With the RBI aiming to reduce cash in the system, pre-paid cash card companies are see ing a huge opportunity in the country.
With the Reserve Bank of India (RBI) aiming to reduce cash in the system, pre-paid cash card companies are see ing a huge opportunity in the country.
RBI has received applications from several companies for launching their products in India. Also, venture capital firms are gunning for companies that are already operating in this space.
Pre-paid cash cards are multi-purpose cards that come in any denomination and can be used in lieu of cash to pay for services — railway bookings and payment of utility bills, etc — through mobile or internet.
Experts say India can be a huge opportunity for pre-paid card players as 97% of transactions here are made through cash. In fact, with annual cash spends of $529 billion, India tops the list of the countries with highest cash spends.
An industry expert, on condition of anonymity, told DNA, “Pre-paid cards currently occupy as much space in the non-banked regions as credit cards. Use of credit cards is prevalent only in the urban areas.”
Essel group’s Itz Cash Card Ltd, which currently offers scratch-based cards in lieu of cash, is one of the company’s stepping up its pre-paid card play. Ashok Goel, chairman, Itz Cash Card, said there are about 7-8 more cards in the offing.
In fact, the company received a private equity funding of Rs 40 crore from Lightspeed Venture Partners. Its existing investors Matrix Partners and Intel Capital also participated in the funding. Post the investment, promoters hold 64.5% in the company and a small stake is held by the management team. The rest is held by equity investors, Lightspeed Venture Partners, Matrix Partners and Intel Capital, Goel added.
“We wanted to invest more capital in the business,” said Bejul Somaia, managing director, Lightspeed Advisory Services India, adding, “The cost-structure of the company is such that once they are scalable, the profit levels can be quite high.”
The firm, with an annual turnover of Rs 2,000 crore, will also offer a cash card for paying tolls. The company currently offers cash cards for railway bookings through IRCTC online, subscriber monthly payments to group company Dish TV, octroi payments, property tax payments in Mumbai and Delhi, payment of water tax and other utility bills. Goel said his firm was already seeing high volumes on its various pre-paid card products. About 90% of the volumes for Itz Cash are through railway bookings and Dish TV, he said.
According to managing director Naveen Surya, Itz Cash Card is the second-most used instrument for IRCTC transactions. Asked whether the company’s market share was eaten up by pre-paid cards offered by banks and the single-use virtual cards for online shopping, Surya said, “These cards cater to only those customers who come under the banking network. But the penetration of banks is very low in the country and the large unbanked population uses Itz Cash cards. So, we have no competition from them (bank pre-paid cards).”
Surya claimed the company’s margins currently were in the range of 0.5-1% of the transaction amount and these could increase to 2-3% in the next three years. He also claimed the company would break even this year.
Goel said the company could also look at launching an initial public offering “to provide an exit option to these (PE) companies.”
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