up. The association lobbied for e-pharmacies, seeking regulatory change on the part of the government. At stake was the $13.4-billion market for drug sales, traditionally cornered by small, offline pharmacies.

The Association’s work seems to have paid off. The government released a draft policy for regulating e-pharmacies in 2018. Optimism about the future of e-pharmacies soared. However, the policy is yet to be finalised.

Vaccine wars

Meanwhile, the government’s vaccination efforts hit a number of stumbling blocks. The vaccination programs—Mission Indradhanush and its subsequent iterations—set a goal of 90% immunisation coverage of India with the government-approved list of vaccines by 2020.

But where can these vaccines be bought?

The three public sector undertakings (PSUs) the government leaned heavily on—Central Research Institute (CRI), Kasauli, BCG Vaccine Laboratory (BCGVL), Chennai and Pasteur Institute of India (PII), Coonoor—were shut down in January 2008.

Consequently, the private Indian vaccine sector grew at a CAGR of 18% to Rs 5,900 crore ($907 million) between 2009 and 2016. Pharma major Pfizer led the way by convincing the government to buy its patented pneumonia vaccine.

The government’s attempts to move away from the private sector have not gone so well. Over seven years, it pumped about Rs 600 crore ($84.2 million) into condom-maker HLL Lifecare to develop an Integrated Vaccine Complex (IVC). The cost of the IVC has now shot up to over Rs 900 crore ($126.4 million). All without a single vaccine being produced by the facility so far.

With that being the case, the government turned increasingly towards BMGF. The Foundation ‘fixed’ the supply side of the market by doling out grants to major vaccine producers such as the Serum Institute of India. It is hoping that as it exits the country, the government will step in and fix the demand side concerns by buying the vaccines it helped produce.

The government had also set other targets for itself. Eliminate malaria by 2030. Eliminate tuberculosis by 2025, after previous failed targets of 2017 and 2015. Eliminate polio.

While India was declared polio-free in 2014, TB, on the other hand, was a daunting problem, especially with the rise of the superbugs. In fact, India, for the first time, accepted large donations for bedaquiline and delamanid, the first drugs to be approved in 50 years for drug-resistant strains of TB.

With the superbug war well underway in India — Indians are highly resistant to new antibiotics. But there also seems to be a glimmer of hope (which of course comes with a catch). The country now has a first-of-its-kind test to diagnose TB drug resistance, but it is not accessible enough. Yet. The country is also seeing a resurgence of vaccine-preventable diseases.