Making the purchase products easy

StoreKing lets Kirana stores order goods through an app, eliminating the distributors’ salespeople from the equation altogether. The idea of StoreKing is that, instead of having the retailer source goods from multiple distributors, StoreKing will be a one-stop-shop distributor. We have chosen to work only in rural cities where brands have limited reach through traditional distribution, says Sridhar Gundaiah, CEO of StoreKing.

Companies like Paisool, meanwhile, have a hybrid model where it gives a PoS to a retailer to capture customer data, judge demand and, based on that data, sell the required goods to the Kirana store.

Buying Direct Goods

Since Paisool understands what customers are purchasing, it can perfectly optimize supply to suit an individual Kirana’s needs. Also, it aggregates demand across the various Kirana stores and buys directly from producers, cutting out the middlemen. “We can improve margins on those products for retailers,” says Paisool CEO Raj Subramaniam.

However, none of this is easy. Players like Paisool, StoreKing, and others like ShopX and Mobisy’s Distiman need to tie up with various brands, set up warehouses, and undertake logistics costs.

StoreKing, for its part, has tied up with over 145 brands. “Small brands are open to selling to these startups. A few mid-range brands, too, will work in geographies where their distributor network is weak. It is the large brands that will baulk at selling to them as they have existing networks,” says Anish Basu co-founder of Shotang, a startup that recently pivoted from selling to Kirana stores.

But while large FMCGs may still be unwilling to play ball, it is this approach that has the most potential to completely change the way FMCG firms work. “The entire organization of an FMCG is structured around the distributor model. The idea of a super distributor could potentially trigger layoffs and restructuring of the organization,” says the senior executive.

Role of the E-Commerce

In this regard, e-commerce giant Amazon and online grocer BigBasket are terrifying prospects for the FMCG industry. Today, the two companies, as part of their B2B businesses, let kiranas order from their apps, upending the usual distributor system entirely. For now, though, Amazon’s B2B operation—Amazon Business—runs only in Karnataka.

Startups, too, are wary of these, choosing to operate in niches and rather than taking on Amazon or BigBasket. This includes dealing with rural areas like StoreKing or dealing with unpackaged goods like Paisool. No surprise then that VCs are approaching the sector with caution.

So far, only about $40 million has been invested in startups serving Kirana stores, according to startup database Tracxn. StoreKing alone has raised almost half of this—$19 million. “No startup has come up with a go-to-market (store acquisition and onboarding) that scales cheaply. All players can onboard, at most, 30-50 retailers a month. That is not very efficient,” says Pratik Agarwal, VP at VC firm Saif Partners.

High Revenue

Also, FMCG companies sell close to $44 billion worth of goods, and it seems like there are very few gaps left in the system to exploit, says Arpit Agarwal, Principal, Blume Ventures. This is compounded by the fact that Kirana stores already work on thin margins, he adds. Suresh Satyamurthy, CEO of B2B E-commerce startup Tarnea, agrees. The Bengaluru-based Tarnea sells its PoS offering to pharmacies, rather than Kirana stores.

“The economics of automation works out better in pharmacies. The margins for FMCG retailers are only 3-5%, but in pharmacies, it’s 20%, so it is more amenable to automation,” he opines. In addition, he says, the level of education among people employed at Kirana stores also creates a literacy barrier,” he says.

Both the models—of helping kiranas sell and buy more efficiently—have their own distinct challenges. However, Blume’s Agarwal believes the PoS model has a better chance of driving efficiencies in Kirana stores since all it needs is afoot on the street approach to increase sales. Given that Blume and other investors have invested $30million in SnapBizz, mPaani and Zopper, Agarwal will be hoping he’s proved right. The real winners though are the Kirana stores, whose collective might could finally find them their place in the sun.



Dialling down on PoS

When it comes to Kirana stores, it has the strongest card in its suit. Walmart’s $16 billion acquisition of Flipkart. Walmart’s B2B commerce business in India, where it sells products directly to 100,000 retailers. This potentially gives PhonePe exposure to all those retailers to whom Walmart currently sells.

Not to just enable payment acceptance, but Zopper’s solution will help those retailers manage their inventory. Nigam did not comment on the synergies that Walmart will bring, saying it was too early to comment. But this is why the PoS plays a role even in Flipkart’s own hyperlocal journey.

Trying it multiple times

Something which the company has tried multiple times. First with Flipkart Nearby, a grocery delivery app in 2015. Then came FQuick, Flipkart’s logistics arm EKart’s hyperlocal initiative to deliver food and grocery. And now, it is looking to jumpstart its grocery segment.

This is a very different approach to what PhonePe’s competitor Paytm* is trying to build with its online to offline approach, where Paytm encourages its users to pick items offline but pay for them online.

“Paytm and PhonePe are at different stages of evolution. It makes sense for PhonePe to not go the online to offline route because it doesn’t have the kind of merchant coverage as Paytm does today,” says Satish Meena, a senior forecast analyst at market research company Forrester.

But at the heart of the matter is this. Selling a billing PoS with a payment solution to merchants is going to be a tough task for PhonePe. Zopper used to charge merchants a total of Rs 15,000 upfront for the solution. But Nigam says they may subsidize the cost to the merchant or charge a monthly fee to ease the burden.

Where is the solution?

Ultimately, Lalit Bhise of Mobisy, a software solution maker for retailers, says, PhonePe will be of value to the merchant only if it is able to increase sales or decrease costs. An amount like $16 billion in funding to Flipkart does give PhonePe an edge to pull this off. Still, as mentioned before, Zopper had to sell its business for a reason, and that reason doesn’t disappear with a new owner.

Zopper started as an app for reviewing products from jeans to handbags in 2011. It then pivoted into a hyperlocal commerce business. One where users could order online from a range of offline retailers. The idea then was to compete with the likes of Flipkart and do what the online retailer couldn’t do.

“Offline commerce could not solve for instant gratification and save on logistics cost,” says Neeraj Jain, co-founder of Zopper. It was an idea that Tiger Global, Flipkart co-founder Binny Bansal, Blume Ventures invested $20 million in. But soon, Zopper found that only a few sellers were updating their inventory on its platform. “Only our top 15-20% of the retailers constantly updated the availability of products. The others didn’t as they didn’t get meaningful business,” says Jain.

The best way to solve that, Jain thought, was to install a piece of software that would capture the inventory information through a PoS. So they acquired Easy PoS for $5 million in 2016. And just to be sure, they increased the value of their platform by extending the warranty period of products sold through them.

Hyperlocal commerce business

But the company couldn’t sustain the hyperlocal commerce business. It was trending negative on unit economics. By the end of 2016, it shuttered the business. But without the hyperlocal lynchpin, the two other businesses, Warranty, and PoS began looking like adopted siblings.

“When we looked to raise subsequent rounds, people showed interest in one of the two businesses but never both together,” says Jain.

Moreover, Jain had a bigger problem. And that was growing his PoS business. He realized he can never get the scale of a consumer business. “PoS is still not a necessity for a retailer. Appreciation for that kind of technology is still not there, as it is not something he can’t do without. Only the top 10-15% of retailers realize they need to organize this business. It is still a push sale,” he says.



A less-than-perfect circle

There have also been departures at the very top of the leasing unit. Ola hired ex-SABMiller India MD Shalabh Seth as CEO of its leasing business in January 2017. Seth left Ola within just a year, with no public reason given. Calls and texts to Seth went unanswered. However, the automotive industry source stated that Seth was sold the idea that leasing will be the mainstay of driver-partner supply. When he realized this wasn’t going to happen, he checked out. The same source says that Seth’s predecessor, Rahul Maroli, also struggled with the business. Maroli is now vice-president of Ola’s rental and corporate distribution operations.

Loading money

Despite the struggles, Ola continues to pump money into its cab-leasing unit. Despite car seizures. Despite loan defaults. Ola Fleet Technologies received debt funding to the tune of Rs 1,000 crore ($156 million) from YES Bank in September 2017. In addition, Ola also pumped multiple capital infusions into Ola Fleet. All told, it put 7X more money towards scaling Ola Fleet in 2017 than in 2016. Ola refused to comment on the numbers of leased cabs currently active in its fleet.

While the leasing unit did generate a revenue of Rs 98 crore ($14.3 million) in the year ended March 2017— almost 17X more than what it made a year prior—it made a net loss of Rs 70.91 crore ($10.3 million), 5X worse than the previous year’s.

Perhaps some part of Ola’s willingness to continue backing its cab-leasing model is the fact that it’s seeing improvements in other areas. According to a product manager with Ola, the company’s effective net take rate (ENTR), or earnings after paying incentives and other costs have finally turned positive. Ola currently charges a uniform 25% commission fee per ride. This was achieved through data science-driven pricing.

High incentives were paid

The Ola product manager also confirmed that both Ola and Uber paid high incentives and ran attractive leasing schemes only to create the supply. “Now that we have acquired enough supply, the company doesn’t want to spend extra (costs), they have already had enough costs through incentives and subsidies,” he says.

However, this let’s-see attitude could yet prove to be a problem. While Ola is still tom-tomming the massive supply it has built, this same supply is starting to unravel.

One of the key reasons for both the leasing scheme as well as the incentives was to build loyalty among drivers. However, with the former tanking and the latter either being too hard to achieve or too small to matter, drivers are listing on multiple platforms; migrating freely between them in search of more passengers or better incentives.

An ex-Ola employee, who requested anonymity, said that only 15-20% of Ola’s drivers are exclusive to the platform. The remaining drivers are registered both on both Ola as well as rival services like Uber. This explains why you will sometimes see an Ola logo on your driver’s car even when you hail an Uber. Granting this even more legitimacy is the fact that aggregators can’t legally enforce platform loyalty among drivers, thanks to directives by various state governments.

Short supply, and high demand

And with loyalty in short supply, supply itself is suffering. The company is falling short of servicing at least 10-15% of daily demand, according to a Bengaluru-based consultant aware of Ola’s business operations, who requested not to be named.

The real beneficiaries of drivers becoming increasingly platform-agnostic are smaller players like ride-hailing company Meru and self-drive car rental startup Zoomcar. Meru, a company many believed was verging on obsolescence, has seen renewed interest both from individual drivers as well as fleet operators.

According to Meru CEO Nilesh Sangoi, Ola and Uber’s operators keep approaching Meru both for business-to-customer (regular ride-hailing) as well as business-to-business service. According to the ex-fleet operator mentioned earlier, many Ola and Uber fleet operators have begun listing their cabs on Zoomcar over the weekend to earn additional revenue.



Whether anyone’s expansion plans work

Chinese cities are compact, and many of them already had significant cycling infrastructure when the bicycle-sharing companies came up. That’s not true of India. Where Chinese authorities can streamline the construction of cycling infrastructure, companies in India will have to deal with networks of local officials who may differ in their approach.

Smartphones are a prerequisite for users who will need to pay for these cycles through an app. Around 56% of people in China had a smartphone as of May 2018, according to market research firm Newzoo. India’s smartphone penetration at the same time was only 28.5%.

Comparison with the other countries

Perhaps India should compare itself with Indonesia, where cycle-sharing companies have just begun to see whether they can break through traffic that is similarly thick and motorized. Obike, founded in Singapore, moved into Bandung and a few parts of Bali at the start of this year. Boseh, a local cycle-sharing platform, has 300 bicycles and 30 stations throughout Bandung, though not all those stations are operational.

Really, though, comparisons are more fun things to write about than they are valuable, and cycle-sharing companies are likely to find that there is little use in treating India as anything other than itself.

According to The Energy and Resources Institute (TERI) report, the use of cycles as transportation has plummeted in Indian cities while car ownership continues to soar. In cities of more than one million people, cycles only serve as a mode of transportation 15% of the time, whereas motorized vehicles make up 60% of those rides.

Cycling accounted for 36% of the trips taken in the Delhi of 1957, but over the following half-century, that number fell to just 4%. India’s entrepreneurial energy makes it seem ideal for this new breed of startups, yet the largest group of people who use bicycles are those who can’t afford other modes of transit. Can they then afford smartphones?

And even these statistics might not mean much to a cycle-sharing company just starting out. Many of them have already found that their strategies might vary greatly from city to city, based on the available cycle track, government willingness to build and maintain cycling lanes, existing public transit, and the rivals with whom they’ll have to compete.

Above all of this is the question of the business model. These companies make money by charging users a fee to ride their cycles for either a certain amount of time or a set number of rides, and it’s possible that they’ll sell ads on their cycles or in their apps, or make extra cash selling the user data they collect.

Riding on

Mobycy, which started in Gurgaon last August, charges Rs 5 for every 30 minutes of a ride, and they offer a month of unlimited rides for Rs 99. China’s Mobike opened its first India branch in Pune in May, charging a “launch promotion price” of Rs 10 for 20 minutes or a “discounted” monthly pass for unlimited rides at the same cost as Mobycy’s deal.

Yulu charges Rs 10 for the first 30 minutes and Rs 5 for each subsequent half-hour, and offers a Rs 300 30-day package during which users get “60 rides of 30 minutes each.” PEDL, a branch of Zoomcar, whose website says it’s running in nine cities, charges just Rs 3 for every 30 minutes.

Chartered Bike, based in Bhopal, has different prices per ride for members and non-members. Membership costs depend on whether you pay monthly, quarterly, or yearly (Rs 149 for a month, Rs 999 for a year), but members can take a ride of 30 minutes or less for free. Trin, based in Mysuru, also uses a membership model.

These companies represent a significant chunk of the major operators in India. All of them are “dockless” or switching to dockless aside from Chartered Bike, which uses physical stations at which people lock up their cycles.

Dockless companies are easier to start because they don’t require the real estate or cost of setting up stations, though they do have to pay people to find cycles tossed in rivers or left far outside the “zones” in which cycles are supposed to be parked. If the money made from ridership fees and any other streams of income outweighs the cost of cycles, cycle upkeep, employee salaries, and other seen or unforeseen costs, these businesses will be profitable.



When things get ugly, determination makes it beautiful

The primary concern, according to its content and community guidelines, posts that are violent, abusive, non-consensual, contain hate speech or are explicitly pornographic. “We have created algorithms and processes to ensure that the community doesn’t experience any content that is disturbing or provocative in nature and doesn’t threaten anyone’s privacy. Our algorithms are getting better,” says Ahsan, chief operating officer at ShareChat.

Additionally, ever since Facebook’s Cambridge Analytica scandal set the user privacy debate in motion, the government has been wary of social networking platforms operating in India and has been working on framing a data protection law.

Community Guidelines

ShareChat says it is working to pre-empt this and plans to broadly comply with the European Union’s General Data Protection Regulation, or GDPR, which was implemented earlier this year and has quickly become a benchmark for privacy law.

Currently, the company stores a user’s login data, contacts list (with consent), location data and device details, including what other applications are installed on the phone. The user agreement allows ShareChat to share this data with third parties such as business partners and advertising agencies. The firm’s privacy policy, though, adds that this data will not be shared on an individual basis, but presented in an anonymized, aggregated form to advertisers.

Show me the Money

The big question: Popularity aside, will ShareChat ever make money? While the founders say they have evaluated ways to monetize the product, Sachdeva says there won’t be implemented anytime soon. Definitely not this year.

One of the obvious avenues that ShareChat is looking at for revenue is advertising. Another is micro-transactions where the company can charge users for certain services like horoscopes.

It is a strategy notorious for its simplicity. By 2021, the number of Indian-language internet users is expected to be 536 million, making every vernacular application a darling of advertisers. The kind of data ShareChat collects (and can share with advertisers), can easily help them analyze users and plan targeted advertising.

“Data management platforms for advertising brands are always looking for partners who can help provide a target audience, despite the recent scrutiny around data privacy,” says Vidya S. Nath, director, digital media, at consulting firm Frost and Sullivan. “Acquiring a large user base across a fragmented demographic could make such applications a valuable partner for any telco or advertiser.”

Approach questionable though

But the viability of such an approach is still questionable. First off, revenue per user for the audience ShareChat caters to is bound to below. Second, most social networks in India have and are facing the challenge of sustaining active usage of their applications.

“In a recent study, we found that even for popular e-commerce apps and sites, the percentage of conversion of registered to active users is 10% for the leading two e-commerce apps (Amazon and Flipkart), while the majority of them have less than 2%. Users of social media communication apps can be even more fickle,” says Nath.

Take the example of Hike. Till 2016, the Tencent-backed startup was one of the fastest to enter the unicorn club. But since then, the company’s daily active users have dropped by about two-thirds, from 23 million to 8 million. Over time, Hike’s key features lost relevance when WhatsApp launched similar propositions. Today, its edge is gone and Hike has fallen way behind its competitors.



Of tall charts, taller claims and gross margins

In 2016, OYO did away with its practice of partial inventories and minimum guarantees and moved to a new model where it picked up 100% of inventory in the hotels it partnered with. It also ventured into greenfield projects setting up hotels of its own (christened “Townhouse”).

Claims of the company

In April 2016, OYO founder and CEO Ritesh Agarwal claimed that the company hit unit-level profitability, an amazing claim considering that OYO’s net takes rate had only just turned positive. He later even claimed that they have positive net margins saying “last year in March, we announced that we had gotten into a net transaction profit, which means that for every Rs 100 we sell, we were making Rs 100-plus.

Our gross margin has been 25% and net margin is at 16%”. Agarwal might believe that a positive take rate is the same as a positive net margin but there is an enormous difference.

The former indicates that the company has a positive top-line and the latter that the company has a positive bottom-line. One would think that a positive top-line or positive revenue is the only kind of revenue there is but clearly like OYO showed until March 2016, that can hardly be taken for granted.

While it might seem that the company has progressed remarkably in this period, a lot of these supposed gains are ephemeral. The dip in the company’s loss from Rs 496 crore ($70.9 million) to Rs 330 ($47.2 million) is almost completely due to the doing away of the minimum guarantee losses (Rs 141 crore for FY 16) while the increase in the accounting top-line is the result of the positive take rates.

Is it really helping?

But isn’t a positive take rate a sign that OYO has a meaningful business model?

Not really. If anything, it is the minimum expectation for any company that operates a marketplace model. By itself, it can’t guarantee a positive or meaningful gross margin. OYO’s 15% net take rate implies that for every Rs 100 ($1.43) that flows through its marketplace, it gets to keep Rs 15 ($0.21) for itself as its gross revenue. But this revenue doesn’t come for free.

There are a number of operating expenses heads that are incurred to deliver this service. These need to be subtracted from the topline to arrive at the gross margin. More importantly, it is now standard practice to subtract all expenses related to marketing and promotions from this number. For instance, MakeMyTrip recently reported a sharp fall in revenue from the hotel’s segment at $76 million in the last quarter, down 43% from $134 million in the corresponding quarter last year.

By that measure, the sum of operating expenses of Rs 56 crore ($8 million) and sales promotion expenses of Rs 76 crore ($10 million) far exceeds OYO’s total operating revenue of Rs 76 crore for the last reported FY. This is only half the work done. From this gross margin figure, expenses related to salaries and other expenses need to be further provisioned for which means that company-level profitability is a long way off.

Lack of profitability?

Is this lack of profitability a problem with hotels in India?

Not quite. For FY 17-18, the Taj Group of hotels reported a topline of Rs 4,165 crore ($596 million) with an EBITDA margin of 18% and a net profit of Rs 101 crore ($14.4 million). Up 129% year-on-year.

The problem is with OYO’s choice of the segment.

Agarwal claims that OYO has more than 90% market share of branded hotels in India. But even if this is true, the hotel segment it operates in is in at the low end of the spectrum.

Unlike the likes of the Taj or the Marriott group who operate luxury and premium hotels with high margins, OYO’s hotels operate at an ARR (average room rate) of Rs 1,500 ($21) per night. A take rate or commission of 15% means that OYO’s net revenue per hotel room per night is Rs 225 or just $3.

The company would need to sell millions of room nights a month for this number to count for anything, and more importantly, would need to find a way to sell it profitably, which is a daunting challenge given the razor-thin margin. Also, there is an investment involved to standardize hotel rooms to the standard that OYO espouses to offer as part of its brand promise.

It is still moot if these investments can be recouped if room rates are as low as these. This is a choke point. Investments can’t be too high as that would require higher realized rates, but the segment is such that rates can’t be higher than this.



There are no algorithms or optimisation of route needed

While delivery personnel quit their jobs or switch loyalties primarily on account of salary considerations, the poor working conditions are also a major cause of attrition. There’s pressure to complete trips on time in difficult conditions like rain, and the stress of dealing with unhappy customers as well.

According to experts, even cultural aspects play a part. “We (Indians) are a very class-driven society. There is not much respect for the service class,” explains R Srinivasan, a professor of Strategy at IIM, Bangalore. As such, not only are delivery personnel treated poorly by customers, but the job itself doesn’t carry connotations of value or respectability.

Overcoming the negative mindset

Even the higher salaries, Srinivasan believes, will not be enough to overcome these attitudes. Adding to this is the lack of career growth. A FoodPanda employee said as much. “That’s what we are compensating for. We pay for their efforts, riding in harsh conditions.

But at the same time, remember that we are compensating for a job that they might never even grow out of.” This, he admits, will get harder as the companies eventually scale down pay to market rates.

Rishabh Sinha, of private law firm Ikigai Law, which advises tech startups, says that when the food delivery market comes into an equilibrium with what the actual labor market pays for delivery personnel—Rs 15,000-20,000 ($206-275)—companies will have to find a way to improve the life cycle of these jobs from two months to six months or one year. “In the longer run, it’s very important to find a sustainable way to do this,” he adds.

Companies like Swiggy have already begun working towards this. They now offer health insurance packages to help decrease attrition and drive loyalty towards their platform. Similarly, Zomato, in an emailed response, called attention to its rider university which offers labor skilling and road safety programs.

“We want our delivery partners to be driven by the opportunity for skilling, insurance, and other welfare initiatives focused on their long-term betterment,” read Zomato’s response. However, they offered no specifics about any initiatives other than the rider university.

Government intervention could also help in making these jobs far more secure for riders, and therefore a more sustainable long-term career. Currently, no Indian law explicitly addresses gig economy workers, which means they are neither classified as employees nor as contract workers.

“It needs to have some checks and balances in the system,” says Sinha. “There should be some minimum wage, some basic pay, and some rights,” he elaborates. This, though, will take time. Regulating anything this new and dispersed isn’t easy.

But there may be an altogether different solution. One that already exists, but hasn’t been leveraged. Or even realized.

Leverage the existing

Maybe companies are just looking for their delivery fleets in the wrong place. Perhaps, offers Srinivasan, companies need to start looking elsewhere for talent that is retainable and dependable in the long run.

Srinivasan has been studying business models of e-commerce platforms, and he says that there is a huge unexplored talent pool for delivery startups among postal services, milkmen, local street hawkers, and newspaper delivery people who are well-versed with their localities.

“In the delivery market, who else can do it better than the postal services? They have got it right. They have pretty much mapped out the world. I can send a package from here in Bengaluru to, say, some city in England.

Role of the postal services

The postal services of both countries have got it figured out up to the last mile. And to be as efficient at that (for platforms) will be utopia,” says Srinivasan.

Interestingly, Indonesian hyperlocal startups have already picked up on this idea. They have been hiring relatable talent for deliveries rather than spending massive amounts trying to retain unrelated labor talent through incentives. Hyperlocal delivery startups like GOJEK, Grab, and others are depending on traditional ojeks or bike taxis.

On Indonesia’s infamously congested roads, ojeks are the equivalent of the auto-rickshaw in India, says Shobhit Srivastava, a product engineer at GOJEK. What he means by that is ojeks helped solved a problem for GOJEK because they were omnipresent, available on-demand, and where an established, integral transportation network in-sync with the urban landscape and existing consumer behavior.

All those companies like GOJEK and Grab had to do was latch on.



Sandeep Aggarwal was really angry

A couple of months before meeting this dealer, as research for this piece, I reached out to a former executive at Droom. He requested not to be named because he didn’t want to get into any trouble with the company. He narrated an incident that happened sometime in December 2017. Droom was in the market looking to raise funds, and just around then, an employee started talking about the multiple lapses at the company. On social media. “I remember that Sandeep Aggarwal was really angry,” he says. “It was a small office, so we could all see things.”

Just a part

Small lapses at dealerships where they were taking the company for a ride was just one part. A far bigger problem was with SPCMP. It expands to the Seller Pushed Coupon Management Platform. Simply understood, it is Droom’s coupon offering, where the company generates a coupon to help a dealer close a sale. A dealer would use this coupon to make a transaction and then claim the incentive.

The problem was that a few dealers were found to be selling the same car over and over again to claim the incentive and make money. “Sandeep was very angry. Like, how did this employee get to know about all these things, and I am going to take him to the police and finish his career,” adds the former executive. “Ultimately, Rishab [Malik] took the fall for this. Some people were also fired. But after that, the company raised money, and everyone moved on.”

Aggarwal says this didn’t happen. “We had an incident where someone ran 19 tweets on Twitter early this year and mentioned a few things about our business and many were personal attacks on me,” he said. “After a Gurgaon [sic.] police investigation, this person was identified as an ex-employee, who was let go in October 2017 during the annual performance due to his performance].

Tough times faced

He had a hard time finding any other job and ended up venting many things on social media. Unfortunately, one existing employee was also helping this person. But this issue has been fully sorted out.”

So, Aggarwal wasn’t reacting to systemic lapses, just errant ex-employees. But then he also goes on to say this: “It is not uncommon for any large and scalable marketplace platform to learn how various stakeholders may be gaming the system.

Arguably, it is almost like a good problem to have i.e. good news is that people are using your platform. The bad news is that they might game it but the worse news is when they do not use or stop using the platform. So we are happy that millions are using our platform.”

“And that is how each month the platform becomes better and more full proof[sic] when we plug holes from these gaming opportunities we learn about. So, on and off we get to learn the game dealers’ play. And next month, our system, processes, and controls will plug the hole for such practices.

Developing a robust platform

And this process is iterative and makes the platform more robust. But your understanding is incorrect: no same car can be sold on Droom platform twice in less than 12 months unless the order was the incomplete first time.

We did have some incidents in April and May of this year when we learned that some dealers were trying to game our system. We have zero-tolerance on such practices and we did take appropriate actions as soon as we came to know about this. Nobody was fired but I made it very clear that Droom will not allow any gaming opportunities by dealers.”

Time for us to chew again. What exactly is Aggarwal trying to say?

These are clearly muddy waters. In our search for clarity, let’s dive right into the innards of the used car business. Now, this might come off as a bit philosophical, but it is true. Money is at the root of this problem. How to spend some and then make some.

Bear with me.



Thinking beyond the Grind

Just like the product, this grid, too, has been years in the making.

Ather’s an in-house team of data scientists did a comprehensive audit of how the grid needed to be set up. “This team has run extensive algorithms which considered data points like safe parking, high visibility, and uninterrupted power supply. We did a ground audit of these locations before we launched,” adds Mehta.

Partnership with the local establishments

Ather has partnered with local establishments like cafes and malls that popped up during their audit. In these places, Ather sets up electric substations, which draw power from the establishment’s main meter. “Till recently, our partner establishments were not allowed to re-sell electricity to us.

They could only offer it as a service and not as a utility. They couldn’t raise the price per unit from, say, Rs 5-10 ($0.06-$0.14). We successfully lobbied with the government to get this regulation changed. Now there is an incentive to host our sub-meters,” says Ravneet Phokela, Chief Business Officer at Ather.

It’s also helped that the government, since 2018, has abolished the need for licenses to set up charging stations.

The next thing Ather’s pushing for, says Phokela, is to host independent substations at these merchant establishments without having to own or rent the land. In this way, vehicles can be charged directly by the utility. “We don’t want to jump through several operational hoops, like aggregating bills from our partners, to set up these charging spots. We want to simplify the business model as much as possible,” he adds.

Another company with similar plans is Tork Energy. While Tork doesn’t have a fully realized charging network at present, Kapil Shelke, Tork’s founder, has a few ideas on how he might go about it. Tork’s new e-bike, T6X, is set to launch in the next 6-7 months and is being packaged as India’s fastest electric bike. 100 kilometers per hour. 100 kilometers on a single charge which takes 45 minutes to an hour. A range that’s presently unheard of in the electric mobility space. So, for longer rides, say between cities, highways are Shelke’s target.

Dependence on the tight-knit

“Within the city, riders rarely go beyond 80-90 kilometers in a day. Only if you’re riding from, say, Mumbai to Mahabaleshwar will we need to plan a grid on national highways. We’re looking at land and power costs of potential charging points on routes we think our riders might take,” says Shelke. Tork is depending on its tight-knit community of electric bike enthusiasts to help them map out this grid.

“With all the data feedback from our bikes’ telematics systems, and what our community of riders is telling us, it won’t be hard to predict where these charging stations should be set up,” he says. These “fast- charging” stations will be set up at a cost of approximately Rs 1-2 lakh ($1,378- $2,756). Ather quotes a similar set-up cost for its inter-city grid of chargers.

Both Ather and Tork’s teams are working on setting up interoperable grids; ones that would cater to any electric vehicle, as long as they meet the current charging standards (ARAI Charging Norms). But there’s a catch. “Charging a scooter at a public facility is a top-up game.

Does it draw power?

You need to charge quickly. While a regular 3-pin, the 15-ampere plug will do the job, it won’t be able to draw as much power, and as quickly as a customized Ather connector,” adds Phokela, indicating that fast-charging options rather than traditional ones are where the industry’s efforts should be. “Who wants to wait five hours to charge their scooter in a public space?” he asks.

If one were to slice into Ather’s experiment with charging grids, it’s clear they’ve built the tech around India’s unique power conditions. A big challenge with owning an electric two-wheeler is that the battery is often over-taxed. By heat. By 70-watt voltage fluctuations. But Ather’s pre-empted that problem.



Analyzing the Google’s fintech thesis

All told, Aye has lent about Rs 1,000 crore ($137.1 million) since its inception four years ago, serving roughly 80,000 customers. All small-ticket loans, sure, but Sharma claims that 70% of Aye’s 103 branches have broken even and, on an overall basis, Aye has been profitable since the start of this year. Aye also plans to lend another Rs 500 crore ($68.5 million) this year, adds Sharma.

In comparison, Lendingkart has given out Rs 2,000 crore ($274.3 million) since 2014 and said it will achieve profitability before the year-end. Lendingkart says it will disburse Rs 2,000 crore this year alone.

Models Blurring

“Today, the difference between the online and offline models is blurring. An only online acquisition can be termed as a purely digital activity unique to online models.

The rest of the processes related to Customer Relationship Management, operations, analytics, credit, and collections are rapidly converging between online, offline and omnichannel models driven by technology,” says Norwest’s Shah. As such, there’s an increasing consensus that offline or omnichannel NBFCs are still viable investments.

This is what investors like CapitalG are counting on. As a VC firm steeped in tech, it understands that digital does not automatically mean better for business.

“We looked at both digital and offline business since we believe that technology would play a critical role in the credit market and there will be convergence across fintech and offline businesses irrespective of where they start,” says Anand.

While digital helped fuel the pace of growth in consumer internet businesses, it isn’t the be-all and end-all in a business where the pace of growth is a grossly overrated metric. A metric that is potentially even detrimental.

Whether offline or online, there’s only one metric that truly counts in lending: non-performing assets. In its own research, CapitalG found that in the microenterprise segment, lenders which had more touchpoints during the loan process had better asset quality and lower NPAs, according to Anand.

Growth in the online business

Shah of Norwest, who is also scouting the market for fintech bets, found that the GNPAs in online businesses was higher—about 5-10% on a cohort basis. Traditionally, Gross Non-Performing Assets (GNPAs) are measured for the entire portfolio. But investors prefer looking at GNPAs on a cohort basis since GNPAs emerge with a lag. A cohort, in this case, is a set of loans that were taken at around the same time. This sort of comparison ensures that GNPAs of a certain cohort are tracked against the same set of total loans.

According to Shah, offline businesses fared markedly better than their online rivals, with GNPAs of 1-4% on a cohort basis, going up to 4-7% for unsecured loans. He added that this did not account for outliers in both business models, of which there are several.

It is also a myth that purely online models are cheaper than offline models. For instance, as a digital business, Lendingkart’s expenses—which include salaries, marketing, and tech costs—should ideally be lower than that of Aye’s. However, for every Rs 100 ($1.37) earned, Aye spent Rs 136 ($1.73), while Lendingkart spent Rs 150 ($2.06), according to their respective FY 2017 financials.

Role of the Third-Party Sources

This is why many online lenders that started off as purely online businesses—companies like Lendingkart and Capital Float—now employ field staff and contract third-party sources to acquire customers. For instance, 40% of all Lendingkart’s loans are sourced through third-party agents, according to a credit rating report by rating agency India Ratings and Research. But customers sourced through these agents don’t always end up being sticky.

“Having your own channels to source loans is important as sourcing through intermediaries typically results in lower repeats and poorer asset quality,” explains CapitalG’s Anand.

All this has led to a wider belief that slapping tech onto a finance first business is easier than the other way around. CapitalG is working with Aye to help them build their analytics capability. “We are leveraging Google advisors with expertise in analytics and machine learning to help build out their real-time dashboards using their underwriting and collection models,” explains Anand.

Sharma added that the use of artificial intelligence and machine learning would help reduce delinquencies and also help them identify the quantum of NPAs well in advance. In addition, machine learning can also help them simplify their onboarding processes.

In all of this, the metric of scale is falling by the wayside. But can it really be ignored?