Tag: Mobikwik

IPO-bound unicorn MobiKwik under RBI scanner for data breach

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The alleged data breach of 3.5 million users at IPO-bound fintech unicorn MobiKwik is under RBI’s scanner.

The company has submitted a forensic audit report detailing the data breach, the RBI said in response to a right to information (RTI) petition filed recently. The petitioner sought to know the status and understand the procedure of the investigation.

Srinivas Kodali, independent researcher and privacy rights activist who had filed the RTI, told BusinessLine, “The RBI doesn’t care about informing individual customers. If there is a fraud happening due to data breach, the RBI ensures that the banks and payment processors refund that money under a certain limit. They think they are not obligated to inform individuals whose data was affected due to these breaches. And since there are no strict laws, MobiKwik got away without informing customers. MobiKwik also didn’t submit their report to the RBI, until the regulator reached out to them. There has been no independent investigation so far due to lack of data protection laws.”

Digital forensic audit

While the company did not respond to queries from BusinessLine, MobiKwik’s draft red herring prospectus (DRHP) filed in July 2021 mentioned, “We engaged an independent digital forensic audit expert to conduct an audit relating to these allegations. The forensic audit expert subsequently reported that based on the analysis of logs/ data provided to them, there was no unauthorised access from outside of our Company’s infrastructure or internally to the database server wherein customer data is stored, during the review period. The report, however, states certain limitations to the processes undertaken.”

Search engine created

The data leak was first reported by internet security researcher Rajshekhar Rajaharia in late February 2021, wherein 3.5 million individuals KYC documents were exposed through 37 million files. Apart from that, 100 million phone numbers, email ids, passwords, geodata, bank account details and credit card data were leaked.

“The hacker had, in fact, created a search engine using their data, which had 10 crore credit card and debit cards data. Just by entering the phone number, one could get access to the entire transaction history of the user. The leaked data even included details of some of the senior government officials and IPS officers. It was out in public. If it was all false, MobiKwik would have filed a defamation case against me,” Rajaharia told BusinessLine.

In an interview with BusinessLine earlier this month, Upasana Taku, co-founder, chairperson and COO, MobiKwik said, “ Our public statement is very much out there on our social media profiles where we have denied any breach in the system and we had even appointed a forensic auditor to check it and they too didn’t find any breach.”

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Mobikwik sees ‘BNPL’ as its fastest growing business segment

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IPO-bound One Mobikwik Systems (Mobikwik) sees it’s ‘Buy Now Pay Later’ product — which enjoys higher margins — as a major growth driver and it’s fastest growing business segment in the days to come, said Co-founder Upasana Taku.

This digital financial services firm is also aiming to launch its ₹1,900 crore initial public offering (IPO) by this month end, Taku told BusinessLine in an interview.

Growing market

The ‘Buy Now Pay Later’ (BNPL) product allows consumers to pay later in instalments with no additional costs for their purchases.

Also see: Meet the 31 start-ups most likely to become unicorns soon

It is a growing market in India and, over the last eighteen months, has expanded from a level of a few million dollars annually to about $1.5–2 billion in total transaction value.

“We see BNPL as a major growth driver in the days to come. All metrics associated with BNPL are growing rapidly. In fact, in Q1 of this fiscal, the gross merchandise value (GMV) was much more than what we clocked as GMV for BNPL in all of last year. Whether it be number of transactions, average ticket size (grown to ₹ 3,200) or the number of repeat users — all of them are growing,” she added.

Under-served segment

Mobikwik is one of the leading players of BNPL with an approved user base of 23 million.

“Our near term aspiration is to first take the number of our active BNPL users to the same level as credit card in force of the largest credit card issuer in the country,” Taku added.

Increased smartphone penetration, cheapest data plans and a boom in online shopping has propelled the demand for pay later products in the country. Given the under-penetration of financial markets, digital financial service providers see ample scope for growth in the country.

Well-differentiated offerings

Meanwhile, Mobikwik is looking to tap the IPO market at a time when several other digital businesses, including its competitor Paytm, are looking to come out with their own public offerings this quarter (Oct–Dec 2021).

Asked if she felt this crowding of internet businesses at the IPO market could affect Mobikwik’s prospects, she replied in the negative.

Also see: Mobikwik gets SEBI’s nod to float IPO

“There are several digital and tech companies coming to market. It is a good thing for India for the scale of GDP that it has. So far, there have been only three to four tech IPOs. India is going to have a booming high-growth internet economy for the next decade. We at Mobikwik are well positioned to ride on trend. Our business model is well-differentiated when compared to others. Hopefully, investors will understand this,” Taku said.

“Two pillars of our growth are consumer payments and BNPL. This is a unique and differentiated value proposition that we are going out with,” she said.

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‘We want to have more ‘buy now, pay later’ customers than any card company’

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Founded in 2009 by husband-wife duo Bipin Preet Singh and Upasana Taku, MobiKwik is waiting to get listed this year along with several other fintech giants including Paytm and PolicyBazaar. Ahead of the ₹1,900-crore IPO, MobiKwik’s co-founder, chairperson and COO Upasana Taku gaveBusinessLine a glimpse into what’s ahead for the payments company and its roadmap post the listing.

How do you plan to deploy the funds raised through the IPO?

We are planning to infuse it back into the company. We will be investing in user and merchant acquisition. We will also be investing more in brand marketing, which we were a bit shy about in the past. Given how large both payments and ‘buy now pay later’ (BNPL) opportunities are we will be investing there as well.

Do you plan to enter any other business streams in financial services?

We already have an insurance distribution licence from IRDAI. We have teams, capabilities and products in partnership with insurance companies on our platform. We have an investment advisory licence from Sebi and direct mutual fund investment products, liquid funds, deposits, gold on our platform. So, we are building insurtech and investment tech as smaller business streams, but they are still nascent. We expect them to grow in 2-3 years.

MobiKwik: Employee stock options to mint several millionaires post IPO

From a larger perspective, 70 per cent of the revenue growth today comes from consumer payments, 20 per cent from the BNPL business, and 10 per cent from the cross-sell business. After 2-3 years, BNPL and payments will bring 40 per cent and 50 per cent revenue, respectively, because the margins in consumer payments is 1.8 per cent while it is about 4.5 per cent for every cycle in the BNPL business. That’s why we expect the revenue share to grow faster in BNPL.

How big is the BNPL opportunity in India?

In India, especially, given that we have only 35 million credit card customers and 250-300 million digitally paying users, this gap is already big. In the next five years, we’ll have 700 million digitally paying users and still only 40-50 million credit card users. BNPL is a very large opportunity. Industry reports say it will be a $50-60-billion opportunity; I feel it will be a $100-billion opportunity in the next two years. We are focused on using our structural advantages to build the ‘buy now, pay later’ category.

Other sectors and traditional banks are also trying to sell digital financial services, especially BNPL. How will MobiKwik strategise differently?

It’s a big market and there will be many people trying to enter. There are some big contenders. Firstly banks and NBFCs, but I don’t see any major competition from them. Most of their distribution is via branches and direct sales agents. It’s completely physical in nature and their operating cost is very high, so they can’t do ₹3,000-5,000 credit products because they can’t make money, given the higher costs.

Digital payments to recover by year end: MobiKwik CEO

It’s not the same for MobiKwik; we are a payments platform with millions of users, and how they are spending the money is in our records. Also, as a wallet and a licensed entity, we have to do KYC [know-your-customer verification] too. We are well poised to leverage this trend of BNPL. Being fully digital we can make money even on a 500-rupee note, apart from having a robust user base.

What about the new-age fintechs?

Other younger and smaller fintech start-ups, much like us, have learned to use AI [artificial intelligence] and ML [machine learning] to track alternative and abstract data points but they have significant challenges when it comes to getting scale. We have 108 million registered users. They don’t have KYC-ed users while we have 45 million KYC-ed users. That’s going to take time and billions of dollars for them to reach. We also have 3.5 million merchants. We have a card through which users can pay anywhere, we have 75,000 e-commerce platforms and apps.

Currently, we have 23 million users for our ‘buy now, pay later’ product. Our end goal is to have a bigger active BNPL user base than any credit card company in India. The top ones have 12-13 million customers as of now. Though our pre-approved user base is already large, we want to convert that to active users quickly.

When do you see the company breaking even?

All our businesses are contribution-margin profitable over the last two years. In the coming few years, too, we plan to continue investing; in the short term the losses will go up, but on a fixed cost the contribution margin will still be profitable. Overall, EBITDA-level profitability is still a few years away.

It was alleged in March that MobiKwik data was breached. Why didn’t the company disclose this on its own before it became known through some ethical hacker?

Firstly, our public statement is out there on our social media profiles where we have denied any breach in the system and even appointed a forensic auditor, and they too didn’t find any breach.

In terms of long-term user security and platform strength and privacy, we have beefed up our teams and quarterly audit processes for all our technology infrastructure. I want to assure you that we have quarterly, semi-annual and annual audits because we are an RBI-regulated entity. We also have licences from IRDAI and Sebi, and have to regularly send reports. After becoming a listed company, of course, the scrutiny bar goes up and we are preparing for that.

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MobiKwik, BFSI News, ET BFSI

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Fintech major MobiKwik, which has filed its draft red herring prospectus (DRHP), on Tuesday said the listing should provide a bountiful rewards to its employees through the ESOPs issued to them. The company, under its ESOP 2014 Scheme, has reserved 4.5 million equity shares for creating a pool of ESOPs for the benefit of the eligible employees.

MobiKwik Chairperson, co-founder and COO Upasana Taku said the number of equity shares that would arise from the full exercise of options granted implies 7 per cent of the fully diluted outstanding shares.

“This 7 per cent compares to less than 2 per cent holding for most other internet companies that are coming up for listing… Over the last decade, MobiKwik has grown on the strength of its employees to become a leading fintech player in India. As we cement our presence and leadership further, we wanted to acknowledge and reward our employees for their efforts,” she added.

The Gurgaon-based company – which has about 470 employees – had filed its DRHP with Securities and Exchange Board of India (Sebi) in July.

The company plans to offer shares aggregating to Rs 1,900 crore in its IPO, of which Rs 1,500 crore is a fresh issue while the remaining Rs 400 crore is an offer for sale by existing shareholders.

MobiKwik – which offers solutions like mobile wallet and Buy Now Pay Later (BNPL) – had raised a series G round of USD 20 million from Abu Dhabi Investment Authority (ADIA) at a per-share value of Rs 895.80 per share. This implies a 600 per cent gain on average for the employees on their ESOPs, Taku said.

“This six-fold increase in the ESOP value has created generational wealth for the employees. It is the result of both the trust shown by employees in the company’s vision and the partnership-like approach taken by the company in sharing the rewards of value generation over time with the employees,” she added.

At the series G funding round valuation of USD 720 million, seven employees are worth more than Rs 10 crore and 31 are worth more than Rs 1 crore each.

Also, 118 current employees (almost one-fourth of the overall employee base) have become rupee millionaires, highlighting the company’s philosophy of ensuring equitable participation as opposed to just focusing on the leadership team, Taku said.

“The cumulative wealth creation for the employees currently stands at Rs 3 billion. With the company’s upcoming IPO, these employees are set to reap in a windfall,” she added.



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MobiKwik ropes in four independent directors

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IPO-bound digital payments firm MobiKwik on Friday said it has strengthened its Board of Directors with the induction of four independent directors.

The four independent directors are former MD of Blackstone and Oppenheimer Punita Kumar Sinha, the former Ambassador of India to Egypt and UAE Navdeep Singh Suri, fintech entrepreneur and Co-founder of PaySense Sayali Karanjkar and Chief Technology Officer of LinkedIn Raghu Ram Hiremagalur .

Bipin Preet Singh, MD, CEO & Co-founder, MobiKwik said in a statement, “I see this as being foundational as we head into our next phase as a publicly listed company. The holistic expertise of our new Board members in our sector, public policy, technology and business will provide an added thrust to MobiKwik’s strategic direction.”

IPO

It maybe recalled that MobiKwik had on July 12 filed its draft red herring prospectus (DRHP) with SEBI for an IPO to raise ₹1,900 crore.

The IPO comprises fresh issue of equity shares of upto ₹1,500 crore and an offer for sale of equity shares by certain shareholders of upto ₹400 crore.

Founded in 2009 by Bipin Preet Singh and Upasana Rupkrishan Taku, MobiKwik is one of India’s leading mobile wallet and Buy Now Pay Later platform.

It was last valued at $700 million when it raised $20 million recently from Abu Dhabi Investment Authority.

The company is profitable at the segment level across all three segments, and has seen a revenue growth (CAGR) of 37 per cent in the last two years (FY19-21).

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RBI tightens rules for payment companies outsourcing core activities, BFSI News, ET BFSI

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The Reserve Bank of India has formalised the framework for payment companies outsourcing payment and settlement related activities to third party operators. The central bank’s fresh guidelines come at a time when India’s tech ecosystem has seen several high-profile cyber attacks such as those at Juspay, Upstox and Mobikwik over last year targeting customers’ payments data.

As per the new rules, licensed non-bank Payment System Operators (PSOs), cannot outsource core management functions, including internal audits, and compliance with KYC norms to third-party service providers.

As defined by the central bank, core management functions include management of payment system operations such as netting and settlement, transaction management including reconciliation, reporting and item processing, managing customer data, risk management, information technology and information security management etc.

The central bank also added that the board of payment companies must “carefully evaluate” the need for outsourcing responsibilities.

“The PSO shall carefully evaluate the need for outsourcing its critical processes and activities, as well as selection of service provider(s) based on comprehensive risk assessment,” the central bank said. “The critical processes are those, which if disrupted, shall have the potential to significantly impact the business operations, reputation, profitability and / or customer service.”

The new rules also state that the liability of third-party losses would fall on the relevant board members and senior management of licensed payment operators. “Outsourcing of any activity by the PSO shall not reduce its obligations, and those of its board and senior management, who are ultimately responsible for the outsourced activity,” the central bank said.

The RBI had first announced the plan during the monetary policy announcement on 5 February 2021 with a view to enable effective management of attendant risks in outsourcing of payment and settlement activities.

“The resilience of the digital payment ecosystem to operational risks needs to be constantly upgraded,” RBI Governor Shaktikanta Das had said during his February MPC address.

“A potential area of operational risk is associated with outsourcing by payment system operators and participants of authorised payments systems,” he added. “To manage the attendant risks in outsourcing and ensure that code of conduct adhered to while outsourcing payment and settlement related service, RBI shall issue guidelines on outsourcing of such services by these entities,” RBI Governor has said.

In addition, the central bank has also asked non-bank PSOs to have clear contractual specifications on responsibilities being outsourced as well as conduct its own due diligence on technology and legal compliances when working with relevant third-party companies.



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Upcoming IPOs in start-up ecosystem have high valuations, says India Quotient’s Gagan Goyal

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Bharat-focused venture capital firm, India Quotient, has been an active investor in fintech start-ups, particularly in the lending space. Some of its portfolio companies include LendingKart, LoanTap, Pagarbook, Sharechat, and Sugar. LendingKart is a direct competitor to the SME (small and medium enterprises) lending vertical of fintech unicorns ($1 billion valuation), Paytm and MobiKwik. Both the billion-dollar valued companies have filed papers for public listings this year. BusinessLine spoke to India Quotient’s General Partner, Gagan Goyal, on how these two IPOs might impact SME lending start-ups in India and India Quotient’s fourth fund.

How do you think IPOs of Paytm and MobiKwik will impact the SME lending business?

In lending, the biggest raw material is the money that you loan to the end-user, and your ability to raise this capital for lending. From that perspective, the companies which are profitable are in a better position to source money at a very low cost. Typically, lending tech companies borrow from NBFCs or banks at a high cost of capital. But, once the company becomes profitable and opts for a public listing, it is possible for it to secure low-cost capital. Now, I cannot comment on whether Paytm and MobiKwik will be able to do that. But the chances are bright for companies like LendingKart to remain competitive.

Given that both MobiKwik and Paytm have an established network of SMEs, do they have an advantage over other existing SME lending companies in terms of low acquisition costs?

There are definitely advantages in terms of customer acquisition cost, but the game of lending is not about being able to acquire a customer. The crucial part of the lending business is to underwrite customers and determine if the company can give them a loan, as it’s a book-building business. People who are creditworthy have many options to get loans from multiple sources, they can go to the bank and ten other places. But in SME lending, companies have to find a customer who is creditworthy, and at the same time does not have a high CIBIL score. Someone whom they can underwrite and still expect to make money from by giving him a loan and recovering that. Paytm and MobiKwik have an advantage because they have a large base, but there are ten more things in lending which are more important.

Does that mean it is important to have low NPAs (non-performing assets) in SME lending?

You can run a high NPA business in lending too; banks typically have a 2 per cent NPA. I think it is about finding the right spot, between the borrowing cost of capital and lending interest rate so that one is able to recover the cash, cover operation costs and also make profits.

What is the update on India Quotient’s fourth fund?

Initially, in January, we aimed to raise $80 million for our fourth fund and we received a great response from domestic HNI capital. We were able to announce our first close at $64 million last month. Depending on the response we get from institutional investors, we might increase our target corpus from $80 million to $100 million. Till now, we have committed four deals from our fourth fund. We don’t usually invest in US copycat businesses because they are largely capital-driven. We look for ideas that are in the early stage and are backed by the unique market insights of the founder or their product-building ability because that is an important factor for building a successful business. The average ticket size of India Quotient’s investments is $250K to $1 million.

The Indian start-up ecosystem is looking at about five IPOs this year. Do you think these companies will be able to maintain their valuations in the public market?

I cannot exactly predict whether these companies will be able to maintain the valuations, but we all know that their current valuations are very high. There’s no doubt about it. People tend to see future value and so they are okay to pay a premium, but the real judgement will come when these companies get listed. I am also curious to see how that shapes up, but it is true that these companies are highly valued and they have to pass the test.

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MobiKwik denies data breach of 3.5 million users amid IPO plans, BFSI News, ET BFSI

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NEW DELHI: Digital wallet and payments company MobiKwik, reportedly planning an initial public offering (IPO) around September this year to raise $200-250 million, on Monday denied claims that sensitive data of millions of its users has been leaked.

Independent cyber security researchers have claimed that a database containing KYC details of nearly 3.5 million users of MobiKwik is up for sale on the Dark Web.

First tweeted by independent cyber security researcher Rajshekhar Rajaharia and then by French researcher Elliot Alderson on Monday, the alleged breach includes 8.2TB data containing users’ phone numbers, emails, hashed passwords, addresses, bank accounts and card details.

MobiKwik, however, vehemently denied any such breach. “Some media-crazed so-called security researchers have repeatedly attempted to present concocted files wasting precious time of our organisation as well as members of the media,” the company said in a statement shared with IANS.

“We thoroughly investigated and did not find any security lapses. Our user and company data is completely safe and secure,” the company added.

Alderson had tweeted: “Probably the largest KYC data leak in history.” Rajaharia had claimed earlier that “11 crore Indian cardholder’s cards’ data including personal details and KYC soft copy (PAN, Aadhaar etc) allegedly leaked from the company’s server in India”.

According to the researchers, the entire database is available for 1.5 Bitcoin (nearly $84,000) on the Dark Web.

The reports surfaced as MobiKwik last week raised $7.2 million in a funding round prior to the listing on the stock exchange, according to regulatory filings with the Ministry of Corporate Affairs.

According to Entrackr, Mobikwik’s post-money valuation currently stands at $493 million with the latest funding round.



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