Groww shelves neobanking plans, focuses on credit instead

Experiments are part and parcel of startup life. Some of these ideas work out and take off, others don’t and get junked. For Bengaluru-based investment platform Groww, its neo banking dream seems to have fallen in the latter category.

Two sources in the know tell The CapTable that Groww has put the brakes on its neo banking plans. Instead, it is focussing its resources on building out the company’s credit business.

Last year, Groww hired senior banker Nilufer Mullanfiroze to head its banking project. At the time, Groww was flush with funding and wanted to build an entire financial services ecosystem with savings accounts, cards, credit, etc. We wrote in November that Groww had secured an NBFC licence and was training its crosshairs on the credit market.

Steady rise to the top:  Groww began life as a direct mutual fund platform back in 2016. With a strong product and a great user interface, it quickly captured the imagination of millennial consumers who found investing through Groww intuitive and easy. Currently, Groww is one of the largest online mutual fund distributors in the country.

In 2020, the company ventured into equity trading and is now the second largest stock broker in the country in terms of active clients, according to data from the National Stock Exchange (NSE).

“Groww knew it had customers locked in, and the open rates of the app was high too, so the idea was to start offering users other financial services as well, creating an entire ecosystem,” said one of the people quoted above.

The current climate, however, isn’t ripe for costly experiments. The macroeconomic situation is tough, and VCs are encouraging growth stage companies to switch to cash conservation mode. Perhaps Groww is also being prudent about its expenses now. Email queries to the company did not elicit a response.

What was Groww trying to build? The proposition was simple. Groww was already managing consumers’ portfolios. Building on this trust, Groww wanted to build out a complete financial services platform.

Moneycontrol had reported back in March that Groww was in talks with Federal Bank to build a neobanking platform. This could offer digital savings accounts to customers along with cards and other features.

Eventually, with an NBFC licence in its kitty, Groww was set to foray into credit for its customers .

This, however, is easier said than done. 

• Integration with banks is a painful process, in most cases they fall short of tech capabilities to ‘go live’ quickly, and they also tend to control every process, which hampers ease of use for customers.
• Neobanking in India is yet to fly. Retail customers are well served by highstreet banks, and do not seem to be interested in opening another savings account just for a better user interface. Also most private lenders are strengthening their digital propositions.
• Even for those who are opening savings accounts with these neobanks, the challenge has been to get them to make deposits.

Going beyond investments: One of the persons quoted earlier in the copy told The CapTable that perhaps these reasons prompted Groww to deprioritise its neo banking plans in favour of building credit and investment features for its customers. “There is a big credit gap in the country, and consumers will lap up offers for quick personal loans through digital interfaces. That might be their future bet now,” this person added. 

The startup, though, will be building a larger financial services business. Groww isn’t the only one trying to do this. Even its Mumbai-based rival Angel One is eventually trying to build a complete financial services package. The CapTable wrote about it here.

Block deals add to Paytm, Nykaa’s market woes

It seemed like just yesterday when Indian startups were clambering all over each other to go public. The struggles of those who actually bit the IPO bullet, however, have served as a cautionary tale for others.

Over the past year, One 97 Communications—the parent company of Paytm—has seen its share price decline by more than half, as compared to 2.4% decline in the benchmark Nifty 50. And earlier this week, the company’s stock market fortunes worsened further. Its share price at the end of the trading day on January 12 was Rs 542.25—a fall of 6.43% from the previous day’s close of Rs 579.50 per share. 

The fall came as Chinese conglomerate Alibaba Group sold north of 20 million shares—around 3.1% of Paytm’s total equity, and half of Alibaba’s shareholding in Paytm—in a block deal worth $125 million. The move appears to be the beginning of Chinese conglomerate Alibaba Group’s plans to divest its stake in Paytm, and comes on the heels of the group also selling part of its holdings in Zomato and BigBasket.

Even as Alibaba appears to be exiting, its financial services affiliate Ant Financial is still a major presence on Gurugram-based One 97 Communications’ cap table, holding a 24.89% stake in the company as of March 31, 2022.

Beauty and personal care marketplace Nykaa also saw its share price fall on January 12. This, too, came after reports of a block deal wherein 14 million shares changed hands. At the end of the day’s trading, Nykaa’s share price on the Bombay Stock Exchange stood at Rs 147.70—a 4.77% fall from the previous day’s closing price of Rs 155.10.

Nykaa has had a torrid time on the bourses since it went public in October 2021. The stock has fallen 55.3% over the last year. Its flagging fortunes in the public market could cast further gloom over rival Mamaearth’s plans to IPO in the near future.