Will Khatabook be India’s Digital Bahi khata?

Khatabook business model

Will Khatabook be India’s Google or Whatsapp moment?

Local Kirana stores (also termed as Mom and Pop Stores) in India are witnessing a major shift in the trade. Digitization wave has reached these Kirana stores too, and Digital Kirana is becoming the next big thing. One of the common problems faced by these Kirana stores is bookkeeping and account management. Khatabook is a toddler in the bookkeeping space which, has seen phenomenal success. So far, Khatabook has scaled to transactions of $200mn per day, that too in less than 2 years of operation. Let’s look at the business story of Khatabook.

The Backdrop of Digital Kirana

Continue reading Will Khatabook be India’s Digital Bahi khata?

Marcus – A startup with 150 years of experience

Marcus by Goldman Sachs

Story of an Investment bank foraying into consumer banking

Goldman Sachs (GS) recently published their Q4 numbers. The numbers were beyond expectations. Though, one thing that caught my attention was their consumer banking offering, Marcus. Within its first five years it has already had four million-plus deposit accounts. They have crossed $97 billion in deposits. It is fascinating to see a 150-year-old investment bank enter in digital/new age banking space and make a mark (or should I say make a Marcus). The real question being why would an established player like Goldman Sachs foray into consumer banking.

Goldman Sachs – The 150-year-old legacy

Marcus Goldman started Goldman Sachs in 1869. Goldman was later joined by his son-in-law, Samuel Sachs. Goldman Sachs majorly focused on corporate investments, securities, and investment banking. The company saw multiple economic recessions during its tenure and survived them too. However, the 2008 financial crisis was different. Goldman Sachs sold a large portion of bad mortgages by hiding facts behind these mortgage-backed securities. This put a dent in their reputation. Goldman Sachs lost the trustworthiness they had gained over the years. For a brief duration, there was a possibility of GS possibly declaring bankruptcy too. They were penalized with a fine of $5 billion for their wrongdoings during the financial crisis.

Continue reading Marcus – A startup with 150 years of experience

Lemonade – a new way of doing Insurance

Lemonade Insurance Wallpaper

When Life gives you Lemonade, you refresh the way of doing business 😛

Warren Buffett, an American investor, always loved insurance as a business. His portfolio reflects his affinity for insurance. Insurance as a business has grown significantly and became supremely profitable. Although, the insurance business has remained stagnated in its approach over the decades. With the advent of technology, the InsurTech revolution took place, where technology meets insurance. Lemonade is one such Insurtech initiative that has used technology to its advantage. The key differentiating factor for Lemonade though, is that it has taken a different approach altogether over conventional insurance. Let’s look at how Lemonade is different from standard Insurance businesses.

Typical Insurance Business Practice

Before getting into how Lemonade does business, let’s quickly understand how Insurance companies do business. (If you are familiar with the Insurance business, you can skip over to the next section). Insurance as a practice is possibly one of the oldest financial instruments, which started somewhere around the 2nd or 3rd Century BC. The fundamental idea behind insurance is to create a pool of money for unfavorable conditions. This pooled money would come from individuals and come in handy at a time of adversity. Gradually, Insurance became a streamlined business offering.

Many corporate houses started using advanced mechanisms to make their premium pricing efficient. An efficient premium pricing would help the company collect enough money from the people to cover their risk. This premium at the same time has to be competitive enough against other Insurance companies. Against the premium paid, the company issues an insurance policy for a specified duration. A large proportion of profit for insurance companies comes from expired policies where the premium paid becomes the profit. This retained amount, also known as underwriting profits, helped insurance companies expand their horizons and balance sheets.

Lemonade Business Model

Technology started making inroads in the financial industry in the first decade of the 21st century. Companies began exploring opportunities in how technology can be used in various use cases in Insurance. One such innovative product of Insurtech is Lemonade, which launched its operations in April 2015. Lemonade offers protection against property and casualty. The New York-headquartered company provides insurance for house owners and renters. Available in a few select locations, Lemonade offers app-based purchases. To simplify their business model, let’s divide it into three major segments as follows.

  1. Technology-enabled ease for buying journey
  2. Quick Claim settlement
  3. The famous Lemonade Givebacks

Technology-enabled ease for buying journey

Daniel Schreiber, founder of Lemonade, in one of his interviews mentioned that people earlier associated insurance with paperwork and hassle. Lemonade aimed to make the process instant and fun. If you look at their app demo, they have eliminated the lengthy forms. Instead, the user has to answer a few questions via its chatbot. The buying experience is similar to that of chatting with your friend. Lengthy form filling is replaced by asking the user to record several details on camera. Lemonade chatbot would assemble all responses and processes an algorithm that would generate the quote for the insurance coverage. Lemonade possibly maintains records of all properties /localities and has quantified risk associated with it. This process helps them take prompt underwriting decisions, effectively reducing the buying time for the end-user. The overall experience of buying insurance; with the usage of technology becomes completely hassle free.

Quick Claim settlement

Similar to its expedited and simplified buying journey, Lemonade has a simple and intuitive process. Lemonade allows the end-user to send a claim from their app. Importantly, most of their claims get settled in seconds.

The simplified Claims process of Lemonade

A part of these quick claims provides the user with a great user experience. Hence, the user would want to come back for repeated purchases. Instant claim settlement earns them publicity through word of mouth. Founders of Lemonade, attribute Givebacks as an additional motivating factor for settling claims real quick.

Lemonade Givebacks

In traditional Insurance businesses, companies would retain premiums paid by customers post-policy term as profits. Lemonade, on the contrary, gives back 40% of the underwriting profits to the non-profits, majorly towards a social cause. When a customer is buying the policy, he can decide on what causes the person would want the underwriting profits to be shared with. Donating for a cause from your insurance premium, which was never going to come back, provides a feel-good factor. Most importantly, since Lemonade has nothing to gain by holding back the claim, they would want to settle any claim faster.

Lemonade Givebacks have only grown in the last few years
Image courtesy – https://finshots.in/archive/lemonade-insurance-company/

How does Lemonade make money?

If lemonade is giving away a major chunk of the profits, the obvious question is how does lemonade make money. During policy issuance, Lemonade charges a flat fee to the user, which is 25% of the premium. The remaining money goes towards underwriting. They also reduce their risk through reinsurance, like conventional insurance companies. So effectively, through efficient pricing and quick claim settlement Lemonade saves on operational cost. By giving back to society, they also gain social prominence for their good deeds.

For a typical insurance company to be profitable, it takes more than a decade. Since Lemonade is not retaining most part of its profits, it may take longer for it to turn profitable. Investors like Aleph, Sean Grusd, General Catalyst, GV (formerly Google Ventures), Sequoia Capital, Thrive Capital, XL, SoftBank, Allianz SE, and Sound Ventures have shown faith in Lemonade.

Parting thoughts

Lemonade was launched with the idea of making a change to the traditional business methods. Lemonade aims to support the cause of society rather than just making money for themselves.
Hope to see more initiatives where there is a coexistence of business growth and social development.

Also Read – A Disruption story on Indian Brokerage houses

WhatsApp Pay – The Fitting piece in puzzle to Monetize Whatsapp

Business model of whatsapp

Why Whatsapp wants you to Pay ?

NPCI (National Payment Corporation of India) recently gave approval to WhatsApp for allowing payments through its platform. WhatsApp had a long pursuit for allowing payments in India. Getting approval in India in BFSI does make headlines, though this time it is special. Let’s look at why WhatsApp payment is important and what could be Mark Zuckerberg’s plan with in-app payments.

WhatsApp – A global communication enabler

WhatsApp was launched in January 2009. This was the time when Blackberry messenger (BBM) and Yahoo Messenger were the popular chatting mode.  BBM was an exclusive club, available only for Blackberry phone users. Yahoo Messenger was open to the world and was overexploited for various reasons. There was a need for a secure and easy to access messenger. Steve Jobs had launched the first iPhone; Apple was planning to open up its ecosystem. Whatsapp launch just fits in as the missing piece of the puzzle. Since its launch, WhatsApp has always been top of the charts in multiple aspects. Around 2014, Facebook founder Mark Zuckerberg believed in the story of WhatsApp and paid a whopping $19 Billion for WhatsApp. This was against a backdrop of VC funding at $1.5 Billion.

Continue reading WhatsApp Pay – The Fitting piece in puzzle to Monetize Whatsapp

NPCI – Unsung Hero of India’s Fintech revolution

An Indian enterprise leading by example in the Fintech space

When it comes to Financial deals, New York and London are the torchbearers. India and China, are considered leaders in Fintech innovation. Fintech has evolved basis some good innovation in the private sector in India. In the payment and Fintech space in India, NPCI (National Payment Corporation of India), a government initiative is showcasing a story of innovation and collaboration between private and public players. Their success stories of UPI, RuPay, and eNACH have been monitored closely by the world with high regard. Despite being well known across the globe, NPCI does not have enough recognition in India. Let’s look at the story of NPCI and how its products are changing the payment landscape. 

The early 90s and India’s cash-based economy

Indian payment infrastructure was all managed by the Reserve bank of India (RBI) in the late 90s. In that era, most transactions were cash-based. There were a few exceptions like electronic modes of transfers like cheques, DD, etc. For a rapidly growing economy, payment settlement mechanism cannot be brittle.  RBI  introduced measures to address scalability challenges.

Continue reading NPCI – Unsung Hero of India’s Fintech revolution