How A Mobile Payment Startup's Backend Biz Generated $40M Valuation

3 Apr, 2012

When a two-year-old tech startup announces that it has raised nearly $30 million in a deal without selling out the company, it sounds as if it has found the next big thing. So we have talked to the management team at My Mobile Payments Ltd (MMPL), which owns a payment processing service called Money-on-Mobile, and looked a bit deeper into the deal that the company has struck with the US-based payment processing services firm Calpian Inc.

In a nutshell, the deal involves a mix of cash and stock transaction, which would see Calpian investing up to $9.7 million in a new firm called Digital Payments Processing Ltd or DPPL (which shares the management team who runs MMPL and derives all its business from that entity) and giving its own stock worth $20 million (either to the promoters of MMPL or to MMPL itself, but in tranches) to acquire up to 74 per cent stake in DPPL.

Promoters of the Mumbai-based MMPL or the company would end up owning as much as 22 per cent of the post-issue share capital of Calpian (accounting for outstanding convertibles) as part of the multi-tiered transaction. This, in effect, gives a valuation of around $40 million to DPPL.

MMPL was launched in 2010 for the Indian B2B market and had received RBI's approval last year to offer the semi-closed m-wallet for the consumer market nationally. The company was founded by Jolly Mathur who is also serving as director (marketing) at World Phone India Ltd. Other promoters include Rajat Sharma and Ranjeet Oak. MMPL owns the distributor and retailer network contracts and maintains custody of users' funds while DPPL owns and operates the customer support call centre, sales support and backend processing functions. DPPL is managed by MMPL's existing executive team.

In the first leg, Calpian has invested $1.3 million and will issue 1.8 million shares to the promoters of the Indian company to acquire 15 per cent stake in DPPL, which in turn, has entered into a services agreement with MMPL. The Indian founders of MMPL or MMPL itself will own around 8.5 per cent of Calpian, to begin with.

Calpian has structured its investment in DPPL as an initial and a second funding totalling $2.5 million, to be followed with quarterly tranches of around $1.2 million each over the next 6 quarters or 18 months – thus leading to the total estimated investment of $9.7 million in cash besides the issue of 6.1 million of its own shares in the same period, subject to riders. Calpian, which is listed on the OTCQB (formerly the OTC Bulletin Board), is raising funds for cash investment in DPPL through issue of shares via additional private placements of its common stock. At the end of the investment series, Calpian expects to own approximately 74 per cent in DPPL, with the remainder held by the latter's management team.

Calpian will hold two of the four board positions in DPPL with Harold Montgomery (chairman, CEO & the single largest shareholder of Calpian) as its chairman with a tie-breaking vote. Montgomery will also hold one of the six board positions in MMPL, a firm which enables individuals to use their mobile phone to make routine payments and move money using SMS. This is Calpian's first investment outside the USA.

Money-on-Mobile (MoM) service uses the cell phone numbers to identity both the sender and the recipient. To load funds onto the MoM system, a user should visit one of the 55,000 independent retail stores within MoM's existing retail distribution network across India and pay cash in exchange for a virtual currency credited to his/her MoM account. To move funds from a user's account to another, the sender has to generate a text message to MoM, telling the company whom to pay and what the amount should be. Once it is done, the amount will be instantly transferred and both parties will receive a confirmation. MMPL has launched its MoM service in April 2011 and currently has more than 2.7 million users. It processes more than $72 million in transactions each year (annualised based upon January 2012 data and recent trends, which mean it has clocked transactions worth $6 million or a little more than Rs 30 crore in January this year).

Techcircle.in got into a quick chat with Shashank M. Joshi, managing director of Money-on-Mobile, to get a lowdown on operational aspects of the firm and what the deal means to the company.

How do you plan to use this capital?

We have had our B2B products for over a year now and were looking for investment for our B2C product. The B2C space is practically a virgin market here, barring the telcos and the banks who are the major players in India. So this funding will be utilised to tap this market and acquire customers. There will be marketing drives, campaigns and more.

Has Money-on-Mobile raised funds before?

No, this is our first round of funding.

What are your current offerings and future plans?

Currently we offer B2B services including mobile recharge (for all service providers), DTH recharge, bus/movie ticket buying and phone bill payment (post-paid mobile bills & BSNL landline bills). The same services will be offered in the B2C space. Plus, we will add electricity bill payment in the future. We may also tie up with a coffee chain so that consumers are able to pay their bills via mobile.

There's a view that m-payment isn't exactly taking off in India. What's your take?

The key players in this market are banks and telcos but they can't really access the unbanked segment and the non-smartphone users. They are too big to access the masses. On the other hand, we bring a solution that will reach the unbanked segment and the people who have low-end mobile phones. Now that we are entering the market, we are surely looking at the enviable traction that may soon follow.

What's the kind of traction you are seeing? Is MoM a profit-making venture?

When we started, our daily transactions totalled Rs 50,000. And right now, we are doing Rs 1.2 crore worth of transactions every day. As far as profitability goes, we have achieved a monthly break-even point but overall, we have not become profitable yet.