Unpacking Instamojo’s play with MojoXpress and MojoCapital

With the increasing penetration of smartphones and cheap 4G data, Indians are embracing digital channels at a fast pace. Right from content to commerce, users tend to use digital mediums for consuming content as well as shopping.

While the brands and mid-sized sellers don’t face much trouble in plugging digital channels (because of capital, understanding, talent pool etc.), SMEs often struggle in integrating it. And, the simple reason for their struggle - neither they understand technology nor they have a dedicated team for managing digital operations.

For an instance, an SME that sells apparels or any physical goods have to interact with at least 10 technology vendors pre and post sales (right from catalogue management to payment gateway, logistics etc.) for executing a single transaction.

“The peril of managing several aspects discourages SMEs for adopting online channel,” says Sampad Swain, Founder and CEO Instamojo. According to him, technology should be mere enabler not a headache for small merchants.

To weed out the pain of having a payment gateway, Instamojo started with a premise of offering payments solution to SMEs. Since integrating payment gateway required a lot of paperwork and commitment of certain volume (aka transactions), Instamojo turned out to be Hobson's choice for over half a million merchants.

After emerging as a default payment solution for SMEs, the Bengaluru-based company went on to the drawing board to expand its offerings.

“Early this year, we commissioned an internal research to understand the teething problem of SMEs in running digital channel. We observed that logistics and maintaining cash flow are two major challenge for such businesses,” explains Swain.

Based on inputs from sellers, Instamojo had recently launched two products - MojoXpress and MojoCapital. During the on-ground research, Instamojo found out that SMEs face trouble in shipping products. “They can’t partner third-party logistics companies as their volume is as low as five SKUs. Sellers urged us to solve this,” adds Swain.

MojoXpress offers one-click shipping solution to sellers. While companies like Infibeam Infrastructure Service (earlier BuildaBazaar) and KartRocket also give aggregated logistics solutions to small sellers, Swain doesn’t see them as a competition.

“Look, we’re sitting on over half a million SMEs. Hence, Instamojo has an edge over them or anyone else. Moreover, these players focus largely on brands and wholesaler,” says Swain.

MojoCapital’s motto: Solving cash flow for SMEs

Despite a lot of actions in lending space, none of the startups making a serious effort to help SMEs in managing their cash flow. “Most of the lending companies focus on facilitating the loan to mid-sized sellers who have a credit history. None has SMEs on agenda,” points out Swain.

But, why lending companies shy away from SMEs? Simply, because they don’t have historical data to understand the lending requirement of SMEs. “Presently, digital lending businesses are solving growth capital challenge not the day to day cash flow. MojoCapital solely focus on the latter,” adds Swain.

Since Instamojo has been dealing with 500K SMEs, it gathered a lot of data points related to their inventory and payment collection amongst others. “Two things we consider before lending- whom we are recommending our partners (banks and NBFCs) to lend and why? Given that we have data about their transaction history, it easy for us to ascertain their cash flow requirement,” says Swain.

According to Swain, payment is the biggest roadblock for SMEs adopting digital channel. “Startups, analysts and media perceived that MDR rate is the major reason that discourages small businesses from the digital channel. In fact, that’s not a reason at all,” he adds.

Digital money isn’t fungible. SMEs lament about the fact that even after a successful transaction, it takes three to four days to get money in their account. “That’s the biggest concern for them. And, this is what we tend to solve with MojoCapital,” emphasises Swain.

MojoCapital focuses on sachet loan. For an instance, if a seller did a successful transaction and needs the payment immediately. Instamojo would facilitate it on a nominal interest rate. Currently, it’s charging .25 per cent interest rate.

Instamojo’s projection and Entrackr’s take

Instamojo claims to have been growing 200 per cent on a yearly basis for past three years. “Presently, we are having an annual GMV run rate of $250 million. Our aim is to close FY19 with about a billion USD in GMV,” reveals Swain.

The company also appears confident in onboarding at least a million SMEs on its platform by the end of the current fiscal. While there is no dearth of startups who claim to disrupt several areas for SMEs including lending, the fact is that very few startups actually understand SMEs ecosystem.

Over the past couple of years, many startups have entered SMEs space with a bouquet of offerings ranging from enabling an online store to marketing, lending, taxation and a host of other services. However, Instamojo has been relentlessly focusing on small merchants for over six years.

The unflinching focus of Instamojo on SMEs (when it was far from being sexy) sets itself apart from the crowd. And, it would be interesting to see how MojoXpress and MojoCapital help Instamojo in maintaining its mojo and supremacy over competition amongst SMEs.