Amazon-backed fintech platform M1xchange’s scale grows 85% in FY22

Bill discounting startups are facilitating instant payments to small and medium businesses (SMEs) against their invoices which usually wait anywhere between 45 to 90 days for clearance. Tiger Global-backed KredX, RXIL, Invoicemart and M1xchange are early-movers in the space and are gaining decent traction. Their adoption among SMEs could also be evident from M1xchange’s growth in FY22.

Operating revenue at M1xchange jumped 85% to Rs 14.32 crore in FY22 from Rs 7.72 crore in the previous fiscal year (FY21), as per the company’s annual financial statement accessed via the Registrar of Companies (RoC). Professional fees was the only source of revenue for M1xchange which is run and operated by Mynd Solution.

The surge in growth for M1xchange came on the back of its backing from Amazon which led a $10 million round in the Gurugram-based firm in April 2021.

Besides operating income, the company also made Rs 3.78 crore from interest on fixed deposits and gains on financial investments in FY22. This income grew 4.2X during the last fiscal year from Rs 90 lakh in FY21.

The growth in M1xchange’s scale has been accompanied by rising costs which grew 62.7% to Rs 26.60 crore in FY22 from Rs 16.35 crore in the preceding financial year (FY21).

Overall, employee expense has emerged as the largest cost center and constituted 66% of the company’s total expenditure in FY22. This cost shot up 66% to Rs 17.57 crore in FY22 from Rs 10.61 crore in FY21. Marketing and business development costs surged 85% to Rs 1.61 crore in FY22  from Rs 87 lakh during FY21. Its communication expenses also grew 2X to Rs 1.44 crore during FY22 while data center and server charges added another Rs 66 lakhs to the overall cost in FY22.

Despite close to 63% growth in expenses, M1xchange has managed to limit losses which grew 10.9% to Rs 8.56 crore in FY22 from Rs 7.72 crore in FY21.

As the expenses increased, cash outflow for the company also swelled 15.8% to Rs 8 crore in FY22. On unit economics, the company spent Rs 1.86 to earn a single unit of operating revenue.

The bill discounting space is poised to grow in the coming years and there is room for several companies to co-exist. According to Clear’s (previously Cleartax) study, supplier payments continue to be delayed by 60-120 days which experts consider a huge opportunity for the invoice discounting platforms. Delays in payments often create cash flow issues and force SMEs to rope in working capital from unorganized markets. The likes of KredX and M1xchange promise to ease out working capital requirements for such businesses and it would be exciting to see how they scale and fare up in coming years. Importantly, this is a business where the quality of the relationship actually improves with time as discounting firms continue to build a record of timely repayments, and more importantly, their client’s credit risks. Even the debtors, as they continue to pay, are potential clients for the future. The only fly in the ointment is the usual risk of undercutting from newer players or even well entrenched players. Bill discounting is usually done at a premium to lending rates, and it is a matter of time before the best clients expect better rates.