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ItzCash: Changing the way India pays

Dec 11, 2007

Dec 11, 2007  ItzCash Card, India's first multi-purpose pre-paid card provider, last month, received US$10million in international private equity funding from Matrix Partners India and co-investor Intel Capital. With consumers and investors taking notice, ItzCash plans to expand its reach in India and develop its card into a co-branded and maybe even contactless, bank-issued product.

“We are delighted to be associated with ItzCash, which we believe is strongly positioned at the intersection of a very large pre-paid card issuance and payments processing opportunity in India,” said Avnish Bajaj, co-founder and managing director, Matrix Partners India. ItzCash is a pre-paid scratch card that helps consumers who typically rely on cash to make payments either online or via SMS. With a distribution network of approximately 100,000 retailers covering more than 700 towns, the card which was launched in 2003, is accepted for a variety of payments across 2,500 affiliate merchant partners, including everything from energy bill and telephone bill payments to travel, temple donations and even the lottery. “India is primarily a cash economy,” says Naven Surya, executive director, ItzCash Card Ltd. “Cash is the payment choice for the common man across the country.” But Surya says his company offers consumers something better than cash and they are recognising that. “The first year and half was tough but once critical services on the card grew from four and five to 50, the momentum started,” Surya explains.

Today, he says, ItzCash Card has more than 4 million unique users, and US$700,000 to US$1 million in transactions are processed each day. The cards are available in denominations from Rs 100 to Rs 10,000. “A city like Bombay is as busy as New York at times. So many people start working at 8am and don't reach home until 10pm,” says Surya. “They have to pay their electricity bill or book their railroad tickets to go back to their hometown during festive time. In the physical world, it can take four hours to half a day to wait in line and make a cash payment. We are giving them a 24/7 capability that not only helps them save time, it also saves money for them. If they have to spend half a day making a payment, that is time away from work.” Market Snapshot To grasp the success of ItzCash, it is important to examine the overall payments market in India. The country's population is approximately 1.12 billion, and of those only 15 million, or 1.34 per cent, have credit cards, Surya notes. Forty five million or 4.02 per cent are Internet users while 144 million, or 12.86 per cent, are mobile users.

In addition, more than 90 per cent of debit cards transactions are for cash withdrawals and very few websites accept debit cards online, says Surya. ItzCash is seeking to meet the needs of those without access to payment cards and who want to make purchases online or via mobile phones. ItzCash is part of the Essel Group, which has interests in several business categories including media and entertainment, tourism and amusement, packaging, publishing and telecommunications. Part of the company's strategy to attract consumers to ItzCash is to offer the cards at no cost. Consumers simply load value onto the card. “Our target consumers are very sensitive about cost. We think making it convenient and, at the same time, not making it more costly than the cash experience is very important,” says Surya. “Right now we are depending on the revenue from the merchants and service provider sites, which can be up to 15 per cent of the transaction value depending upon the merchant category and goods or services they offer, By doing that, our consumer acquisition costs are less. I cold spend US$6 to US$7 million every year on marketing and still not have the success we've had by making the card free.” How it works It's also important, Surya notes, to make cards available where the customers are. The main channels where consumers can purchase ItzCash Cards are large and small retailers, but consumers can also order cards online and via SMS. Likewise, the company's advertising budget of US$2 to US$3 million per year is focussed on the retail stores, although some monies are used for print and TV advertising.

“We started enrolling direct franchisees, wherein the retailer agrees to work with us more closely,” says Surya. “It becomes a complete branded outlet with more added customer service. For example, say somebody doesn't have a PC. He can go to the store, buy an ItzCash Card and book a ticket or do a transaction at the particular outlet. Those outlets have had a very good response because India has an issue with PC penetration and having a PC available draws the consumers into the outlet.” Once consumers purchase ItzCash Cards, they scratch off the scratch tape to reveal the account number and PIN, which they can then use to make purchases and pay bills online, via telephone or mobile phone. Consumers can later top up their cards at retail outlets, and balances form multiple ItzCash Cards can be transferred to one card online. Growing the Business After debuting at 11th, ItzCash Card is now listed as the second most popular way to pay for an Indian Railways ticket on Asia's largest online ticket portal, after ICICI Bank. The company projects that by fiscal year ending March 2008, transaction value on its cards will be around US$250 million, revenues will be approximately $4.5 million and the company will have more than 6 million unique users. “With this growth, we are expecting to have more unique users than credit cards in next two years,” Surya says. To expedite this growth, ItzCash plans to use its private equity funding for product innovation and to advance the payments market in India.

The company says it will roll out a magnetic stripe card in the next six months, which will allow users to pay at the point of sale, and then it will be exploring a co-branded card with banks much like the general purpose re-loadable cards in the US market. And as in the US, the banks have to complete 'considerable formalities' to do such a programme, Surya notes. Eventually ItzCash plans to move into contactless cards that will offer transit services as well. About 500,000 point-of-sale terminals accept magnetic stripe cards in India right now, with a concentration around the top 20 cities and high profile merchants, according to Surya. “Mom-and-pop stores still deal in cash. We intend to work with the bank to utilise tits existing terminals wherever possible and at the same time acquire more merchants to accept our cards,” Surya says. The scratch card will be the pre-dominant product for the next few years, but ItzCash is committed to rolling out a magnetic stripe card and increasing the penetration of magnetic stripe card readers across the country. The company is also watching the development of contactless cards as some public transportation services are testing the technology in Mumbai.

“Having witnessed the positive impact of pre-paid cards on the telecom sector, we believe pre-paid cards have the potential to usher in similar growth in the Indian online commerce market,” says Sudheer Kuppam, managing director, Intel Capital India, Japan, Australia and South-East Asia. “Given the new developments spurring the adoption of pre-paid cards, we believe that companies like ItzCash will play an important role in the alternative payments space.” From Prepaid Media's Paybeforeupdate – the industry resource for pre-paid and value stored cards

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