The startup reports an increase in losses for the fiscal year and lists several risk factors that have adversely affected its operations, including security breaches and the COVID-19 pandemic.
The app-based and online payment platform MobiKwik submitted their draft documents to raise 1,900 billion rupees through a public offering. Of the Rs 1,900 billion, primary stocks will be valued at Rs 1,500 billion, while secondary stocks (shares that existing investors can sell) will be valued at Rs 400 billion.
Founded by Bipin Preet Singh and Upasana Taku, Mobikwik Systems’ total revenues increased 18 percent to Rs 302 billion for the fiscal year ended March 31. The losses rose at the same time to 12 percent to 111 billion rupees. The company most recently raised $ 20 million from the Abu Dhabi Investment Authority and set its valuation at $ 700 million.
Why is that important? The Draft of the Red Hering Prospectus (DRHP) comes months after the fintech startup posted over 10% higher losses in FY21, with revenues falling due to the second wave of the pandemic and its subsequent economic impact. Mobikwik’s total loss rose from Rs 99.1 billion last year to Rs 110.9 billion. It’s also important to note that in March the startup was faced with allegations of a data breach allegedly involving the data of millions of cardholders has compromised. The rules for information technology announced in February (broker guidelines and digital code of ethics) 2021 also apply to Mobikwik.
Mobikwik said in their draft DRHP that the net proceeds from the offer to –
- Funding organic growth initiatives
- Financing of inorganic growth; and
- General corporate purposes
“The exact amounts of net proceeds that will be used for the above properties will depend on our business plans, market conditions, our board of directors’ analysis of economic trends and business needs, the competitive landscape, ability to identify and complete inorganic acquisitions, and general from. Factors affecting our results of operations, financial condition and access to capital, ”the DRHP said, adding that it plans to use the proceeds over the next five years.
‘No unauthorized access, but …’: Mobikwik in response to allegations of data breach
In the risk assessment segment of the DRHP, MobiKwik has taken note of reports from March 2021 about a breach of its data security systems and “unlawful access to personal and financial data of our users”. Mobikwik said, “Following media reports like this, we hired an independent digital forensics expert to investigate these allegations. The forensics audit expert then reported that based on the analysis of the logs / data made available to him, no unauthorized access from outside the infrastructure of our company or internally to the database server on which customer data is stored took place during the review period.
However, MobiKwik said the forensic audit expert’s report was limited to a virtual tour of its systems, not analyzing employee devices, and that the review was based on logs provided by the platform. “Certain non-mandatory protocols were not available for the audit. In addition to the most recent incident in 2010 when we were operating on a relatively smaller scale, a hacker had gained unauthorized access to our operating systems, causing some disruption to our operations, ”he added.
MobiKwik, a background
MobiKwik is a fintech company and its DRHP claims it is one of the largest mobile wallet services in terms of its Gross Product Value (GMV) and Buy Now, Pay Later (BNPL) feature.
“Our large retail network includes websites and mobile apps where the MobiKwik Wallet is a checkout payment option, as well as physical retail stores where the MobiKwik Wallet is a QR code point of sale (“ POS ”) payment option. ) / Cashier. Our platform also enables peer-to-peer payments via Unified Payment Interface (“UPI”), MobiKwik Wallet and MobiKwik Wallet to bank payments. As of March 31, 2021, our company had over 101.37 million registered users and more than 3.44 million e-commerce, physical retail and billing partners. ”- Mobikwik DRHP
The lingering effects of Covid-19
“The COVID-19 pandemic has negatively impacted the operations of our users, merchants, credit partners and other partners and is likely to continue to negatively impact them and could negatively impact our operating results in the future,” MobiKwik said in its Internal Risk Factors segment of the DRHP.
The platform said that while the number of users making online transactions and onboarding new merchants had increased, those increases were not enough to offset the decrease in certain categories such as offline spending.
“As a result, our operating revenue decreased by 18.87% from 3,556.75 million in fiscal 2020 to 2,885.71 million in fiscal 2021. while our consolidated gross merchandise value (“GMV”) fell by 29.67% from 212,312.22 million in the 2020 financial year to 149,319.56 million in the 2021 financial year, ”it continues to say that the effects of the current second wave are currently not yet foreseeable.
Other possible risk factors
- It is not possible to attract new users or dealers and to maintain and expand relationships with existing companies
- Security breaches and cyberattacks against MobiKwik
- Intense competition in the fintech industry
- The current offering is based on internal management estimates of past expenses and has not been rated by any bank or financial institution
- Mobikwik has a history of losses – FY19, FY20, FY21
- Mobikwik may not achieve growth in the Buy Now, Pay Later (BPNL) segment
- Failure to maintain, protect, or enhance the brand’s reputation
- Success depends on search algorithms which are not under the control of MobiKwik and which change frequently
- Interruptions to third party services can affect business
- Subject to official measures and sanctions by RBI for non-compliance with regulations
- The economic slowdown in India
MobiKwik wants to increase BNPL profitability (page 139)
The platform has seen growth in its Buy Now Pay Later (BNPL) product segment, which includes products like MobiKwik Zip and features like EMI delivery. The company plans to expand this segment by leveraging big data and leveraging its large dealer network
KYC-closed user base – As of March 31, 2021, MobiKwik said it had acquired over 41.58 million KYC-locked users on its platform with no customer acquisition costs.
MobiKwik dealer network – According to Mobikwik, the total number of merchants with at least one transaction on MobiKwik Zip increased from 2,454 in March 2020 to 11,351 in March 2021.
How does MobiKwik attract users?
The DHRP claimed that MobiKwik acquired 77.00% of its registered users organically and at no cost in fiscal year 2021. Although it primarily acquires users through search engine optimization and user referrals, there are other types of user acquisition as well –
- MobiKwik has teamed up with an apartment management app MyGate for bill payment solutions
- It has partnered with HomeCredit to launch co-branded payment apps for its users
How does MobiKwik use big data?
MobiKwik’s MobiScore, which they claim is a data science-based credit scoring algorithm, uses 500 raw and inferred variables for underwriting and risk assessment to pre-approve users and set credit limits, according to the DRHP. “We consider data beyond traditional creditworthiness, including, for example, spending patterns, device information, location history and mobile application usage,” said the DHRP.
Mobikwik said it has 89 employees on its collection team who –
- At the time of MobiKwik Zip activation, collect digital and physical contact information from a user
- Use machine learning models to determine the collection strategy at the individual user level based on payment patterns, outstanding amount, channel preference, availability and responsiveness
Some important rules and guidelines for MobiKwik
Payment and Settlement Systems Act, 2007 (PSSA) – This law regulated and oversees the payment systems in India and designates the RBI as the authority for this purpose. According to the PSSA, approval from RBI must be obtained for the inclusion and / or operation of a payment system.
Payment and Settlement Systems Regulations, 2008 – The PSS provisions were staged to bring the PSSA provisions into effect. The PSS regulations contain instructions on how to submit applications and approvals in accordance with the PSSA.
Bharat Bill Payment System Guidelines – BBPS offers a bill payment service for customers through a network of agents that enables multiple payment modes and provides instant payment confirmation.
Master Direction of RBI for issuing and operating prepaid payment instruments – In exercising the powers of the PSSA, RBI problematic the master direction for issuing and operating prepaid payment instruments (PPIs). PPIs are instruments that facilitate the purchase of goods and services, including financial services, remittance facilities, etc., against the value stored on those instruments.
..and in the field of information technology
Information Technology Act, 2000 – The IT Act deals with the legal recognition of transactions carried out by various means of electronic data interchange that include alternatives to paper-based communication and storage methods; Facilitating the electronic filing of documents and creating a mechanism for electronic authentication
Documentation through digital signatures.
The Personal Data Protection Act, 2019 – The Data Protection Act proposes to replace the Information Technology Act 2000 and deals with the provisions related to compensation that companies have to pay for the lack of protection of personal data. The Data Privacy Bill also establishes a Data Protection Authority of India.
Aadhar (Authentication) Regulations, 2016 and Draft Aadhaar (Authentication and Offline Verification) Regulations, 2021 (Draft Authentication Regulations) – According to the Aadhaar (Authentication) Regulations, 2016 (“Reglements”), a “requesting entity” means an authority or person that submits a person’s Aadhaar number and demographic or biometric information to the Central Identities Data Repository (CIDR.) ) for authentication. The regulations also stipulate that requesting bodies must ensure that the core biometric information collected by the holder of the Aadhaar number is not stored, passed on or published for any purpose and that no copy of the core biometric information is kept with the requesting bodies.