Interview – Connecting the unconnected – Naveen Surya, MD of ItzCash
Since its inception, ItzCash has been building a bridge for the 90 per cent cash-driven India. Naveen Surya, MD of ItzCash shares his journey.
How did the journey of ItzCash start?
We are a 10-year-old company which focuses on digitising physical money transaction in our country. We wanted to be a bridge for the non-digitised people of the country who are habituated to physical infrastructure, physical money and so on, and had to do transactions digitally where physical has no value unless it gets digitised. And that’s how the whole journey began.
In some ways, we are a physical plus digital company. We are like Uber which has a technology layer that connects passengers and cab drivers in the physical world. This is exactly, what we have done in payments. We have real customers who are real people with real money and then you have a world which is digitised, and they are willing to accept this money but you need to create a platform where you can connect them.
Right from the start, we were much focused about moving physical into digital for more than one reason. When we started off the business, there were very simple requirements by businesses like Dish TV, Railways etc. We saw this as a huge opportunity. We also saw opportunity with people who hold bank accounts but are not technology savvy. Fundamentally for the digital payment, the competition has always been cash.
In our journey, the focus has been about digitising these transactions. At the same time, have an equal end in physical payments. When we started digitising physical money transaction in the country, physical was almost 97 per cent. Unfortunately, not much has changed as we are still at 90 per cent. In a two-trillion economy, today 90 per cent is physical and 10 per cent is digital which is still a significant number.
When IRCTC started online booking that time, credit card was the only payment option available. At that time, only 2.5 per cent booking was digital. Interestingly, this year tickets that were reserved digitally were around 70 per cent.
Today, we do more than USD2.5 billion worth of transactions every year, which is almost Rs 18,000 crore and it is growing at almost 60 per cent CAGR over last 2-3 years. Even today, majority of our customers prefer walking into our outlet and getting the transaction done. We have invested over Rs 300 crore till date and now, we are profitable, we have waited for this moment for a long time. We have made this happen in different phases.
If you see DTH, we are the market leader amongst non-bank payment entities. If you take Railways, we have about 12 per cent market share of their entire online ticket booking even today. If you take utility bill payments, our market share ranges between 15 and 40 per cent across different entities.
Today, we are present in every state, district headquarters and so on. We are present in 3, 000 plus cities, towns and villages. We are also present in about 670 district headquarters.
We want to reach out to consumers across all walks of life. It is not just people like us who are actually 2 to 10 per cent of the society, but also 90 per cent of the real masses, who earn and spend every day. So, we reach out to different people using different services.
Has ItzCash’s profitability affected due to extensive physical activity or say while building infrastructure?
Yes, it used to be the case till you reach a certain scale. For a company to acquire its customer, they need to have matching infrastructure. For any company to be successful in business, it has to create the logistic and delivery infrastructure, and the ability to collect cash. Companies who tried this without infrastructure were unsuccessful, if they were relying only on digital form. This is our strength. We are at a stage when companies are trying to create unit economics, I would say it is a puzzle. The unit economics is positive only over seven years.
Where does ItzCash stand in terms of profitability?
We are gross margin positive or a contribution positive in the operating level and not only that this year we will be the first company to have fully profited. So there are perceptions and then there are realities. The perception is led by India which is only10 per cent; the reality is driven by the Bharat which is 80 to 90 per cent in the country. This huge percentage is not looking at charity or incentives.
What does this 80-90 per cent of population require?
They need service and their delivery cannot be done -if you do not talk their language; if you are not present where they are present; if you are not delivering the service the way they want; and if you are not really offering them the services and the convenience that they are looking for. And their convenience is different than our convenience.
To provide this convenience, you need to have two things in place – omni channel presence and multi-form factor. We are the only company that has physical and digital channel. We are the only company which has all products. For instance, you want a physical card which works everywhere just like your debit card without needing a bank, or you want a pure-play wallet, we provide our consumer all that. So we leave that choice to the consumer to decide what he or she wants.
How do you define your company’s core competence?
Payment is a business which has medium margins and high scale. Talking about core competence, I would say that we call ourselves payments specialist or solution provider. Our approach is simple, go and acquire these mass customers yourself. We approach corporates – be it large, medium or small – and through them acquire additional customers. We provide them with solution in case they are dealing with cash. For instance, 98 per cent of the Rs 40,000-crore micro-finance industry is cash driven (including collection and disbursement). We have a success story with one company in this industry, where more than 80 per cent of their payment is already digitised. It is about creating a sustainable, stable and trusted brand. For instance in financial services, masses still go to LIC and SBI because of their stability, size and reach. It is also seen that competition does not affect them. These brands only grow. So you keep adding.
ItzCash has many products. What is the company’s focus?
Fundamentally, we are only digitising physical cash transaction. There is no difference in the products. Each of those products digitise your money. Finally, it goes back to our technology that actually runs all this on a single technology platform. Some people know us as (service providers to) Dish TV, Railways, Utility bill companies, etc. Others know us for money transfer, gift cards, meal cards, etc. There is variety here because different people have different requirements. When you are dealing with 90 per cent of physical cash, no single solution is going to solve cash to digital transition problem completely.
Do you feel working with the government is necessary?
We had that focus. We hope that focus comes back soon not to us but the government. The government is the biggest consumer of physical cash in terms of disbursement and acceptance. We have been dealing very closely with government. For example, IRCTC which is a government organisation and we work with them. We also work closely with Municipal Corporation of Delhi (MCD) and other municipal corporation.
Then, there are areas where there is no clarity on what government wants. The reason for this is the confusion or the obsession around banking and other payments system. But this is changing, many people in the government have realised that payment and banking are separate, and they need to unbundle them. Despite being agnostic, we actually work very closely with banks as well. The government has to open up, as we try to find solution (for the 90 per cent of the consumer).
Yet another problem with the government is that it believes the moment there is a commercial transaction and a non-bank entity comes in, then it thinks that it is sustainable. So they think why should we pay. Ultimately, the situation arises where you have to pass it onto the consumer. So, at times customers pay that extra cost to avail the service or at times, they continue to go and pay cash.
About a year and half back, the Ministry of Finance, DEA (The Department of Economic Affairs) issued a memorandum which clearly states that all government departments need to start budgeting for the cost of electronic payment rather than passing onto a customer or payments company. The same point was reiterated in the economic survey 2017.
The beneficiary of this process will be the government. Benefits include saving the cost of currency, cost of managing the currency, indirect cost of sales of cash and more. In case you combine the cost of all the benefits, it can actually vary between 2 per cent and 35 per cent, depending upon how they structure it. At times, it will not be visible at the department level, but will be visible at the central or in entire budgetary level. At various level of the government, there has to be some change in the mindset. Interestingly, there has been a lot of work in this direction. At the Ratan Watal Committee, I was representing the entire association (Surya is also the chairman of Payment Council of India) and the industry. We had lots of discussions and we arrived to a conclusion that the government are the biggest users and that they have to understand it. It was stated that the government has to adapt to digital wherever they can. This has to be done at a right cost and right benefit; and made sure it is not passed on to a payments company or customer.
So the point that I am making is that yes we want to work with the government. We are very confident about working with the government but without commercial sustainability it will be an issue. In payments business, one-time project is destructive and can be damaging to the organisation. We have been very careful while working. But to be precise, we do not dependent on government alone. If you see our businesses, we do it on our own. We have invested in necessary infrastructure without worrying what government will do. And we will continue to do it.
How are you trying to popularise ItzCash wallet, considering there is a lot of competition in this space?
We have a e-wallet and the approach we follow is different. When other players are trying to target the 10 per cent (that is a small fraction), we are aiming at digitising the 90 per cent. The companies that are lacking infrastructure and capability like ItzCash will continue to create attention only at that top 10 per cent. In RBI’s data, the reality is visible. The end result in two months has not been proportionate to the noise created by the other players.
The monthly average of the wallet industry is Rs 6,000 crore. The pure- play wallet companies that are dealing with people like us are just Rs 2,000 crore. The remaining Rs 4,000 crore comes from the migrant workers who transfer money. We do more than Rs 1,000 crore in money transfer business.
Niti Aayog’s Amitabh Kant recently said that all debit cards, credit cards & POS machines will be redundant by 2022. What is your view?
Fantasy sells more than reality. I wish the same. The reality is nowhere close to it. When majority of India is dealing in physical cash, how would you digitalise. I am not against digitalisation. I am just saying that fantasies are nice and you enjoy them, but you cannot do your business based on that. You can draw your inspiration from there. You can create a vision out of it and execute it with a clear facts and realities in mind.