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You all must be aware of the story of Robin Hood, a heroic outlaw, a highly skilled archer and swordsman. He was portrayed as ‘robbing from the rich and giving to the poor.' That's good, right? Isn't it?

So, who is today's, Robin Hood? Is it the government? Not actually, because the government takes money from both rich and poor in one way or another. Then who are?

Today's world's Robin Hoods are e-commerce and e-wallet start-ups.


Well yeah, I too was surprised, but numbers were telling the truth so loudly that I had to write this article. There are many startups especially related to e-commerce, wallets, ticketing sites and many other startups who believe in giving huge discounts to penetrate the market.

We as a consumer are quite happy with it since we are getting things done on more economic and convenient ways. Let me give you my example.

"I was Kochi (Kerala) for the summer internship and a message pop-up on my phone from Paytm, "Flat INR 1000 cashback on domestic flight bookings". I checked IndiGo website and the flight prices over there, and it was showing INR 4950 for Kochi to Delhi on 31st May, and Paytm was offering the same at INR 5100 but with a cashback of 1000 in the wallet. I went a step forward and asked one of my friends to transfer a Paytm balance of INR 1000 in my account. I booked the ticket and paid INR 4100 through internet banking and INR 1000 through the wallet and got cash back of INR 1000 in wallet immediately after the booking. I transferred that back to my friend's wallet."

I never thought that who was funding that INR 1000 and never bothered about it. But, here is the thing-

'Paytm was happy to have me as a customer. It will count me in their customer base and they can present it before their investors while pitching for funding. In finance, we have a valuation method called 'Discounted Cash Flow' model. In this model, all the expected future cash flows are estimated and discounted to come up with a current value of the entity (and trust me, that is never accurate). So Paytm will show their investors that we have these many current users and these many expected users and this much is the expected average revenue per user, and finally this much is our valuation. Based on that they get funding for future."

Now here are some statistics about this kind of start-ups-

Snapdeal has raised a total funding amount more than $1.78B through various investors including business tycoon Ratan Tata. Another investor Nexus Venture Partners who has given Snapdeal seed funding in 2011, gave a fresh funding to it in May 2017.

Now in July 2017, Snapdeal is in an ongoing merger deal with Flipkart and other players which are offering it less than $1B. Means, investors lost around half of their money in Snapdeal. Where the money went? In the pockets of the customers.

Freecharge, another start-up, which has raised approximately $116.94M funding from investors through various funding rounds was recently acquired by Axis Bank for $60M. Again, who lost the money? None other but investors.

Similarly, there are many other startups in e-commerce, online ticket booking, online payments and recharges and much more who have lost their money or rather I would say distributed investors' money through discounts. Though, some of them are doing well.

Now let’s talk about Paytm, the online wallet which has extensive network and collaborations with the different merchants. Currently, it is valued nearly $7B. It was asked to be a payment bank because of its increasing size and number of transactions and the money involved, so it has started its own payment bank. But, operating a payment bank is not an easy task. A payment bank will need a paid-up capital of INR 100 crore and will require to maintain a capital adequacy ratio (CAR) of 15% of its risk weighted assets (RWAs) and must invest at least 75% of its demand deposits in government securities and required to maintain a CRR of 4% and SLR of 25%. And, it can't lend money to anyone and can't accept deposits more than INR 1 Lac per individual.

Another thing is the National Payments Corporation of India (NPCI)’s push to banks towards e-payments or digital payment, to make transactions more fast and convenient. Maybe Axis Bank has recently acquired online mobile wallet ‘Freecharge’ to move in that direction. What if all the banks will come up with wallet kind of business or technique? It would be interesting to see how Paytm will cope up with this. 

These tech startups are highly volatile in term of their business and technology, and we could see that investors like Ratan Tata lost their money than who will be safe.

But, we as consumers should not worry about it. Keep enjoying, keep buying, keep paying and keep going.

Have a good day.

Note: This article is written based on my understanding of the topic and presented are my personal views. This article doesn't validate the facts and analysis presented; it may vary person to person. Please feel free to write your views in the comment section.

The author is a Chartered Accountant and currently pursuing MBA/PGPM from the Indian Institute of Management (IIM), Udaipur and can also be reached at casumeetiimu@gmail.com.


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