Plugging mobile recharge via merchandising

N. Ramakrishnan | Updated on March 10, 2018

Kunal Shah

My aspiration is to have more transactions than IRCTC: Freecharge,in CEO

Kunal Shah has set his sights high for his fledgling venture. For him, reaching and surpassing IRCTC (Indian Railway Catering and Tourism Corporation) — through which you can book your railway tickets online and which is probably the largest e-commerce site in the country — in terms of the number of transactions done through his site daily is the first post he would like to cross.

“We would like to see ourselves getting into that league, if not cross them in two or three years,” says Kunal, of his plans for his venture Freecharge, which allows you to recharge your pre-paid mobile numbers online, for which you get a coupon with which you can shop at a merchant establishment.

“There are close to 24 million people who do recharge every day in the country. Less than five per cent of that is online today,” he says, giving an idea of the size of the market.

“I do not see a reason why this will not be 60:40 in two years from now.” It costs next to nothing to recharge online, more customers are becoming tech savvy and the younger generation is quite comfortable transacting on the Internet.

“My aspiration is to have more transactions than IRCTC. Where you are important to the ecosystem. We believe in the ecosystem where merchants win by acquiring new customers, telecom companies win by getting new customers and creating another channel for their business and customers win by getting equal value or getting some good value coupons,” says Kunal.

First venture

Kunal, who graduated in philosophy in Mumbai, spent his summer holidays helping in the family’s pharmaceutical business. That and his interest in the Internet were the stepping stones for his career, which included running a BPO business for someone else. In 2008-09, Kunal decided to give up his career at the BPO – although he says he was more than just an employee – to be on his own.

His first venture was a company called Paisaback, which was a cash-back promotions company for organised retailers. It was quite successful, says Kunal of that venture, one of whose clients was a store selling mobile phones.

He, however, realised that getting people to stores was the bigger challenge. Most of those who came to the mobile shop were doing so to recharge their mobile phones, after which they would browse around the store looking at the handsets on sale. “I noticed that 90-95 per cent of the bills were for recharge. My thought was that if this particular product was made free and that was used towards incentivising a purchase somewhere else, it could result in creating a footfall somewhere else,” says Kunal.

He pitched this idea with some of the retailers for whom he was handling the cash back promotions. They were not too keen as margins were not high in the mobile recharge business. This prompted Kunal to pursue the business idea on his own and thus was born Freecharge.

Kunal acknowledges the problem he had in convincing the telecom companies to sell his idea and of getting other merchant establishments on board, especially since he had to sell their coupons. “It took me a good nine to 12 months before I could launch the site. Getting the key guys to agree was not easy.”

Even when he launched his business on August 15, 2010, he did not have the top four mobile operators on his site. He started off with four operators and two coupons on the site. The response was big, so much so that the site could not handle the volume. The transactions exceeded what Freecharge’s servers were equipped to handle. In two months, Freecharge had crossed 500-1,000 transactions a day. “We found most IITs and IIMs were using us. Those were very big influencers in the social circle,” says Kunal.

The next stage was even more difficult — that of convincing the top four telecom companies and more retailers to join in. “It was not easy. They (the telecom companies) thought we were under-cutting them,” recalls Kunal. He had to convince them that they were not and that they were only creating an additional channel through which the telecom companies can get their subscribers to recharge their connections.

The telecom companies had successfully pioneered the use of small shops and street-corner stores to get their subscribers to either buy their phone connections or recharge their pre-paid SIM cards. Now, they were not prepared to lose that channel. But, Kunal and his team managed to convince the telcos that Freecharge would only help their subscribers by giving them one more avenue to recharge. “The goal was to get large enough that we matter to the ecosystem,” says Kunal.

How it gets income

Freecharge brought in more food retailers, apparel makers and cinemas to participate by giving their coupons to those who recharge their phones on its site. It had built up its business and was doing about 15,000 transactions daily, which was when venture capital firm Sequoia decided to invest in it. Sequoia has invested Rs 20 crore for a significant minority stake in Freecharge.

The money will be used to build the team, improve both hardware and software for the business to grow.

According to Kunal, Freecharge gets its income from three streams. One, the telecom companies pay it a small commission for every recharge done on its site. Two, it charges a small fee for the customers every time they opt for coupons. And, it also gets paid by the merchants’ establishments whose coupons Freecharge sells.

Kunal feels that the ecosystem continues to be the biggest challenge to grow. It is a tough task convincing all the players that it will be a win-win business model. And, building the team is yet another challenge.

An even bigger challenge is the difficulty in completing a transaction online, thanks to bottlenecks in the payments infrastructure. The best success rate on a transaction is 60-70 per cent, says Kunal.

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Published on June 02, 2013

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