An Analysis of Khatabook & OKCredit and will they sustain without revenue in the long run and stand the test of time.
10 years back, a big fat record book is what you would have got if you asked any retailer or small business about their transactions. Today all that has sized down to a small application on your phone, thanks to apps like Khatabook and OKCredit.
Khatabook and OkCredit are part of new generation fintech startups. Fintech SaaS (Software as a Service) has grown exponentially in the past 5-6 years which is now valued at USD 31 Billion with an expected projection of USD 84 Billion by 2025.
One thing which both of these startups have done is garner a huge number of customers without earning revenue which raises the big question of sustainability. We will try to understand how sustainability comes to them.
What is Fintech Saas?
FinTech is a shortened version of Financial Technology. The term “fintech” refers to new technology that aims to improve and automate the delivery and usage of financial services. Fintech, at its most basic level, is used to help organizations, company owners, and individuals better manage their financial operations, procedures, and lives through the use of specialized software and algorithms that run on computers and, increasingly, smartphones.
PayPal is the first FinTech to genuinely become a worldwide financial behemoth from this industry.
Paytm along with Freecharge can be considered pioneers of FinTech in India. After that early acceptance, FinTech has grown by leaps and bounds in India.
In nascent stages, FinTech was limited to payments and money transfers but as the innovations started coming in, FinTech evolved beyond payments, banking services and money transfers.
One of these services is Bookkeeping apps which provide you with a digital ledger to keep a record of your transactions.
Let’s look at both the startups in the spotlight.
Khatabook– The Khatabook software, which is run by Kyte Technologies, provides a digital ledger to all small business owners in India. It assists with the management of books of accounts and provides reminders for collecting money and making due payments via WhatsApp and SMS. The app is available in over 13 vernacular languages, allowing it to appeal to a wide range of people across the country.
According to the startup, small business owners that use Khatabook (iOS, Android) are currently dispersed across 4,000 cities and towns. The platform is present in 700 of the country’s 729 districts, which is a significant achievement for a young company. Because of the company’s rapid growth, it has attracted angel investors such as Kevin Weil, co-founder of Facebook’s cryptocurrency Libra, as well as celebrity investors such as cricketer MS Dhoni.
OkCredit– OkCredit is part of the Ok network, which is a collection of apps targeted at helping small and medium companies (SMBs) in India go digital. The startup is solving many pain points in the everyday running of small business owners, such as checking their accounts, managing workers at their set-up, or the requirement to get online, with technology that is simple and quick to access. Harsh Pokharna, Gaurav Kumar, and Aditya Prasad released the Ok network’s first product, OkCredit, in 2017. OkCredit has given the traditional register book – the ‘Bahi/Udhar Khata’ – a complete digital makeover, making daily bookkeeping tasks easier and more productive for millions of small businesses.
The software not only keeps track of credit transactions – both payments and receivables – but also delivers timely notifications and makes it easier for small businesses to collect and settle balance amounts quickly. More than 20 million people have downloaded the app.
Revenue and Numbers
The Indian start-up ecosystem is always changing, or should we say innovating?
However, with the expanding start-up enthusiasm, an entrepreneur pursues a new start-up idea every day, increasing the failure rate. According to recent research published by NASSCOM, 55% of failing start-ups had received investment.
One of the main reasons why start-ups fail is because they refuse to focus on generating income first. They are often so focused on developing the operations side of things or creating new growth channels that they don’t mind the cash burn that comes with it.
Khatabook and OKCredit have made life easy for small business owners and retailers but have they made it tough for themselves?
Even though the company is still in the pre-revenue phase, the valuation of the bookkeeping app Khatabook has surpassed $600 million. According to data platform Tofler, the company had no income and a loss of 126 crores in the financial year (FY) 2020.
One of the main reasons for the company’s skyrocketing valuation appears to be its penetration of the Indian small and medium business (SMB) market, which has limited internet access. According to the firm, the platform has over 10 million monthly active merchants. Its retailers serve over 264 million clients in total. According to the business, almost 95 percent of Indian districts are featured on its app.
Khatabook’s financial health is in the red, and the company is still in the pre-revenue stage. In the future fiscal years, the corporation will need to reduce costs and find new ways to generate money. Because the company has launched two new applications, MyStore by Khatabook and Pagarkhata, and is extensively marketing them, FY21 is expected to be a year of higher losses.
For the second year in a row, OkCredit has had no operating revenues. Meanwhile, it has been investing in expanding its customer base among the unorganized retailers, who account for 92 percent of India’s $ 1.1 trillion retail industry.
The Bengaluru-based firm’s only sources of revenue were financial income from interest on deposits and mutual funds, which totalled Rs 91.2 lakh in FY20.
From yearly spending of roughly Rs 1.83 crore in FY19, OkCredit’s overall expenditure increased by 86X to a little over Rs 157.5 crore in FY20. According to their expense sheet, the majority of these costs were spent on client acquisition.
Last year’s pandemic offered up new revenue streams for bookkeeping apps like Khatabook & OkCredit. These platforms transitioned from assisting small businesses in recording transaction information and sending reminders to suppliers and customers to ensure timely payment, to assisting enterprises in digitizing and creating online storefronts.
While Bengaluru-based Khatabook launched MyStore in August of last year, Psi Phi Global Solutions, which owns OkCredit, introduced OkShop in November. Khatabook and OkCredit were established in 2018 (the app was released in January 2019) and 2017, respectively.
Big Question- Sustainability
By looking at these numbers and their revenue books one can surely deduce that expenditure on user acquisition and marketing has paid good returns but where do these startups stand in line with revenue and how will they sustain without revenue.
With both of them launching new entities it’s unlike that their expenses will go down, it has to rise for the marketing of these two entities which can be probable revenue streams for them.
We are stuck here between the year-long debate of Profitibality vs Growth. Both profitability and growth are crucial and necessary for a company to thrive and remain attractive to investors and analysts to be successful and stay in business. Profitability is important for a company’s survival, but long-term viability requires expansion.
Final Word- BottomLine
Profitability and growth go hand-in-hand when it comes to success in business. Profit is key to basic financial survival as a corporate entity, while growth is key to profit and long-term success. Investors should weigh each factor as it relates to a particular company.
For most Indian start-ups, the break-even point, where revenue equals or exceeds the amount invested, is a far-fetched dream. They all want to complete the challenging assignment, but it will take years for them to do it. Experts believe that this should be the priority right now.
It will be interesting to see which of these startups sustain in the long and stand the test of time. Given the current scenario. From a purely analytical point of view, numbers and patterns don’t look good and these startups need to focus on their probable revenue streams and channelize them into numbers to keep the trust of stakeholders and sustain in the long run.