Most IPO-bound fintechs are yet to turn profitable

Investor interest is at a high with a number of fintechs announcing plans to tap the equity markets.

Commanding a huge customer base, each of these fintechs have turned into success stories in their own segments.

The successful listing of food delivery start-up Zomato has firmly put the sector into the limelight.

But the question of profitability often remains. Often, burning cash is the way for start-ups and fintechs to get customers and expenses for most tend to be high.

Mega IPO

Paytm parent One97 Communications, which is set for the mega ₹16,600-crore IPO, plans to use ₹4,300 crore of the funds raised for growing and strengthening the Paytm ecosystem.

Though its net losses came down to ₹1,701 crore in 2020-21, its DRHP states that it may not be able to achieve and maintain profitability.

PB Fintech, which owns Policybazaar and Paisabazaar, is also looking to raise ₹6,017.50 crore through an IPO. About ₹1,500 crore of the funds raised will be used for enhancing visibility and awareness of company’s brands.

The company, too, has been loss-making, with a net loss was ₹150.24 for the fiscal ended March 31, 2021.

Wallet and BNPL player Mobikwik, which is looking to raise ₹1,900 crore is also making loss. With over 108 million users and 3.4 million merchants, it plans to use a large chunk of the funds raised for organic growth.

Fino Payments Bank, which is a fully owned subsidiary of Fino Paytech Limited (FPBL), has filed its DRHP with SEBI. The fintech bank turned profitable in the fourth quarter of FY20.

The bank plans to use the net proceeds from the fresh issue towards augmenting its Tier – 1 capital base to meet its future capital requirements.

Four-step strategy

According to the World Fintech Report 2021 by Capgemini and Efma, seasoned fintechs follow a four-step strategy for long-term profitability.

“They start with rebundling diversified services and non-financial services, adopting ecosystem banking to achieve scale, creating new monetisation opportunities, and finally aiming for geographical expansion,” it said.

In India, too, experts point out that many of them have viable revenue streams. Moving towards financial services in the case of Mobikwik will also bring it more revenue streams.

While the Covid-19 pandemic has impacted economic activities, many believe it has given an advantage to the fintech sector.

Investor reassurance

Roma Priya, Founder, Burgeon Law, said, “We believe that markets are expanding and Covid has not affected start up markets. Investors have showed continued reassurance in these companies. Listing of start ups like Zomato have created a very positive environment. We cannot look at these businesses only through the lens of profitability as there are many other factors that contribute to making a sound business case.”

Sameer Kaul, MD and CEO, TrustPlutus Wealth (India), said it is good for the ecosystem that companies are able to access public markets. “But some of the business model in these tech IPOs have a lot of unanswered questions, especially on the path to profitability. This may keep a lot of investors away from such IPOs. A lot of their capital goes towards customer acquisition and many of these companies are trying to eventually move towards financial services as a means to monetise the client base,” he pointed out.

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