The business model of Groww
April of 2021 witnessed unprecedented funding in the Indian startup ecosystem. In less than a week, six companies landed large sums of money. This funding round led to multiple companies identified as Unicorns. Groww was one of these companies which had a significant funding round. It is an online discount broker with a simple pricing model. Groww, a 4-year-old company is challenging established businesses to simplify the business model. Let’s look at what Groww has achieved so far and how they challenged the status quo.
Idea behind Groww
Udaan is a successful example of a business started by ex-Flipkart employees and is helping small businesses grow. Groww is yet another company that comes from ex-Flipkart employees. Lalit Keshre and Harsh Jain; both worked in the product management vertical at Flipkart. They both had prior experience in entrepreneurship. Their earlier ventures entrepreneur were not successful. But, their learnings would help them in their next venture. Neeraj Singh, a software engineer, and Ishan Bansal working in the growth team joined them. Together they formed a unit that had experience across various business functions.
They spotted an opportunity in the Finance sector. They realized that the existing stock market investment mechanisms were complicated. Because of these complications, people who had enough savings never turned to stocks or mutual funds. They aimed to use technology to simplify financial investments.
Inception of Groww
The co-founding team spotted mutual funds as their entry segment. Most mutual fund investors opted to get advice from their financial advisors. They choose the assisted mode (through financial advisor) for their investments. However, few people did understand mutual funds better. They invested directly in the asset management company (AMC or the Mutual fund organization). Let’s take a step back here to understand how assisted mutual funds and direct mutual funds differ. Advised funds have ‘Regular’ attached to their name. Commissions are in-built for your financial advisor in advised mutual funds. A small part of what you are buying goes towards paying your financial advisor. Whereas in Direct mode, since there is no advisor and hence no commission. Effectively these direct funds would be slightly cheaper than the regular funds. However, there was a problem for direct investors. They had to visit all the AMCs to manage their investments.
Groww sensed an opportunity. In 2016, co-founders of Groww effectively decided to provide a platform that would help investors buy direct mutual funds from one single platform. This platform would attract investors investing directly and through financial advisors as well. In 2017, they launched this platform with a heavy focus on ease of buying and a great user experience.
Groww started to make its presence felt, using advertisements. The theme for these advertisements revolved around the concept of ease. Some ads focused on how one should work himself to grow his own money. Young millennials easily connected with these offerings. Groww saw a surge in investment volumes through their platforms. Today, Groww boasts of 10 million-plus users enrolled on its platform.
Groww – business growth
Post success with mutual funds, Groww decided to explore more avenues. They started offering stock trading, futures and options, Gold, and Fixed Deposits. In stock trading, they are directly competing against the likes of Zerodha. Zerodha has been the industry disruptor. The zero account charges and no trade fee effectively give them an edge over most financial brokerage houses.
Groww has been one of the chief enablers when it comes to millennials and new generation investors. Through their educational channel on Youtube, they are helping the newbie investors. The focus on helping these new investors is so evident in their action when you see translated videos available too. They have also started Groww Originals with famous Youtuber Rachana Ranade. These actions show the commitment of this startup to go beyond just providing a platform. Financial education content has been a critical focus for Groww from its inception. Their efforts have been well rewarded and recognized by some large venture capitals of the world. Y Combinator, Sequoia, and Ribbit capital have shown faith in the company.
The question was how would Groww benefit (read make money) from investors buying from their platform.
How does Groww Make money?
Groww collaborated with various AMCs to sell direct plans through their platform. AMCs were happy to partner since they were getting more business. All they had to do was to give commission to Groww for initiating this business. Over and above this, the money through the brokerage of trades made in gold and Stocks.
The Bad news
Though all is not rosy when it comes to their financial performance. The total revenue for Groww in FY 20 was a minuscule 52 lakh INR. Their total expenses were steeply high at 8.92 crore INR. With these numbers, profitability looks like a steep challenge.
Also, some of the direct plans that Groww has been offering on their platform; have become expensive. Expensive even more than their ‘regular’ counterpart. Why? Because too many people opted for those direct plans. Now those AMCs had to pay up those commissions. That money had to be attached somewhere in the expenses.
Plan for Groww
Groww has set an example of doing business for the existing stock brokerage houses. Some of these brokerage houses have modified their established business model to compete with new-age companies. The main advantage for existing brokerage houses is stability and profitability. Groww is trying to create its user base, in which they have succeeded to a large extent. Now that they have the user base, they need to focus mainly on retention and monetizing the existing customer base.
Having a delightful user experience, Groww should not have difficulty retaining the customer base. When it comes to monetization, heavy competition will make it challenging to increase the charges for the investor. They could instead monetize the data of new-age millennials by probably cross-selling other financial services. The existing investments could act as a rich data source. This data could help In accurately customizing and cross-selling financial services to millennials.
Groww, in a short period, has grown phenomenally. It has enabled equity as a money-making avenue for many young Indians. The entrepreneurial culture is helping solve teething problems while making Indians wealthy. Groww has established itself as a noteworthy player. How they address the monetization challenge will define its future course.