 "Wallet space is already taken, no room for new players: Alok Goel")
Fin-tech companies would be the first beneficiaries of the demonetisation move as they explore opportunities in digital transactions. ALOK GOEL, managing director of venture capital firm Saif Partners, tells Alnoor Peermohamed and Raghu Krishnan that the opportunities in India would grow faster thanks to the note ban. Edited excerpts:
How do you view the push for less-cash economy? Are start-ups ready to grab this opportunity?
Every once in a while, there are some waves that come and give support to some particular industry, vertical or a particular kind of start-ups. If you look at 2000-2008 timeframe, we had only 19 or 20 million internet users in the entire country. The next wave was to get to 100 million English-speaking people. Between 2009 and 2011, there was a major wave of smartphones that came out and that basically gave smartphone access at sub Rs 5,000 which was a magical sweet spot for Indian consumers. Data prices went down quite a lot. So, at Rs 90 or Rs 100, you could have 1 GB of data access for the entire month. It may be a coincidence that all this happened at the same time, giving a boost to internet users in the country. The number of internet users has gone up from 19 million to about 350 million.
A similar phenomenon is happening in the digital payments space right now. It was required for reasons such as black money, people not paying taxes on transactions, and so on. The government needs to track every single transaction that is happening in the country, to tap tax income.
Payments banks, Unified Payment Interface and the push from the government are similar to the smartphone plus data connections getting cheaper and this will give a significant boost to digital transactions. In India, there are 4-5 million transactions; imagine this becomes 40-50 million transactions or 100-200 million transactions a day. Many companies which were working well in that four million transactions a day base will start breaking down and this will give opportunity to several new companies in the space to build payment infrastructure and payment systems.
It will also enhance the size of the India opportunity. As venture capital firms, one of the things we question is how large is the opportunity and how large is the market. If the market is not penetrable by these companies, then they can’t get good scale and they can’t make money. But, let’s say India starts having 100-200 million digital transactions a day; then there is no reason why the market size for many things would not get bigger.
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What are the new areas that can emerge?
Take, for example, taxation. People are paying their own personal tax, sales tax, service tax and other business taxes. If more companies are doing these transactions online and there are these 100-plus million transactions a day, many more companies will come under the ambit of paying tax. So naturally, they’ll need a support system to start paying taxes efficiently and this can be a big opportunity for companies such as ClearTax that specialise in this area.
Once these companies start organising their taxes and paying taxes online, they need some kind of an enterprise resource planning (ERP) solution to manage their internal processes and business. Once they start doing this, it will become hard for them to manage all their services offline in books as they have been doing. So, some of these companies offering these business processes can become very big.
What could trip this initiative?
When such massive changes happen, it’s hard for anybody to guess the derivative effects. You can spin positive stories; you can spin negative stories, too. But, it’s hard to foresee the repercussions of this. In that sense, the government has been very agile in their decision-making. The only challenge here is that there are always execution risks in these things. It’s a large machinery that the government is running and if a few cogs break, then there’s a risk of things not going well. The good thing is that the government can track all this.
Everyone says fin-tech is going to be the biggest beneficiary because of this move, and the conversation is dominated only by Paytm, MobiKwik, FreeCharge and a few other large players. Is there space for new guys to come in?
The wallet space is already occupied. For everything, there’s a time in the market. If you come too early, the market is not ready for you. If you come too late, then the market would already be captured by other people. But, whenever such things happen, payments is the first thing that gets impacted. This is why you’re seeing a huge rush in the digital wallet space because the rest of the fintech space takes a little longer to get impacted. Such kind of start-ups will begin coming into the limelight now. In the fintech world, the biggest impact has been in the payment space because people need to pay for things. They’ve got money in their banks, and in their pockets, but what demonetisation did was it didn’t allow people to transact.
The digital market is said to follow the ‘winner takes all’ philosophy. Do you think there can be more than one winner?
I would not agree with a blanket statement that it’s winner takes all in the digital space. If there’s a network effect at play, only then does it become a winner takes all market. For example, if a lot of people are using one payment system, merchants are incentivised to accept that payment system and vice-versa. This is why when one payment system becomes big, it’s very different to disrupt it because all the users and merchants have adopted it.
However, there are many spaces where it’s not a winner takes all market. Take, for instance, lending as a market. You need loans to buy a car, a mobile phone, a house, an air conditioner or a refrigerator. One person might need a loan to go Mauritius for their honeymoon, while another one might need it to run a shop. The requirements are so diverse that it’s hard to believe that somebody will come and own the entire market.
Tell us about some of the companies you’ve invested in...
In terms of the fintech portfolio, we have companies such as Paytm which we are committed to. Apart from that, we have a company called ClearTax, and Walnut app, which is a personal finance tracker. We also have an offline finance company called Aye Finance, which lends to various small and medium enterprises (SMEs). Then we have a company called Capital Float, which is the largest SME-lending company in the country and Coverfox, which is into insurance broking.