Source:Forbes India, by Pravin Palande
The business model that Ashok Goel scripted for ItzCash has given the unbanked access to a host of modern-day services
In early 2003, Ashok Goel, serial entrepreneur and vice chairman and managing director of Essel Group company Essel Propack, noticed an interesting statistic on the Indian economy: Ninety-eight percent of all business transactions were done in cash. (A host of factors like the poor penetration of banking services had contributed to the disproportionately low share of cashless, or card-based, deals.) Reading between the numbers, he was quick to see that this would be a pain point for many subscription-based enterprises in the country.
Sensing an opportunity, Goel decided to set up a payments solutions firm. He asked his Essel Group colleague Naveen Surya if the concept of creating a cashless world excited him. Surya, who thrived on new ideas, was soon on board; he had earlier worked with Tata Consultancy Services (TCS) as a management consultant on projects for companies like ACC, GE Capital and UBS (Japan).
By 2006, Goel and Surya knit together a ten-member team in a small office in South Mumbai and named their firm ItzCash Card Limited. Goel was aware of the many subscription-based businesses, such as cable TV, sprouting in the new economy. To avail these services, people would have to make electronic transactions and many would not even have bank accounts. “I knew this was going to be a good (business) opportunity. In a way, we play a big role in financial inclusion, too, since we cater to people who do not have formal access to banking solutions,” says Goel, 54, chairman of ItzCash.
He was right about the business opportunity. Today, the company boasts of clients such as Amway, the Indian Railways and businesses that run on subscriptions, like DishTV. In FY2015, ItzCash had a payment volume of Rs 7,100 crore and a gross income of Rs 150 crore. For FY2016, Surya is confident of clocking Rs 12,000 crore in payment volume and a gross income of Rs 225 crore.
“Our business is extremely scalable even if the margins are low. But what you need to look at is the convenience we have provided to the people. Today, if you do not have a bank account and you want to do an online transaction, an ItzCash card can help you,” says Surya, 42, who is managing director of the company.
ItzCash’s main business is prepaid payment solutions. Their prepaid cards are popular among the under-banked segments of society as they provide safety and convenience in transacting. The company’s services are available through franchises called ItzCash World outlets. Migrant workers, for example, can load their daily wages onto their ItzCash cards and withdraw it from ATMs. Likewise, they can pay their utility bills or book travel tickets from ItzCash World outlets. There is no transaction fee as the company derives its commission from the merchant. From being the first multi-purpose prepaid card issuer, the company has grown to be India’s largest payment solutions provider.
Surya credits the scale ItzCash has achieved to its initial customers. It began with DishTV, an Essel Group company. In 2005, the direct-to-home (DTH) TV operator was looking to rewrite the television-viewing experience of rural India. In those days, to people in the hinterland, TV was synonymous with Doordarshan. Hence, it was a market waiting to be tapped. But before it could air its satellite TV channels there, DishTV had to first find a way to collect subscription fees from the village folk, most of whom lacked access to even bank accounts, let alone credit cards. Even if they did have bank accounts, the cheques took around a week to clear. If they bounced, revenue losses were certain.
Enter ItzCash. In 2006, the firm created a card for DishTV customers to pay their subscription fees. Customers could buy scratch cards—of various denominations—from any of the company’s outlets and send the unique number to ItzCash to activate their cable TV connections. The idea became popular and soon Sun TV, another satellite TV provider, asked for similar solutions. In the first year of operations itself, ItzCash attracted a total of three million customers.
The company’s next big break was with railway bookings, in the same year. Most train travellers did not have internet access then and were unable to book tickets online. Surya approached the Indian Railways’ top brass with a solution. ItzCash would tie up with many shops and kiosks, which would be given franchise cards. Any traveller could approach a franchise, pay the fare, and get an online booking done. Like most other merchants that ItzCash has tied up with, Indian Railways charges a nominal convenience charge. The idea clicked. Today, ItzCash has a 20 percent market share in the online railway booking segment, according to the company’s internal data.
Franchises that invested in ItzCash’s travel business, too, have got very high returns. Nardosh Kumar, who operates Meenu Travels in Beri Market, Ludhiana, sells around 1,200 tickets a month, which translates to about Rs 25 lakh in income. “In 2008, I got to know of the services offered by ItzCash and decided to take them up, primarily for travel bookings. Since then, there has been no looking back. My turnover and income have quadrupled (in six to seven years),” says Kumar.
Another company on whose business ItzCash has had a major impact is Amway, a direct marketing company that manufactures FMCG products. The company worked on a sales model where dealers could visit its offices to buy goods and pay for it with cash. Amway then had to transport the daily cash pile to the bank, which was a risky and costly affair. Almost 90 percent of the transactions were done this way as very few people had credit cards. For a long time, Anshu Budhraja, general manager, Amway India, was looking to fix this problem. “We approached banks and they offered cash pick-ups from our offices, or credit cards for our clients, but that was not what I was looking for. I wanted a solution that was within a kilometre from my customers’ houses,” he says.
He came across ItzCash in 2010 and contacted the company’s staff. ItzCash then created a close-ended card for Amway dealers, using which they could order Amway products online from a kiosk near their homes. The customers then had to go to the Amway office to collect the goods. “The entire system became seamless. Customers saved time, as they did not have to stand in long queues, and our overall cost of handling cash fell. Moreover, we also saved on the expenses incurred on our security guards,” says Budhraja. Amway says around 90 percent of its Rs 2,200-crore business is done through ItzCash cards.
Investors have also taken note of the company’s growth. ItzCash raised a combined total of $20 million in funding from Matrix Partners, Intel Capital and Lightspeed Venture Partners in two rounds—in 2007 and 2009. Most of the investments have gone into brand building and information technology.
Surya and Goel are confident that India will transform into a cashless economy sooner than most people realise. The company now has a user base of 30 million people, who are served through 75,000 kiosks, or touch points, in 3,000 cities and villages in India. And, to take its offering to the next level, ItzCash has applied to the Reserve Bank of India for a payment bank licence, results of which are due by August end. If accepted, it will be in a position to offer financial products and also improve its margins and profitability.
Though Goel is the MD of Essel Propack—and the younger brother of Subhash Chandra, chairman of the Essel Group—ItzCash is his personal investment. He owns 65 percent of the company and plans to pump in around Rs 100 crore of the required capital if it gets the banking licence. He sees this as the next big opportunity for ItzCash.
While the opportunity is huge, so is the competition. ItzCash competes with the likes of Oxigen, m-pesa—which has a tie-up with Vodafone—and Paytm in the prepaid payment solutions space. But ItzCash seems to have the upper hand because of its first mover advantage and also because it is the largest non-banking entity to issue general purpose reloadable cards. Only Suvidhaa Infoserve, which tied up with Axis Bank in April this year, offers services that come close to those of ItzCash.
Cellphone service providers are also eyeing the payments solutions space. They feel they are in a better position to become payment banks, given their strong distribution networks in India’s remote corners. They also have brand equity. Analysts feel that in such a scenario, payment solutions companies like ItzCash are better off going for a strategic stake sale or even a tie-up with a mobile company.
But that is not to say ItzCash has outlived its usefulness, says Avnish Bajaj, managing partner at Matrix Partners, a private equity firm. “India is still an under-banked country and the relevance of a company like ItzCash is very much there. This is despite the fact that there are numerous mobile companies looking to enter the segment. ItzCash’s solutions are real and scalable. They allow people to purchase a card and use it anywhere, irrespective of their bank account, and that is a big thing.”
Goel says he is open to any idea as long as it sustains the valuations and growth of his company. He continues to be optimistic about his business. “It is one of the most scalable businesses in the country. There will be a time when everything in the economy will become cashless, including toll booths. It is just a matter of time before we see a cashless society emerging in India,” he says.
This article appeared in the Forbes India magazine issue of 04 September, 2015.