Stories Visual Stories Newsletters Podcasts INDIA

KA CHING!

How an Indian fintech is

trying to find its mojo by
not being a fintech
Instamojo CEO Swain didn't believe in the lending model, and that
meant he didn’t see a future for the company as a fintech

Thursday, 18 May 2023

There was a time when being a fintech meant being part of something that
represented India’s shiny, ever glorious future. Nothing could go wrong—people
always needed credit; people always needed to make payments. So the thesis was
that building better products around these needs would help you build a great
business.
But how the story of one promising fintech has panned out shows that’s really not how
things go down.

Late last month, I got a press release from the 11 year-old Bengaluru-based payment
solutions company Instamojo announcing that it wasn’t a payment gateway anymore.
I had to call up Sampad Swain, its frank, straight-talking co-founder and CEO to find
out why.

After all, Instamojo was one of the companies spawned during the fintech boom of the
last decade. And by 2017, it was playing in the hotly-contested payment processing
space, building its business catering to the low-value-high-volume longtail of small
merchants.

Source: What’s pinning down Instamojo and Razorpay?, The Ken, 2017

But around 2019, Instamojo dropped off the segment’s radar. The fintech fight was
being fought on large volumes, even larger piles of cash, and little to no margins.
And it was something that Instamojo didn’t keep up with.
When being a fintech stops making sense
Back in 2017, when I met Swain for the article I linked above, the then 35-year old
CEO and co-founder had said: “I won’t survive like this….”
They were at a point, he told me, where the number of merchants was organically
increasing and it was easy to get customers. But that also meant it was easy for
customers to leave. At that time, Instamojo was focussed on increasing the wallet
share per customer, from 30% to 70%. If Instamojo couldn’t do that, he said, it would
risk becoming irrelevant.

In a way, Swain’s Instamojo is still focussed on getting that wallet share, but not by
being a payments company. Now, it wants to pivot into being a full-stack digital
solutions provider for D2C businesses. One that offers solutions to manage the pre-
checkout, checkout and post-checkout activities of micro and small merchants.

The reason for the move is that even back then, Swain saw the payments tailwinds for
what they were. It was becoming a hurricane beneath the wings, instead of just wind.
“The broader dynamics was changing,” Swain says now.
One on hand, Covid brought on a slew of merchants wanting to go online, and UPI
brought on a deluge of customers. But as the markets grew, margins shrunk.
Moreover, operating as a payment gateway that simply allows a digital transaction to
happen, the value addition that companies can bring is limited. All that they were
doing was to give customers a set of APIs to integrate and process payments.
So, the gateway business got commoditised to such an extent that merchants began
squeezing players on the margins.

We don’t want to be in a position to choose. We want margins and we want to

participate in the expanding market too.
Sampad Swain, co-founder and CEO, Instamojo
Swain says he did not anticipate that the market would reward players who had
volume but no margins.
Many other fintechs in the same boat chose to add lending to their list of businesses,
but Swain wasn’t a believer in that model. And that meant he didn’t see a future for
the company as a fintech.
Hence…

The pivot
So, three years ago Instamojo became a D2C tech company that offered SaaS
solutions to small and micro merchants, helping them sell directly to customers. It
wanted to go from being a business like payments processor Stripe to one like
ecommerce platform Shopify. This meant helping merchants with marketing tools,
CRM, and reach, in addition to its pre-existing payment checkout services. Instamojo
also added logistics and support activities to this cocktail.

Even though it made this pivot three years ago, and launched the platform a year later,
Swain says he wasn’t ready to talk about it until now. “Now, I’m confident…,” he says,
adding that Instamojo has accrued 2,000 paying clients over the last 18 months.
With that, the company has been able to add e-commerce revenue to its revenue
stream. But of the nearly Rs 50 crore it expects to post as revenue in the year ended
March 2023, 80% is still coming from payments and 20% from e-commerce. The goal
now is to grow revenues to Rs 100 crore (US$12.1 million) while being profitable, he
says. And for that, it intends to onboard about 400,000 new merchants over the next
year.
Instamojo’s journey has been a hard one, especially as fintechs all around Swain
turned into unicorns overnight. “I kept telling myself, hopefully this pain (of building
not for volume but for margins) will make sense at the end of the day.”

The Stanford Marshmallow experiment famously tested children’s capacities for

delayed gratification, where each child was offered a choice between one small but
immediate reward, and a bigger reward if they waited for a period of time. “I’m the kid
who waited,” Swain says.

Now, he’ll have to see if better rewards follow.

 That’s a wrap for this week. Please keep writing to kaching@the-ken.com with your
thoughts and suggestions.

Take care.
Regards,

Arundhati Ramanathan

Share this edition

Here's the link to this edition for you to share. Or you can use the easy share buttons below

https://the-ken.com/kaching/how-an-indian-fintech-is-trying-to-find-its-mojo-by-not-
being-a-fintech/

Ka-Ching! is published by The Ken—a digital, subscription-driven publication focussing on technology, business,
science and healthcare.
© 2023 The Ken

SUBSCRIPTIONS COMPANY CONTACT US EDITORIAL JOIN THE CONVERSATION

Individual Plans About Us Write for us Narratives @NatesanSiv Been glued to The
Corporate Plans Team FAQs All Stories Ken for a while now. Gives you all
you need to know in a non
Campus Plans Careers FOLLOW US Free Stories traditional language both concise
and to the point. Well done
Gift a Subscription Culture Saved Stories @TheKenWeb
Community Newsletters
 Blog @Climateabhi @TheKenWeb gives
personal touch to each and every
mail subscriber newsletter, makes
reading so engaging and
connected! Platforms like The Ken
are revolutionizing the way
financial/business journalism is
done in India.

Kenrise Media Private Limited, 3582, 2nd Floor, 13th G Main, 4th Cross, Doopanahalli, Indiranagar, Bangalore 560008

2023 THE KEN TERMS & CONDITIONS PRIVACY BUILT AT THE KEN

PDFmyURL.com - convert URLs, web pages or even full websites to PDF online. Easy API for developers!