As these companies get bigger, sending out numerous payment links is not the most efficient way of doing business. They need a more accommodative solution. Like a payment gateway that can process hundreds of transactions a day.
So far, Instamojo has stayed away from offering a gateway itself because of the low margins in it and also there is nothing new to offer there. But as a result, it’s come to a point where some of those customers who have grown with the platform are evaluating other options.
“We are at a point where the number of merchants is organically increasing and it is easy to get customers, but it is also easy for them to leave,” says Swain.
Overcoming the gap
He wants to plug this gap. Also, he wants to maximize revenues from every SME. “Today we have a 30% wallet share, we want to grow that to 70% in three years.” If Instamojo can’t do that, he says it risks becoming irrelevant. Wallet share is something he brings up multiple times during the conversation. He says that it will be the metric through which they will be measuring themselves.
Even though different fintechs are solving for different payment needs, one thing is common. Which is that the money you earn from all of it does not amount to much. Which is why volumes and value of transactions make all the difference.
Instamojo processes about Rs 100-135 crore ($15.2-$20.5 million) worth of transactions in a month, according to a source. Swain said he cannot confirm it. It charges a flat 2% fee plus Rs. 3 on every transaction and the company earns 1% out of it. But on average, the margins in the payments business are no more than 0.2%-0.3%, say those in the industry. In the five years, it has been in business, despite having lakhs of merchants, its revenue is at Rs 4 crore ($611,060) in FY2016 (of which income from domestic operations is Rs 2.1 crore).
Instamojo’s closest competitor is PayUMoney (a part of the larger entity PayU India). It also services small businesses through payment links. It has 230,000 merchants and processes about Rs 250 crore ($38.2 million) a month. “Retention of small businesses is the biggest challenge,” admits Amrish Rau, CEO of PayU India.
To be able to better retain merchants, Instamojo wants to be a “commerce enabler” rather than just being a payment solution company. This means the payment solution company wants to grow into a platform that can meet all SME needs—credit, logistics, warehousing, invoicing, and GST filing. And all in one app.
Swain says this has been the plan since 2014. So now, it is striking multiple partnerships with NBFCs, logistic companies, to be able to do this. While Instamojo already offers services like shipping, they are not tightly integrated into its offering.
What are the additional services?
But here is the thing with using additional services. Companies have multiple ways to access them. For instance, Roadhouse Hostels uses property management software to create invoices. Will Borah move his invoicing from that to Instamojo? He says moving it makes little sense because he uses specific software that gives him visibility to the payments he receives from multiple sources. While an Instamojo may have visibility only to the payments made through it.
Still, Swain sees this ecosystem approach as the best way to get SMEs to spend more through his platform. “It is a logical extension. If I’m only doing links I could get disrupted. I won’t survive if I don’t build an ecosystem.”
Instamojo wants to get to one million merchants by the end of the year. While one million is a huge and enviable base to have, it is the volume of transactions these businesses will bring that will matter. And that’s where things get skewed.