Rise of BNPL amid regulatory ambiguity; Cloudtail to shut down


After seeing a huge influx of customers during the pandemic, and with the festive season around the corner, fintech startups and big consumer internet companies such as Flipkart, Amazon, Paytm and Byju’s are investing in India’s buy-now-pay-later segment. But with its growing traction, these players could attract the attention of the Reserve Bank of India. We’ll tell you more about this buzzy segment.

Also in this letter:

  • Cloudtail India to cease operations next year
  • CoinDCX is India’s first crypto unicorn
  • Oyo plans to go public in India this year

Biggies bet on by-now-pay-later for free credit to customers

Flipkart, Amazon, Paytm Byju’s and others are betting big on India’s new, fast-growing buy-now-pay-later (BNPL) segment ahead of the festive season.

Millions of Indians have taken to shopping online during the pandemic but many lack credit cards. They choose interest-free credit from companies such as Zest Money, Simpl, Lazypay, Pine Labs and Capital Float.

Flipkart facilitates such transactions through its subsidiary Flipkart Advanz, while Amazon has partnered with non-banking financial company Capital Float.

Paytm is offering BNPL as part of its postpaid service in a tie-up with Aditya Birla Finance.

In the edtech space, Byju’s and Unacademy have partnered with Lazypay and Capital Float, respectively.

Private banks are experimenting in this segment. ICICI Bank offers pay-later services on its app, while Axis Bank-owned Freecharge has also entered the space.

Big picture: According to industry tracker Tracxn, there are 33 BNPL-focussed startups in India.

As of July, the sector had seen total funding of around $17.7 million in India this year. For comparison, it received $11.6 million in 2020, $48.5 million in 2019 and $19.1 million in 2018, according to Tracxn.

Investments in BNPL firms in India

Business model: Such transactions are enabled through network integrations between retail marketplaces, merchants and financiers. The model exists both offline (Pine Labs and Bajaj Finance are among the leading players) and online.

Industry insiders said the typical model would involve a financier tying up with a merchant and a platform through a fixed transaction fee model. As there is no interest rate, the facility is offered to customers with a merchant discount rate – or a transaction service rate – of around 1.5%.

Regulatory ambiguity: With the growing traction of BNPL, sources told us it could attract the attention of the Reserve Bank of India.

“Most licensed NBFCs in India that are in the BNPL business are treating it as a short-term unsecured loan product,” said an industry executive. “However, marketing the product as a payment service rather than a credit facility dilutes borrowers’ responsibility to pay back. Moreover, BNPL facilitators must complete KYC checks to onboard customers. Currently, there are no standardisations in the industry as the space is nascent.”

Amazon, Catamaran won’t renew Cloudtail partnership

FILE PHOTO: Smartphone with Amazon logo is seen in front of displayed Indian flag in this illustration taken

One of Amazon India’s largest sellers, Cloudtail India, will be halting operations from May 2022. The company’s joint-venture partners Amazon and N.R. Narayana Murthy-owned Catamaran Ventures have decided not to renew the seven-year-old partnership.

Indian rules currently prohibit a foreign entity running an online marketplace and its group companies from owning equity in any of the sellers on the platform or having control over their inventory. Because of this, Amazon had to reduce its stake from 49% to 24% in Cloudtail and Appario, the two top sellers on its marketplace.

Cloudtail once had an overarching presence on the Amazon India marketplace in a host of categories, including smartphones, electronics and fashion. However, of late, it has reduced its focus on fast-selling goods such as smartphones and instead has been focusing on other electronics and daily necessities.

SC says Amazon and Flipkart must face antitrust probe: Meanwhile, ecommerce giants Amazon and Flipkart will continue to face an antitrust investigation by the Competition Commission of India (CCI), the Supreme Court ruled on Monday, dismissing pleas by the companies to quash the probe.

A fortnight ago, Flipkart and Amazon India had moved the Supreme Court to challenge an order by the Karnataka High Court that had allowed an investigation by India’s competition regulator to proceed.

What’s the case? The CCI had initially ordered the probe against the two ecommerce firms in January 2020, saying it had “prima facie” found evidence to begin an investigation under Section 26 (1) of the Competition Act, 2002.

This was after it received a series of allegations from trade bodies, who said ecommerce firms were offering “predatory” deep discounts and favouring select sellers that worked closely with them.

The companies, however, deny any wrongdoing and have argued that the CCI did not have enough evidence to pursue the matter.

What’s next? Both companies have been given four more weeks to respond to the CCI’s queries.

“We expect organisations such as Amazon and Flipkart, big organisations… to volunteer for inquiry and transparency. We expect that and you don’t even want (an) inquiry. You have to submit and an inquiry has to be conducted,” Justice Ramana said.

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Oyo aims to go public in India before 2022


Oyo Hotels & Homes will soon join the list of startups launching an initial public offering in India.

The company plans to file its IPO prospectus by September and become a public company before the end of the year, sources told us. It is in talks with several bankers including JP Morgan, Citi and Kotak Mahindra Capital to manage its public issue, they said.

Yes, but: Many details are yet to be finalised, including the offer size, one of the sources said.

How’s business? Oyo’s business is seeing a revival in markets such as India and Europe as the number of Covid cases falls and vaccination rates improve.

Currently, 43% of Oyo’s revenue comes from India and Southeast Asia while 28% comes from Europe and the rest from other global markets.

The company was forced to cut down its operations in markets such as the US and China amid the virus outbreak. In India, it fired a chunk of its workforce as Covid-19 hit its business hard.

We reported last month that Oyo had secured $660 million in debt financing from global institutional investors to service its existing loans. The company is also in talks with Microsoft for an investment.

IPO queue: India’s public markets seem bullish on startup IPOs following Zomato’s public offer. Mobikwik, Nykaa, Paytm, Policybazaar and CarTrade are in various stages of going public in India.

CoinDCX is India’s first crypto unicorn


Sumit Gupta (right) and Neeraj Khandelwal, cofounders, CoinDCX

Cryptocurrency exchange CoinDCX has raised $90 million (about Rs 668 crore) in its Series C round led by Facebook co-founder Eduardo Saverin’s B Capital. ET was the first to report on July 28 about the deal.

The funding values the company at $1.1 billion, making it the latest entrant to the unicorn club. Since the start of the year, 21 Indian startups have become unicorns. CoinDCX is the first crypto company in India to join the club.

The funds will be used for marketing, strengthening the team and on new business initiatives, Sumit Gupta, cofounder and CEO of CoinDCX told us.

The exchange has 3.5 million users, having more than doubled its user base in the past two months. It competes with Binance-owned WazirX, which has more than 7 million users, and a handful of other crypto exchanges including ZebPay.

Also Read: India’s crypto industry attracts foreign funds, but local investors remain wary

In other deals news…

■ UpGrad on Monday closed a $185-million funding round from investors such as Temasek, International Finance Corporation and IIFL, valuing the company at $1.2 billion. The round includes $120 million financing by Temasek in April at a valuation of $575-675 million. This was the company’s first external financing. The edtech startup had earlier earmarked $250 million for mergers and acquisitions over the next seven to nine months. It acquired KnowledgeHut last week to enter the short-duration upskilling and reskilling segment.

■ Log 9 Materials, a startup building advanced battery and fuel technologies for electric vehicles, has secured $8.5 million in a funding round led by automotive batteries manufacturer Amara Raja Batteries, which has pumped in $5 million for an 11.36% stake.

■ Raise Financial Services, a fintech startup founded by former Paytm Money chief executive Pravin Jadhav, has acquired stockbroking firm Moneylicious for an undisclosed sum, Jadhav told us in an exclusive interview.

Paytm wants to double its ESOP pool


Fintech startup Paytm aims to more than double its employee stock ownership plan (ESOP) pool ahead of its much-anticipated public listing, according to a letter sent to its shareholders for an extraordinary general meeting (EGM) scheduled for September 2.

What’s the proposal? The firm has proposed an increase in the existing ESOP pool to 61,094,280 equity options at a face value of Re 1 each from the current 24,094,280 equity options.

  • It has also sought approval of founder and chief executive Vijay Shekhar Sharma’s revised employment agreement as the managing director and chief executive of the company.

In July, Paytm had filed a draft red herring prospectus with the markets regulator, the Securities and Exchange Board of India (Sebi), to raise Rs 16,600 crore ($2.2 billion) through a public issue in what will be one of the biggest Indian IPOs in at least a decade.

New directors: Paytm is also formalising three appointments to the board of directors including – former WhatsApp chief business officer Neeraj Arora, Saama Capital managing partner Ashit Ranjit Lilani as non-executive independent directors and Ant Group’s senior vice president Douglas Feagin as a director.

Big picture: Paytm’s ESOP expansion comes at a time when several leading tech and internet startups have offered lucrative buybacks to help employees vest their stock options as valuations skyrocket. Firms that have done so this year include Zerodha, Razorpay, Cred, Acko and Udaan.

Edtech firms prepare for hiring spree


Top ed-tech firms are aggressively expanding their operations organically and through acquisitions, and are hiring employees in their thousands to support this growth.

Companies in education technology have raised huge sums in recent months from marquee investors, and some are planning initial public offerings in the coming years.

Who’s hiring? Byju’s is looking to hire 4,000 people over the next few months. Simplilearn plans to add 5,000 people to its headcount, while upGrad is looking at recruiting 2,500 in the next couple of years. Vedantu is aiming to induct 1,000 more in the next few months. Most hiring will be in sales, marketing, content, design and technical domains.

We earlier reported that Indian startups are on an all-time high CXO hiring spree, as the massive digital push created by the pandemic is prompting companies to ramp up their top deck across functions and leadership roles.

Other Top Stories We Are Covering

Small businesses up digital quotient: India’s smallest businesses have stepped up the pace of digital adoption amid the Covid-19 pandemic, with 80% of micro enterprises having at least an active internet connection, global consulting firm Kantar said in its ITOPS 2020 report.

Govt considers sharp import tax cuts on EVs: India is considering slashing import duties on electric cars to as low as 40%, Reuters reported on Monday.

Govt launches India Internet Governance Forum: The government on Monday launched the local chapter of the United Nations’ Internet Governance Forum. This is expected to help India’s 800 million and growing internet users to be better represented at a global level.

Global Picks We Are Reading

  • TikTok, YouTube and Facebook want to appear trustworthy. Don’t be fooled. (NYT)
  • TikTok owner ByteDance said to aim for Hong Kong IPO by early 2022 (Reuters)
  • Amazon lures advertisers from Facebook after Apple privacy shift (Bloomberg)

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