How payments firm Oxigen is charting a different route to growth

Payment services provider Oxigen Services India Pvt Ltd plans to strengthen its core offline business and expand its digital offerings, as it looks to grow steadily and without burning a hole in its pockets.

The company, majority-owned by South Africa's Blue Label Telecoms Ltd, also aims to tap into more corporate clients and use its large offline network to grow its online business.

"We are not chasing some crazy million subscribers who are only looking for deals or cash back," joint managing director Sunil Kulkarni told VCCircle. "We are looking at enterprise-based services through our offline-to-online approach."

Oxigen was founded in 2004 as a mobile recharge company, and went on to add other services such as airline and movie ticket booking, remittance facilities and mobile wallet. But its strength now lies in its offline play through offerings such as point-of-sale terminals and micro ATMs, or modified PoS devices that allow users to carry out banking transactions.

Oxigen is among the fin-tech companies that have benefited in recent months from the government's move in November last year to scrap high-value notes to fight graft and tax evasion and encourage digital transactions. But while mobile wallet companies such as Alibaba-backed Paytm, MobiKwik and FreeCharge are busy attracting users through cash-back schemes and deals, Oxigen is relying on its offline-to-online approach to expand. Other than mobile wallet companies, Oxigen competes with the likes of Fino PayTech, Ezetap, Mswipe and PayU in the offline segment.

Most wallet companies, however, have been making losses. Paytm, for instance, posted a net loss of Rs 1,548 crore in 2015-16 on revenue of Rs 830 crore. MobiKwik reported a net loss of Rs 41.5 crore in 2014-15, though it aims to turn profitable by April 2018. Oxigen, whose latest financial results are not available, has made operating profit for five years through 2014-15. Its revenue has grown two-and-a-half times during the five-year period to Rs 2,706 crore in 2014-15.

"Online wallet players are bleeding heavily, but our approach is not to acquire customers by spending a lot of money," said Kulkarni.

Offline play

The company has developed a universal infrastructure for PoS terminals. It rolled out a so-called Super PoS terminal one-and-a-half years ago that allowed customers to transact through a bank account and make bill payments. It is now increasingly rolling out micro ATMs, which also allow users to make cash deposits and withdrawals, and transfer money.

In comparison, banks typically provide three separate devices for these functions – a micro ATM to open accounts and check balance; a PoS terminal for retailers to make payment transactions through cards; and a third device to carry out transactions through mobiles and digital wallets.

The company deployed 5,000 micro ATMs in December and January. It was earlier supplying these micro ATMs for Rs 20,000, but halved the price after the government offered a subsidy on these devices.

"We have partly subsidised from our side, too. We are offering micro ATMs at 60% lower cost than tablet-based micro ATMs that banks provide," Kulkarni claimed.

It plans to deploy 75,000 micro ATMs by this year end. Of these, 50,000 will be converted from its 200,000 retail touch points that currently use PoS or Super PoS devices. The remaining 25,000 will be new touch points.

Kulkarni didn't specify the amount the company plans to invest for its expansion but said it was in talks with strategic investors to raise as much as $75-100 million. "We need funds as a lot of infrastructure needs to be developed," he said.

Offline to drive online

Kulkarni said Oxygen handles transactions worth Rs 1,200 crore every month. The ratio of Oxigen's offline and online business is 90:10 in terms of gross realization but it is 60:40 in terms of gross transaction value. This indicates the company's heavy reliance on its offline business. But the company aims to use this to grow its online business.

"We believe that once customers are used to using our services offline, then they can be brought to our online platform through Oxigen Wallet where they can consume the same services without hesitation," he said.

The company feels it has an edge over most wallet companies, which offer independent QR code-based or mobile-to-mobile-based transactions.

"We have become form-factor agnostic. Our strategy for mobile merchants is One India QR code and Super PoS for retail merchants. That is where we have a unique advantage over others," Kulkarni said.

The One India Quick Response code is a universal platform that allows a merchant to accept payments from Oxigen as well as Visa, MasterCard and Rupay users. The company is working on adding Unified Payments Interface, the government-promoted payments solution, to its network.

Kulkarni said that dealing with multiple wallets is an inefficient way of doing business for merchants and that Oxigen allows users to carry out transactions across multiple wallet and payment system operators.

By contrast, other mobile wallets allow two users to transact only if they have the same wallet – Paytm to Paytm, MobiKwik to MobiKwik and so on.

"Interoperability among different players is essential. Our model is not proprietary. That is the Alibaba or WeChat model adopted for the Chinese market," said Kulkarni. "China has only two players in the payments space, but in India there will be multiple players. To put Alibaba's China strategy in India may not be the most optimum way of doing business."

Oxigen has also tied up with retail pioneer Kishore Biyani-led Future Group to launch the Future Pay loyalty wallet app, which can be used across Future Group outlets such as Big Bazaar, Ezone and Home Town. With this, the customers will not have to carry multiple loyalty cards while shopping as all their cards will be directly linked to their Future Pay app. Oxigen wallet consumption at Future Group's retail touch points also adds to loyalty points for customers.

The company, in partnership with RBL Bank, will also launch a physical card next month. The card can be used for different types of corporate reimbursements, including food, conveyance and entertainment expenses, and will be part of the Oxigen wallet.

M&A plans

Kulkarni believes the digital payments sector will see more consolidation because many players are losing money.

The segment has seen hectic M&A activity in the past year. E-commerce companies Amazon, Flipkart and ShopClues have all acquired digital payment firms.

The $130 million merger deal between Citrus and PayU was by far the largest. Earlier this week, Mumbai-based mobile PoS company MobiSwipe was acquired by UAE-based payments solutions provider OMA Emirates.

"There is a need for many of these players to join hands and build the infrastructure, and that is a potential possibility after demonetisation," he said. "We can expect some M&A activity where Oxigen will be in the lead."