Just like the growth of ecommerce companies in India was fuelled by discounts, mobile wallet companies such as Paytm and MobiKwik grew on the back of cashbacks — sometimes as high as 100% of the transaction amount.
Until Prime Minister Narendra Modi announced demonetisation on November 8. Almost overnight, millions of customers turned to digital wallet services as an alternative for cash, and mobile wallet transactions grew by about 50% every month for the next three months.
But as the cash came back into the system, growth tapered and usage of mobile wallets plateaued, too.
Would it be back to the days of venture capital-funded cashbacks? That was not sustainable, says Bipin Preet Singh, cofounder and CEO of MobiKwik, India’s second largest mobile wallet company with over 55 million customers. Paytm has about three times the number of customers.
The user can deduct 10% of the accumulated Supercash on every transaction, both online and offline, ensuring some saving on every transaction. If the transaction is small enough to be covered by the 10% deduction, the user does not have to pay anything
After more than a month of back and forth — where Singh played devil’s advocate — MobiKwik’s head of growth, Daman Soni, came up with Supercash, a loyalty program that rewards users “cash points”.
The user can deduct 10% of the accumulated Supercash on every transaction, both online and offline, ensuring some saving on every transaction. If the transaction is small enough to be covered by the 10% deduction, the user does not have to pay anything.
Loyalty points are not new. Credit and debit card companies, airlines and e-commerce companies have offered such points for long. But few — card issuer American Express, for instance — allow users to pay via loyalty points. Others like fresh produce retailer iOrderFresh, online travel company GoIbibo and medicines seller 1MG follow the model of deferred deduction allowing customers to use from their cashback account in instalments.
Among digital wallet companies, MobiKwik claims to be the only one in India to offer cash points and deferred deduction for online and offline purchases
Earlier, when MobiKwik was giving cashbacks, the entire amount could be redeemed in one transaction unlike the deferred deduction under Supercash. So, if a user had accumulated Rs 200 in cashbacks from previous transactions and was making a purchase for Rs 300, the entire cashback in her account would get utilised and she would have to pay Rs 100. That did not give a user enough reason to return to Mobikwik if a transaction did not have cashback.
To put things in perspective, cashback is big business. Cashback, loyalty points, coupons and other loyalty features make for a Rs 3,000 crore business in India — cashback accounting for one-third of it.
MobiKwik, which has raised $80 million so far, is in advanced discussions to raise a fresh round of capital which Singh told Reuters will value the company at $1 billion.
One-fifths and growing
MobiKwik says it is betting big on Supercash. About 20% of all its transactions offer Supercash today, especially in verticals such as travel, grocery and recharge.
Soni, MobiKwik’s head of growth, says the company’s burn rate — the rate of spending net of income — has reduced by 25% since launch of Supercash. The company does not share absolute numbers.
When a person recharges his or her wallet for the first time, Rs 60 Supercash is given. “At 10%, the user will have to do at least six transactions, which is enough to get the person familiar with the platform,” Soni said.
Soni, MobiKwik’s head of growth, says the company’s burn rate — the rate of spending net of income — has reduced by 25% since launch of Supercash. The company does not share absolute numbers
Industry experts say that the move is unique for a mobile wallet. “For a mobile wallet, the biggest issue is that users should keep cash in the wallet, where Supercash will help MobiKwik,” said Ankita Jain, cofounder of GoPaisa, a cashback company.
An analyst said the impact of Supercash on MobiKwik operations will be visible after a couple of quarters. “Loyalty points are very different from cashbacks. As only a small part of the total accumulated points get used, the user comes back repeatedly… But, it would take some time for the user to get accustomed to the service,” said Sanchit Vir Gogia, CEO and chief analyst at Greyhound Research.
In April, more than 20 million transactions availed Supercash versus 12 million when the company offered cashbacks. Of that, over 10 million users availed Supercash more than four times in a month, increasing the average transaction per user by 28%. Customer retention in the months of March and April improved by 32%.
Supercash, according to Gogia, also reduces the customer acquisition cost. In the case of cashbacks, the probability of a customer dropping out after using a cashback is higher.
An idea the company is toying with is to offer tiers of Supercash among users. For example, a more loyal customer — call him or her a Superuser — will be able to avail 15% or 20% of Supercash (instead of 10%) on a transaction.
Soni is working on new loyalty campaigns with partner companies, too. For Reliance Jio, MobiKwik and Jio offered Supercash in partnership, and there is a similar tie-up with food delivery app Zomato.
“It took a long time to convince the merchants who are used to cashbacks,” Soni said. A team of eight people were trained to have conversations across the country with media, merchants and vendors.
“Loyalty points are very different from cashbacks. As only a small part of the total accumulated points get used, the user comes back repeatedly…,” — Sanchit Vir Gogia, CEO and chief analyst, Greyhound Research.
He adds that MobiKwik, which aspires to become a financial services marketplace, will offer loyalty cash to people who pay equal monthly installments (EMIs) on time through MobiKwik. “We have a whole vision how we want to take Supercash forward,” said Soni.
There is a flipside, too. As MobiKwik stopped cashbacks, the company has lost about 10% of its users. “There were concerns about cashbacks being stopped. “A few users dropped. If we can cater to 90% of users, we are home,” Soni said.
MobiKwik risks customer confusion and may need to address that, says another expert. “A lot of companies are reducing burn… But somewhere the consumer feels cheated, because the consumer doesn’t understand that,” said Imthiaz Mohammed, founder of Hoppr, a digital coupon company acquired by Indian messaging platform Hike.
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Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures and Vijay Shekhar Sharma among its investors. Accel Partners is an early investor in Flipkart. Vijay Shekhar Sharma is the founder of Paytm. None of FactorDaily’s investors have any influence on its reporting about India’s technology and startup ecosystem.