About One Mobikwik Systems Limited

One Mbikwik Systems is a platform business at its core, that has a two-sided payments network, consisting of consumers and merchants. The Company has acquired 161.03 million Registered Users and enabled 4.26 million Merchants to make and accept payments online and offline, as of June 30, 2024. The usefulness of their platform for new and existing consumers increases, as they add newer products to their digital credit, investments, and insurance verticals. As a result, the Company has achieved Profit /(loss) for the year ended March 31, 2024 amounting to ₹140.79 million.

The Company has won various awards over the years, including the ‘Economic Times Most Promising Brands Award’ and ‘Innovative DevOps Excellence in Pioneering Infrastructure Optimization for Payments’ award at the India DevOps Show – 2023 and ET Iconic Brands of India Awards, as an ‘Icon of Indigenous Excellence’ in 2018.

One Mobikwik Systems employed 226 permanent employees in its technology function as on June 30, 2024. The Bankers to the Company are Axis Bank Limited and ICICI Bank Limited.

Digital payment landscape in India is evolving at a rapid pace, driving superior convenience and consumer confidence
Growth of online shoppers has further propelled ever evolving payment landscape in India. Although initial penetration happened across Urban India, predominantly across Metro cities. Change in trend was observed from 2018 to 2023 where Tier 1 and Tier 2+ are the fastest growing markets. In FY23, ~61% of shoppers are from Tier 2+ cities which is expected to grow to 78% by FY28.

Based on Redseer analysis the overall e-commerce market is expected to become USD 190-200 Bn market by FY28. Digital payments have played a pivotal role in shaping the overall e-commerce shopping experience for the consumers.

Based on Redseer analysis, non-cash transactions for Indian households are going to increase from 38% in FY23 to 62% in FY28. With UPI being the corner stone of transition, which accounts for 73% of total digital transactions in India in FY23, is estimated to exceed 90% by FY28. There is a strong momentum in favor of digital payments which is being developed by an evolving ecosystem.

Rigorous investment in mobile payment technology which drives superior convenience and consumer confidence, large merchant ecosystem penetration created by mobile payment platforms and government initiatives on growth are all factors that are fuelling the growth of the mobile payment market in India and will continue to do so in the future.

Person to merchant (P2M) transactions have been one of the biggest drivers of mobile payments adoption growth. Use cases like ecommerce, food delivery, e-grocery, OTAs and other service have led to significant growth in total user base for mobile payments in India.

Based on Redseer analysis, digital payments are on a growth trajectory, and in FY28 the expected volume of digital transactions are projected to be in the range of 500-550 Bn, with an estimated value of USD 60-70 Tn.

Mobile wallet led transaction has increased from USD 16 Bn in FY18 to USD 29 Bn in FY24. Years FY20 and FY21 did saw a drop in overall wallet transaction value due to interoperability rule. Based on Redseer estimates the wallet transaction value will reach approximately 65-75 Bn in FY28P.

Wallet interoperability over UPI is a significant development in the Indian digital payments landscape with implications for both convenience and system efficiency. UPI has gained immense popularity for its ease of use and direct linkage to bank accounts. However, as the volume of transactions on the UPI platform increases, there are concerns about potential stress on the banking system.

The preference for wallet also comes at a time when consumers have faced technical glitches and issues regarding bank servers not able to process payments timely. Bank servers not functioning at times is because of multiple transactions happening throughout the day puts additional stress on the systems.

Merchant payments has emerged as key driver for digital payments
With a remarkable surge in digital payments in the recent years, merchant payments have emerged as a key driver of this transformation. Beyond e-commerce, mom-and-pop stores are also increasingly embracing digital payment solutions. From small kirana stores to large retail chains, businesses are recognizing the benefits of accepting digital payments, such as reduced cash handling costs, improved transaction speed, and better security. Based on Redseer estimates, ~90% of the merchants in India would be digitally enabled by FY28. As the world embraces the digital era, merchant payments are poised to play a pivotal role in shaping the future of commerce and financial inclusion. Furthermore, the digital customer expenditure on merchant payments has already begun to outpace P2P transactions, and this trend is likely to continue.

The rapid expansion of the digital payments landscape in India in recent years has been fuelled by the introduction of new technologies, innovative products, disruptive market players, and regulatory interventions, among various other factors. For payment, platforms generally charge MDR to merchants only in case of POS/payment gateways, UPI is still free in India. Payment platforms have expanded their offerings to offer payment, commerce, and financial services. Majority of them started as wallet players with an application to provide mobile top-up and bill payments. Few players also expanded to payment gateways to create a large base of online consumers and merchants. In following years, they expanded to value added services such as commerce and financial services.

Payment players often leverage partnerships with merchants, earning a share of revenue from transactions conducted on their platforms. Value-added services, such as digital lending, insurance, and investment opportunities, contribute to revenue diversification. Moreover, these players can engage in data monetization by analysing user behaviour and preferences, providing insights to financial institutions and advertisers. Overall, the business model of payment players is multifaceted, combining transactional revenue, subscription models, platform fee, partnerships, and additional financial services to create a sustainable and profitable ecosystem.

India presents a huge credit gap and has significant headroom for growth for multiple credit enabling platforms
The Indian economy has shown growth of ~7 percentage from 2022-2023 based on IMF data. With a steadfast recovery post COVID-19, where one of the key drivers of economic resurgence being India’s financial sector. However, despite the sector's efforts to promote financial inclusion, retail credit penetration in India remains significantly lower than global levels. The ratio of retail lending per capita in India is lower than that of developed economies like US, UK and China. This signifies that there is significant room for expansion in the lending space.

Based on TransUnion CIBIL research, India has a credit eligible 2 adult population 1 of 814 Mn. Among them, only 20% have accessed credit services, while 58% fall into the credit unserved (population with no history of credit) category, and the rest 20% are underserved (population with only one type of credit product, have 2+ years of credit history and >1 traditional credit account in their credit history). This indicates there is a headroom for credit inclusion in India. Comparison with US and UK highlights the disparity where only 3% and 7-9% of population is credit unserved 5 respectively. The same number for China is in the range of 35-40%. Moreover, looking at TransUnion data there has been an increased in credit served consumers, increasing from 91 Mn in CY 2017 to 179 Mn in CY 2022. This increase has elevated creditworthy levels from 12% to 22% among the adult population 1 (Individuals above the age of 16).

Retail loans disbursals are projected to more than double in next 5 years
India’s retail loans landscape has shown growth trajectory from FY21, with total disbursals growing at a CAGR of 24% to reach USD 620-660 Bn from FY21 to FY23. Past evidence suggests an improvement in overall economic and business growth. Based on Redseer analysis, amount of retail loans disbursed in FY28 is projected to be in the range of USD 1.4 - 1.6 Tn, showcasing a growth trajectory with a CAGR ranging between 15-20% from FY23-28.

Several factors are factors fuelling the growth of retail loans in India. Firstly, the rising middle class and their increasing disposable income have fuelled aspirations for better lifestyles, leading to surge in demand for housing loans, vehicle loans and personal loans. The advent of fintech has revolutionized the lending landscape, making loan applications more convenient and accessible. This innovation has not only streamlined borrowing processes but has also democratized financial access for a wider population. Additionally, the integration of credit cards on UPI further amplifies this accessibility, offering users more versatile and seamless borrowing options within the digital payment ecosystem.

Unsecured loans have seen considerable growth in last couple of years
India is on a path of inclusion, where credit through institutional channels are provided but with a higher interest rate by banks under unsecured loans. Looking at data from multiple credit agencies of India, there has been an increase in unsecured loans from 34% to ~45% from FY21 to FY23E.

THE POTENTIAL FOR DIGITAL LENDING IS HIGH AND GROWING
At present, the digital lending ecosystem in India is in its nascent stages, marked by a relatively low base in comparison to traditional lending channels, but its growth is gaining considerable traction. The prevailing contribution of digital lending of around 2% highlights the room for expansion and adoption that exists within the digital lending sphere. The total value of disbursed loans saw a surge of about 41% when compared to FY21, increasing from USD 5.8 Bn in FY21 to USD 11.6 Bn in FY23. Based on Redseer analysis, in FY28, about 4% of the total retail lending is expected through digital channels.

Based on Digital Lending Trends report by Experian India in collaboration with the Digital Lending Association of India, digital lending may even surpass traditional lending by 2030 through increased penetration in the unsecured small-ticket segment.

The shift signifies influx of credit underserved population entering the formal credit market. Digital lending platforms have played a pivotal role in shifting focus to Tier 2 and 3 cities, as these areas have historically lacked access to traditional financial institutions. Moreover, improved internet infrastructure and smartphone penetration in Tier 2+ areas have made them ripe for digital lending solutions.

The "Buy Now, Pay Later" (BNPL) model has emerged as a substantial component of digital personal loans, reshaping the landscape of consumer finance. Based on Redseer analysis in FY23, 42% of Digital lending was done through BNPL, which is significant based on the overall digital lending space. RBI's issuance of digital lending guidelines has facilitated partnerships between new-age financial companies and LSPs with traditional lenders, expanding access to credit for underserved populations. The guidelines provide a regulatory framework for collaboration between traditional providers and LSPs, fostering trust and transparency.

BNPL and payments enable larger personal loans for customers
Enabling digital personal loans through the process of underwriting customers via payments and BNPL mechanisms represents a strategic approach to building a robust credit book. By leveraging data gathered from customers' payment histories and their behaviour in BNPL transactions, lenders can gain valuable insights into their creditworthiness. The use of alternative data sources in the underwriting process allows for a more comprehensive assessment, especially for individuals who may not have a traditional credit history.

The Buy Now Pay Later (BNPL) market in India experienced an unprecedented surge, becoming a catalyst for the credit revolution in the country. The RBI guidelines have enabled collaborations between modern financial firms and LSPs alongside traditional lenders, aiming to foster financial inclusion and credit supply. Anticipated steady adoption of BNPL payments is forecasted, with a projected CAGR of 13% during 2023-2028. The digital disbursements for BNPL is expected to rise from USD 5.5 Bn in FY23E to USD 35-40 Bn in FY28. Overall user base for BNPL solutions will rise significantly to reach 50-60 Mn by FY28 from 15-20 Mn in FY23.

BNPL’s are essentially small ticket loans that allow customers to purchase various items online and offline. They primarily operate on two models. This short-term financing option lets them buy products upfront and pay for them later. The underlying objective is to enhance consumer spending power through readily available credit facilities. This then enables building a track record of credit utilisation and behaviour by analysing alternative datapointssuch as consumerspending behaviour, payment history, creditscore and anything that helpsin assessing credit worthiness of the consumer.

DIGITAL PLATFORMS ARE ADDRESSING CREDIT CHALLENGES VIA PROVISION OF LOANS BASED ON BORROWERS’ CREDIT RISK PROFILE, BUILT USING TRANSACTIONS DATA
Advanced algorithms and data analytics assess the creditworthiness of applicants, often considering alternative data sources for a more comprehensive evaluation. The automated underwriting process allows for quick decisionmaking on loan approvals. The entire process is characterized by efficiency, speed, and accessibility, providing a user-friendly experience for borrowers while enabling lenders to make data-driven decisions for risk management.

Digital lending platforms typically function within three primary models. The first is the independent model, where they directly lend from their own capital, exposing them to higher credit risk. The second is the collaborative model, where credit risk is shared partially. Lastly, the marketplace model involves platforms that act as LSP (loan service provider) and facilitate lending through partners on their platform, assuming relatively minimal credit risk. In terms of revenue streams, the first two models primarily generate income through interest, while the marketplace model relies more on processing fees.

MobiKwik’s total addressable market in India
The adult population in India can be segment into four distinct categories. The first category comprises Affluent consumers, a segment traditionally served by established players, encompassing High Net Worth Individuals (HNIs) and Ultra High Net Worth Individuals (UHNIs). Following this, the second category consists of well-off customers, a group addressed by both traditional financial players and new age players (including MobiKwik).

MobiKwik primarily caters to diverse set of Middle-income consumers, further categorized into three subsegments. The first subsegment of middle-income consumers comprises of approximately 120-130 million credit-active consumers. Additionally, there is a substantial group of 160-170 million underserved consumers and approximately 190-200 million unserved consumers in middle income as well, all of whom are target consumers of MobiKwik. Beyond this, MobiKwik extends its reach to an additional 200 million customers who have the potential to become relevant and bankable customers. This multifaceted approach positions MobiKwik as a comprehensive financial services provider, offering tailored solutions to diverse segments of the Indian adult population.

Leveraging payments data and facilitating smaller loans enables MobiKwik to establish credit histories for underserved and unserved middle-income individuals, thereby contributing to increased financial inclusion.

The financial services space in India is highly underpenetrated (across segments including lending, insurance, and mutual funds), which represents a big opportunity for a technology-first company like MobiKwik to capture a large market share. The digital financial product & services market by GMV in FY23 is USD 1063 Bn (INR 85 Tn) based on Redseer analysis, which is expected to reach USD 3-3.2 Tn (INR 240-256 Tn) by FY28. The overall market is poised to grow at the rate of 21% CAGR from FY23-28.

In FY 23, MobiKwik had an addressable market of approximately USD 5.3 Bn (INR 424 Bn), projected to grow to approximately USD 16-18 Bn (INR 1.3-1.4 Tn) by FY28. Their current suite of offerings focuses on the payment solution via UPI & wallets, bills & recharge payments, BNPL, personal & merchant loans, mutual fund investments and digital gold. Growth in this segment is driven by factors such as rising internet penetration, higher disposable incomes, the increasing digital penetration, and awareness.

ONE MOBIKWIK SYSTEMS LIMITED COMPETITIVE STRENGTHS
1. Empowering Journeys: The Company’s legacy of providing positive and sustainable consumer experience
2. Large, engaged consumer base acquired with low CAC
3. Efficient operational management of loan products distributed by them
4. The trust in their brand
5. Technology and product first approach to business

ONE MOBIKWIK SYSTEMS LIMITED GROWTH STRATEGIES
1. Scaling existing products
2. Expanding product portfolio in existing business lines
3. Expansion of their payment aggregator business
4. Continuous focus on profitable growth

ONE MOBIKWIK SYSTEMS LIMITED RISK FACTORS & CONCERNS
1. They face substantial and increasingly intense competition in the fintech industry.
2. They have in the past, incurred losses amounting to (1,281.62) million and (838.14) million in Fiscals 2022 and 2023, respectively.
3. They rely on card issuers, banks and/ or payment processors. 
4. They depend on Zaakpay’s services for their payments services and Financial Services business, specifically, MobiKwik ZIP and ZIP EM.
5. The product Xtra, may be susceptible to certain credit, liquidity and reputational risks.