While numerous FinTech start-ups have started working towards empowering rural India, Spice Money is one such start-up that is working categorically towards the financial inclusion of rural India.

Founder Thesis brings you the inspirational journey of Dilip Modi, Founder, Spice Money, where he tells Akshay Datt about his experiences, from setting up a business in the then-nascent Telecom Industry to running a rural FinTech company.

Dilip embarked on his entrepreneurial journey at the young age of 21. He started a telecom provider business in collaboration with numerous international giants, which eventually got acquired by Idea Cellular in 2008.

Playing on the valuable experience and the distributor network provided by the Telecom Industry, Dilip started Spice Money in 2015 to provide financial services to lower-tier cities, rural areas, and underserved communities while enabling a source of employment for them.

Tune in to this episode to hear Dilip speak about how Spice Money is creating financial awareness in rural India.

What you must not miss!

  • Never take a big leap while setting up a business.
  • Experience in scaling up a telecom venture.
  • Survival tip: Keep pivoting!
  • The idea behind Spice Money.

EPISODE TRANSCRIPT

Akshay 01:36  

So Dilip you are of course from a family which has maybe a century-old legacy of being in the entrepreneurship and business space. Could you tell me about the family legacy?

Dilip 01:51  

Yeah, sure. So I’m a third-generation entrepreneur. Actually, my grandfather built a large business conglomerate, which spanned many sectors, commodities, manufacturing, and utilities. And you know that my father also built businesses in the space of office automation computing. Modi Xerox was one of the flagship businesses that he built. And then I’ve had my own journey as an entrepreneur. The common thing amongst all of us has been that my grandfather, my father, and myself, have all been entrepreneurs. But the way I would say it is that, in effect, we’ve all been first-generation entrepreneurs in terms of the fact that we’ve not run any of the businesses that the previous generation has built. So I think while I’m a third-generation entrepreneur, it’s like entrepreneurship runs in the blood. But effectively we’ve all built our own businesses, and it’s coming from the belief that you know, anything that you build has to be with your own passion and belief. And, sometimes they don’t match with someone else’s.

Akshay 03:13  

You would have had a very unique kind of childhood, I’m guessing. Being part of a family with multiple businesses running? What was that, like, you know, compared to most of us who grew up with a father who would have a nine to five job like, what was your growing up experience?

Dilip 03:33  

So, you know, if I recall, my whole childhood has been more away from home. So, effectively, I grew up in boarding school. And after I finished my schooling, I ended up…

Akshay 03:47  

Was it a tough adjustment to live without parents?

Dilip 03:51  

It was a tough journey, I would say, they were good and bad, right. The fact that I started very early, they say that it’s like putting the devil out of the baby out the bathwater, right? So, I was very, very young, so very excited to be amongst kids my age and doing things together and living together and all of that. So, I would say that it was so early that it was not like I was used to things at home, which were new to me, and I was missing out much. But, yeah, I just adjusted to it very fast. I was always inclined to do engineering, and that’s what I charted out to do. But I guess, I guess destiny has its own ways. So, you know, while I worked very hard, I would say I didn’t manage to get into it. But I did want to continue to pursue my dream for engineering and all of that. So I ended up going to the UK because I realized that if I want to do something I want to get into a good school. So, in the UK you have very specialized colleges. And one of the colleges that I picked up was Brunel University, which was known for science and engineering. And then I was very keen to pursue my dream for electronics and computers. And so I ended up joining Brunel, and I did my engineering from there. And then I was always keen to also go to the Imperial College of Science and Engineering in the UK, so what happened is that post my Bachelor’s, I also got an opportunity to go to Imperial, right, and then not only finish on wanting to be there from an engineering point of view but also pursue masters over there. And so I did my MBA from the business school at Imperial.

Akshay 05:53  

And why did you move out of engineering into management? 

Dilip 05:58  

I guess, what happens is when you grow up in a business family, what happens is that you know, every conversation in the family is around business and so whenever you’re having conversations, which is about companies and businesses and products and services, and, and profit and loss and all that. For me, you know, it was something which I just grew up in, right. And I thought to myself what are the set of core skills I want to build in myself. And so because I did not pursue commerce and accounting and all of that, I thought that if I’ve gone up, and I’ve worked through the science and engineering side, I should also add more skills to myself, in terms of business, economics, accounting, and all. And so that’s the reason I went for a post-grad management program and it just allowed me to learn more about different streams. And so I decided to combine Engineering and Management,

Akshay 07:11  

And you were clear that you would come back to India, or were you like, open-minded about staying in the UK?

Dilip 07:17  

There was stuff happening on campus. But I was very young, right? Like, the reason I did that one year program at Imperial, is because I could do it at the age of 20. Right? Had I decided to go to any MBA school in the US or something like that, it would mean more years of experience and all of that. And because, you know, I guess I just wanted to keep moving. I ended up doing it there. And I guess, for me, somehow the thought of working in the UK or outside India, I don’t know, somehow it did not come to me, right. I guess I was just so much focused on my studies, that really what I’m going to do, you know, in terms of a job or build a business or do something, I didn’t think about it too ahead of time. But it so happened, that when I finished my graduation, at the same time, India was opening up to telecom and the government was looking to issue these new licenses in telecom. And I still remember a call I got from my father, which said that the government is issuing telecom licenses, and this is a completely new industry. And since you’re in the UK, and you’re working there, and engineering and all that, why don’t you think through whether this whole mobile telephony is an interesting space. And, you know, now it seems obvious, but way back then it was very, very new. Right. And so, my dad had done this partnership with a company called Telstra from Australia. And, they had got this license to run a mobile telephone business. And so for my father, it was more like, we’ve done this, but really, I don’t really know whether I want to do this business. And, and so he was running his own set of businesses and all of that. And then he was like, do you want to give this a shot? Because if you do, then you would have to raise capital for it, you’ll have to figure it out and all of that. And so I recall from the UK, I actually straight flew to Australia. And I spent four months in Australia with Telstra just understanding the way they operate the business and all of that, and then after that, I spent a lot of time trying to figure out what we need to build this business. And before I realized it, I was working with them in the city of Kolkata to build a mobile phone network business. 

Akshay 10:10

How did Modi Telstra become Spice Telecom? 

Dilip 10:13

So what happened is that Telstra started facing challenges back home in terms of the competitive landscape. So, their main competitor Optus, which was promoted by SingTel, from Singapore, became very active in Australia. So, Telstra took a strategy to focus back on their home market. So they decided to exit all their overseas markets, and they changed their management team to make the shift. So, as part of that, the group CFO of Telstra spoke to us saying that they have to exit out of India as well. And so, you know, under the shareholders’ agreement, we had a right of first refusal. And so, we had an option to buy out their shares. And that started the journey of Spice Telecom because we ended up getting private equity to give Telstra an exit. And that’s the time when we decided to rebrand the network because we no longer had the Telstra brand. And we thought of our own brand called Spice. And so, we decided to brand the network Spice Telecom and bid.

Akshay 11:27  

How did you navigate the investment scenario? As you said, you got into private equity funds and all that, how did you navigate that? Like, I mean, you obviously, you know, at 25, you have not seen those kinds of things, how did you manage?

Dilip 11:45  

What happened is that, at that time, it was a very new industry. And while this industry was new to India, it was not new to the world. So, a lot of investors have made money in this industry in other parts of the world. So when this industry started opening up in India, investors started looking at this industry in India. So we were very fortunate that we managed to, you know, not only us reach out, but people were reaching out to us. And as a result of that, it was a two-way street. Right. And especially when these new licenses were being issued by the states, the incumbent operators who were operating in this in the metros. Right, they became the logical targets, you know, to create vehicles to expand. What happened is that the government decided to issue national licenses. Okay. And they only decided to…

Akshay 12:47  

When is this like a timeline?

Dilip 12:50  

2001 to 2002. Right. At that time, they only decided to issue two licenses for the whole country. So imagine from issuing two licenses per state, they decided to issue two licenses for the whole country. So in fact, it was the luck of the draw. Right? And because now you had like 9-10 players in the country, all vying for two national slots, and it was very clear that whoever secures these two slots, right, will become the consolidator. Right, because then you have national versus regional, and the way economics works in telecom, it’s a scale business. And you can’t be viable without scale. Right. So at the end of the day, what happened is that as you’re aware, Airtel and Hutchinson ended up securing those two slots to roll out national networks, otherwise, all of us were regional operators. And so, I remember my meeting with Mr Mittal. It was two days before the bidding was to happen. And he told me he said Dilip, I have two options: either I bid for the new license or I buy your network. It was very clear that in the city of Calcutta the market is not big enough to have more than two operators. So, if you have more than two operators, someone will bleed, right. And so, in my mind, it was very clear that instead of bleeding, it is better to unlock value. Then what happened is our investors because like I said, they were prefacing pressures in their home market in Hong Kong. So they wanted to exit India. And so because they wanted to focus on their home market and so we had to arrange for capital to give them an exit. So it was very tough, right? Because here now we’ve exited Calcutta or literally then we are exiting. And, you know, we’ve just got these two circles. There are national licenses that are rolled out. And I just thought to myself, I said, you know, this is a crazy situation, right? Who would give me capital to buy help buy out my investors, right? In a market that is getting consolidated. And as things have it, sometimes they know things have a way of working out. And I remember being introduced to Telekom Malaysia, the operator out of Malaysia, the leading operator from Malaysia, and I remember having a meeting with them. And the first thing I walked in, and I said to them, I said, guys, you know, I’m not a national player. I’m a regional player. And I remember their CEO telling me, they said, Dilip, what is the population of Punjab? And I said, about 55 million people. And they said, what is the population of Karnataka? I said, 85 million people. So they said, that is like 140 million people, right? What is the population of Malaysia? As I said, 20-25 million people. So they said, you know, there you have your answer. Right? So the thing was that for us, it’s not about national or local. The question is that if every market can support two operators, they don’t maybe one of them can be regional, right? Because India is not one market, but multiple markets. And so, yeah, we are excited. We have to come to India. And we like what you guys are doing. We like the brand. We like the story. And we’ll come and work with you. Right? And so they ended up investing, we ended up doing a partnership with Telekom Malaysia. I managed to give an exit to all my investors. And like we started our journey with Telstra. We kind of ended it with Telekom Malaysia. So in fact in a way in between, we got private equity. But, we finally ended up with a strategic operator. That was Telekom Malaysia. Right. So and then we took the time that we took the company public, because then we said, “Okay, now we want to raise money, we have to go public,” because where else do we raise money from? So we took the company public, we listed it. So when we were going public, I remember we were making this storyboard and all of those things. And then, you know, Telekom Malaysia, and we were doing roadshows and all of that stuff. And just after we closed we had this issue of going national, right, and we had also started procuring some licenses, and all that. And so we got a bid from Idea Cellular to buy our business because interestingly, in their footprint, the main two states that were missing out in the 900 megahertz spectrum were Punjab and Karnataka. So, they said that they would like to buy our business. Right. And then we had a board meeting and we sat down and we discussed it. And we said, okay, guys, we have two options, right? Either we roll out of an organic network across India, or we merge with Idea Cellular Punjab and Karnataka. And, we ended up becoming a part of an All India network. Right? Because Idea was building a national footprint. Right? So we said, Okay, two options, and then that’s where Telekom Malaysia guided me that we should merge rather than build because the government had issued nearly 10 national licenses. So, they said very clearly that the economics doesn’t work out. It’s better to be part of an existing network. Rather than go out and build an organically new network. It’ll just consume more capital and the competition. So if you recall, many of the new players who got licenses, right, most of them ended up shutting down their business.

Akshay 19:27  

This merger happened on the eve of your IPO?

Dilip 19:32  

So it was very interesting. I was on a roadshow. I remember I was in the UK, and I was making presentations. And I got a call from a banker. And so it was very funny. I was having two conversations: an IPO conversation and a merger conversation. And it was going in parallel, right. And I was so confused in my mind saying, Should I take this company public or should I just sell it? But I think we’ve just gone down so far in the roadmap of taking it public, that we decided to list the company. We said we have to list it, because if we don’t list it, we just committed, like we had gone way down the whole roadmap of listing the company, plus merger discussions can fail. Right. So we said that you know, let’s not wait for those negotiations to close. Because if we wait, and it doesn’t happen, and we don’t go public, then we lose the opportunity. Right. So as part of those negotiations, it so happened that Idea Cellular was backed by the Birla group, and they were already there as a strong Indian player. I decided that you know, there was an opportunity for us to take a cash exit rather than take shares because there were just too many of us in the room. Right. And, and so I guess, in July 2008, I exited the mobile network industry through a strategic exit.

Akshay 21:10

When did the IPO happen? 

Dilip 21:12

Just a quarter before.

Akshay 21:13  

Okay, in 2008 both IPO and merger.

Dilip 21:19  

Simultaneously. And as things have it, September 2008, October 2008, Lehman Brothers happened. And the whole economy, the global economy went for a toss. Right. Yeah, so my journey, which started in 1996 finally in 2008, ended up exiting the mobile network industry.

Akshay 21:45  

Okay, okay. So what’s next? From running a large organization to now, you know, like, what did you do next?

Dilip 21:57  

So very interesting. So now, what happens is that they don’t like it when you’re running a telco business, right, it’s a very prominent business. So because, you know, this is the only thing I’d ever done. For me, the natural thing was to do something which is connected to this, right? Because in my mind, the whole idea was that this is all I know, right? Like, I’m living and breathing Telecom, right? Every day. Right? So what are the other opportunities I can build around this? Right? So rather than go into a completely new industry, what else can I do within this industry? And I remember, we had some strategic consultants that we then started engaging with as a strategic investor. What started happening is when we were building Spice Telecom in Punjab. Airtel had launched in Punjab, as a national player. Right. And they came in with all guns blazing, in terms of offers and campaigns and all of that, and here’s a big national player coming to Punjab. And here we are a regional player trying to compete, right? So you can imagine the David versus Goliath story kind of thing. So we had to survive, right? And we had to thrive. It so happened that day, a blessing in disguise. I started looking out for ways to, you know, differentiate. And it so happened that I came across this new dual SIM technology, where at that time, Nokia and all these mobile phone companies only had a single SIM on their phones. Right. But I found out that in China, there is this dual SIM technology wherein a single phone can have two SIMs. So we ended up importing our first batch of dual SIM phones from China? Right? We branded them Spice. Right. And we ran an offer, which said to all Airtel customers that use Airtel in the day, use Spice in the evening. And it’s free, right. Because our network was relatively free at night. So we had this campaign run where we encouraged all the Airtel customers to take a spice phone, put their Airtel SIM in one slot, and their Spice SIM in the second slot and use it in certain hours where we gave them free calling, right? And we saw a huge rush of, especially youngsters, you know, at all these guys, you know, who wanted to talk late at night and all those things, you know, these night packs and all that stuff. And it became a huge success. And, you know, what started happening is they started giving that number out. Well, at that time, there was no number portability. So, because of that, we started getting some traffic in the daytime also. So it actually became a very viable model. So what happened is that within Spice Telecom, we created a handset vertical, right? And we called it Spice Mobile. And because the customer was the same, like, we were targeting the spice user, and we were trying to churn the user from Airtel to Spice. So the brand was Spice, right. So we started this vertical within Spice Telecom. And when we sold Spice Telecom, the buyer was not interested in this business, because they said we don’t want the phone business.  So we ended up taking over that vertical. And then, you know, then we realized that this is an industry of its own – Dual SIM mobile, and this I’m talking like, now you’re talking 2000s, between 2005 and 2008. So, we launched India’s first dual SIM phone in 2005, kind of thing under the name Spice Mobile, right. So in 2008, when we sold our business, by then China 50% of the handset industry was taken over by the dual SIM manufacturers. Today you know them, Oppo, Vivo, Huawei, all these guys, right? And India was still a Nokia market. Nokia and Samsung. So then we realize that there’s maybe an opportunity that India will replicate China. And so we said that let’s grow this business. So we said okay, we’ll build this dual SIM phone business and continue the Spice brand. Then instead of just selling in Punjab and Karnataka, we will sell across India. And because the brand was no longer a telecom brand, we kind of said, Okay, it’s a logical extension of the brand. Because from Spice Telecom, we became Spice Mobile, right? There was a little difference where customers were thinking of us in Punjab and Karnataka is a network brand. But outside Punjab and Karnataka people didn’t see us as a network brand. Right. So to that extent, we said, okay, there’s some overlap in Punjab and Karnataka, but maybe the larger opportunity is bigger. And so then, Spice Mobile became a line of business that we had an opportunity to think of post selling Spice Telecom. And there was this other business that had started which was called Spice Digital, which was basically, you know, we used to build a lot of content and application work in Spice Telecom. Like value-added services. And so what happened is that, you know, after selling Spice Telecom, there was no conflict of interest with other telcos. So, we thought that our IT team or engineering team can also now build solutions for all telcos. Right. So these two became our spin-offs, right? And it was called Cerebrum Technologies at that time. Right. So that later it was Spice Digital. And so when I sold my network business, I immediately started seeing my opportunities to scale up, both in terms of the dual SIM hardware business, as well as the value-added services business for telcos. So I immediately jumped from running Spice Telecom to thinking of these two businesses, and what should I do to scale them? So it kind of was a related journey, but a new journey, right, where I moved from infrastructure to hardware and services. That’s the new journey that I started in 2008.

Akshay 29:14  

You sold the telecom business and you had Spice Telecom as one venture to scale up and you had Spice Digital as the other venture to scale up. So tell me about the journeys of these?

Dilip 29:29  

So we had Spice Mobile and Spice Digital. Effectively, Spice Telecom was an infrastructure business and Spice Mobile was a hardware business and Spice Digital was a services business. So I continued with Spice in the consumer space through the hardware business. And the reason we branded services businesses Spice Digital is because our main customers were telecom operators. So that helped us and we ended up focusing on these two businesses. And so one of the things that happened next is, as we thought about building these two businesses, right, one of the things I also realized is that, when you build a business, you know, competition can come from anywhere. And at the end of the day, you have to understand whether you are part of a local playground or a global playground? And so, when we thought of the mobile hardware business and the services business, we realized that there’s no limitation to geography here. Because it is not about regulation, right, like Telecom was heavily regulated. Right. So the reason we could not go national is that the government decided to issue only two licenses at that time. So now we were in relatively unregulated spaces. And here, competition can come from anywhere. And so we said, now, we want to scale so we have to think not just about India, but at least regional if not global, because now you’re competing with Nokia, Samsung. And in the services space, you can go anywhere. Like all these IT service companies. They serve customers globally, right. So we said that you know, why not? Why not think outside India? And that is the time for both these businesses we started envisioning not just an India strategy, but a regional strategy. And, yeah, but it always started with hiring a country manager.

Akshay 31:29  

And what were the services of Spice Digital?

Dilip 31:31  

So what happened is that, you know, if you look at telecom networks, their main product is voice and data, right? But then, they also want to build other services, right? Because they are these big pipes through which content can flow. So the first set of services that we enabled for telcos was content services. So for example, music, music streaming, gaming. So we built a lot of music content related services, a lot of portals, games, and a lot of entertainment content, right. So we ended up going to geography like Africa, right? And, partnering with all the local content providers and bringing them on a platform so that the telco could then launch a service for their customers. So initially, it was not even a VAP portal in those days, because the internet was still picking up, right internet connectivity. So initially, it was an IVR portal, right? An interactive voice response, where our flagship product was called Mobile Radio. So you’re listening to music by dialling a number. So our flagship product was to host music content on a server. And people were dialling into that server and they could choose the song they wanted to listen to. And it was basically getting into the radio business, using mobility. And, then we move to VAP portals. And now we are doing apps. So as the telcos have invested from voice to data to video, we’ve also graduated in terms of building products and services for them.

Akshay 33:22  

Now you’re doing apps for telcos or apps for any startup or anybody because I mean, telcos are not really investing in apps.

Dilip  33:32  

So there’s a difference between India and other markets. So what is happening in India, you have Airtel doing the Wynk music app. Right? That is an app from the Airtel family, right? And as you see players like Jio have bought out Saavn. So similarly, there are many telcos in Asia and Africa who are wanting to have their own suite of apps. So we are working with telcos in those markets where now we are working with them to not only build the app, but the UI/UX, the whole content management system, and all the digital components, and again, running it as a managed services model for them. So whether it be Indonesia or countries in Africa, right now we are doing it. So now this company Spice Digital, Akshay is today what is called DigiSPICE technologies, which is our main flagship company. Which is a journey right now but between 2008 and 2018 while we kept building Spice Digital, we really focused a lot also on the hardware business Spice Mobile, and if you recall during that time, the leaders were players like Nokia, right? Like we were Nokia country, right? And at the same applied to Asia and Africa. These were all Nokia markets, right? Because it was on a feature phone and all that. So I remember at that time when we went outside India, we decided that we would build a very significant player, we will be a number two to Nokia, but a very strong number two driven by dual SIM and a lot of focus on industrial design. And if you recall, the Nokia phones at that time were mainly bar-type phones with those keypads, right. Grey in colour, black in colour, right. But coming out of China, we had all these flip phones, we had colourful phones, so a lot of focus on industrial design. And internet connectivity just started. So we had the browser come into the phone. So we could build portals embedded in the phone, so a bit of service. So a lot of our Spice Digital stuff we were working for telcos, we started integrating those services in our Spice Mobile phones as well. Right. And so when we grew outside India, and we combined the India business, our strategy was that we will build a parallel to Nokia. Right? But be more like a local champion, right? At the same time, you would see companies like Micromax, Karbon and Lava, many of these companies also came up in India and similar companies came up in the other regions. But then what happened is that business required a lot of investment in terms of inventory, and, and branding and all of that stuff. And when technology moved from feature phones to Android, right, that’s when a lot of companies fell off the cliff, including Nokia. Samsung rode the Android wave. Nokia went the Microsoft route and all that, right. So yes, this shift from a feature phone to a smartphone, right, is one shift that we as a company could not manage, right? Because we had invested a lot in inventory, across Asian markets. So I remember at that time, we had over a million smart feature phones that we had to write off in our books. And it had a huge impact on our balance sheet and all of that stuff. So that was a big learning for me, right? That we had this great ambition, which we were chasing, but we got hit by this technology shift and we could not manage that. Right. And we ended up going through this very difficult restructuring phase, right? Because when your balance sheet and write-downs and all that, losses and all that, you go through a lot of pain, right? A lot of Indian companies survive that pain because they are focused on India. While we had diversified geographically to Indonesia, Malaysia, Thailand, so the pain was bigger. So we decided how we should look at it? So then came another point of inflexion.

Akshay 38:17  

What was the lesson for you in that? 

Dilip 38:21  

So I think the biggest lesson for me was that sometimes don’t try to take a big leap. You know, when it comes to trying to build a business, right? I think the biggest lesson for me was to go at it step by step. Like for example, we thought that we could differentiate ourselves in the market by moving from a basic feature phone to a full-screen smart feature phone, right? And we bet the company on that strategy, right? Because we built nearly a million phones in that strategy. In retrospect, I would have taken a smaller step. For example, instead of a million, I may have done like 100,000. I would have first explored and seen whether it works or not right and if it works you scale it. So to me, the biggest thing was that when you’re building something do you, not pilot it, take that baby step test out the market fit and when the shocks come they don’t hit you that bad right because you kind of ring-fence a bit. But we were like these charged warriors out there. And there was this kind of we can go and get it and all this and we didn’t see this tsunami coming. So sometimes, while this aggression is good but you know, you just want to make sure you don’t bet the house and my biggest learning was never to bet the house, So today, it’s definitely helped me through my journey now where every time I need to take a big decision on something new, I try and take it one bite at a time, rather than take a huge big bite at it. And then tomorrow, I don’t know whether I’m betting the house or not. Right. So that was my biggest learning out of that. And, because of that, we ended up facing a huge financial challenge. And we had to shut down our hardware business outside India. In India, we still had a good business that was running. But when you end up taking that kind of pain, right? Your view on the business starts to sour, you don’t know exactly whether, you know, you can make it not make it and all that stuff. And so we decided that let’s just focus on our services business. Right, let’s try and scale up this. Let’s see where we can take this business. And we’ve learned from this journey, but let’s see, let’s build a new business. So while at Spice Telecom, I managed to take the company public and finally got a good exit. In the Spice Mobile case, it turned out to be a journey where I had to shut down the business which was a different experience.

Akshay 41:31  

I remember the Spice retail outlets, multi-brand retail outlets.

Dilip 41:39  

Yes. So what happened there was that we had this deal, which is part of the Spice Mobile business. So what happened is that as we were building out Spice Mobile, Akshay. We also rolled out these Spice stores, right? Which were initially to support the Spice Mobile phone business, because you see, everyone was stocking up Nokia phones. So how do we get people to experience the Spice phones? So we ended up setting up our own stores? And that is where Nokia had their own stores, we ended up building our own stores. But because customers coming into the Nokia stores in Nokia were only looking for Nokia phones because they had 90% market share, we had to show them all of the phones. So those Spice shops became multi-branded, but they were effectively part of the Spice Mobile journey. Right. So obviously, when we shut down the Spice Mobile business, right, we ended up exiting from that retail business as well, because it was very much part of the mobile business. You know, so I didn’t talk about that, because that was really part of that overall journey that we took and Spice Mobile. Right. So in my first company, we did a strategic exit. The second company we had, it didn’t work, we failed, and we shut down the business. And then we were left with our services business. Right. And we were working with telcos. And then we said, we want to diversify and do more in this space. And that is a business that we started building. I think it was really in 2014-2015, right when I really started focusing full time on Spice Digital. And as we started seeing what more we can do in this business. Now, of course, when you look at the services space, they’re so much right, in terms of not just working on digital platforms for telcos. But you can become a digital platform and solution provider for so many industries. And so when we started looking at this business, we said, “Okay, we understand digital, we understand apps, we understand digitization as a concept, right, how can we take this experience to other industries?” Right. So, you know, we started moving out and looking for other opportunities in other spaces. We’re very proud that one of the projects we got was from the Government of India, right to build a G2C app called Umang. So Prime Minister Modi in 2014, when he took power, he brought in this Digital India vision. And as part of that vision, he wanted to digitize all Government to Citizens Services. And the IT department envisioned this mobile app called Umang, which stood for, I think it was a Unified Mobile App for New-age Governance. And it was an RFP. So we at Spice Digital bid for that. And we managed to win that RFP. And so we ended up building the Umang app for the Government of India. So that became our way to start our digital platform journey. So we started working with banks, we started working with insurance companies we worked with which we continued our journey with telcos. And then really, Spice Digital became this playground for trying out a lot of new things. Right? And do you know not only building solutions for the government, but also for other enterprises? And Spice Money, which is the FinTech business that they know we are building today was a project that got born out of Spice Digital. And this was one project that got seeded so we had lots of projects being run as incubation in house and this project got born in Spice Digital and later got spun off as Spice Money.

Akshay 45:58

What was the idea behind Spice Money?

Dilip 46:00

So what happened is one of the things as we were rolling out the business, again, learning out of the telecom business, right? We realized that the mom and pop stores like that are selling these recharge vouchers, right? Are at some stage going to get digitized, right? Because we knew that smartphone penetration will grow, internet penetration will grow. So the traditional distribution of telecoms will also go digital. Right? So we said why don’t we build an app? For the merchant where he can buy recharge, using the digital platform, rather than traditional, right? So the journey started as a project for that. So amongst many projects we were doing, this was one very, very small project that was happening, which was like a digital recharge platform for a merchant. And we started that as Spice Digital. Right. And then before we realized it, once we got him to use our web app to do recharge, right, we realized that we could also enable other services on them. And so, the next service we started was remittances because most of this recharge platform got adopted first in bigger cities in urban India, right. So because they were the early adopters of digital. So, we could enable on the same platform that when people were coming to recharge at their shop, people could also come to the shop and give cash to sell back home in rural India. A lot of workers, labourers, and all that sending money to rural areas, where you come somewhere to deposit money to put cash in the bank. So Sunday from recharge, we added remittances as a product. Right. And we saw that it really picked up.

Akshay 48:11

This is also how Vodafone’s M-PESA experiment worked out, right? They had something similar.

Dilip 48:15

Exactly. So that in fact became the genesis of what is called payment banks. Right. So then the RBI came up with this whole licensing around payment banks. That’s why you see Airtel payment bank, Jio payment bank because it all started on the back of the recharge merchant. Right. So we saw the remittances use case really pick up Akshay. And I remember a meeting I was sitting at where we were reviewing many projects, and this was one of the new bets. We were reviewing. And I remember the team that was leading it, they just walked in the room and showed me a hockey stick. Like, like they just showed me like, last quarter we did x and this quarter, we’ve done like 2x. And by the way, next quarter, we’re going to do 4x. And I was like, Guys, what are you doing? Right? Like, who are you? What are you doing? And they were like, we are doing this project. So suddenly, they got excited because they believed something was happening. Right? And I’m like, Come on, guys, you know, this is like one of the projects I do. I was thinking more like building Umang and building all these big projects. And suddenly I see this hockey stick. Right. And that, you know, I think they had half an hour in the meeting for the presentation. And we cancelled all the other presentations and we said okay, let’s understand what’s happening here. So then we dug deep. And we realized that there could be an industry of its own, an opportunity of its own. And then the biggest thing which convinced us that this is a play of its own is what started happening was that when people were sending money back home, right, then people were going and withdrawing money. But then the third product that came was Aadhaar enabled cash withdrawal. So what started happening was one was remittances, the other was withdrawn. So what started happening is, when we labelled the APS product on our platform, we saw a whole different profile of merchants. Sign up for our platform. And most of these were from villages in rural India. Because that is where the money was going. And that people were coming to the shop to withdraw cash. So what was happening in the remittance product, that people were going to the shop to send cash. And what was happening in the withdrawal product, people were coming to the shop to withdraw cash. So we saw that that product had also begun to scale. 

Akshay 51:00

How does that work though, Aadhaar enabled cash withdrawal?

Dilip 51:04

It’s very simple, the bank account linked with that. Very simple that now most bank accounts are getting a link to the other. So what happens is that in villages now, Akshay, while the government opens 300-400 million Jan Dhan accounts, and they send the subsidies directly to the account, a person has two options to withdraw cash. Either he goes to his nearest ATM or a bank branch, which is quite a distance, right? Or he goes to a local merchant, which is onboarded on a digital platform like ours. And he authenticates himself using Aadhar and through our platform, we enable the money to move from his account to the Merchants Bank account. And the merchant pulls out cash and gives it to the customer. So that’s how it works. It’s very simple. So it’s riding on the Aadhaar stack. So when we saw these remittances and ATM use case pick up, then we realized that guys now this is like a blue ocean. Because urban India is one opportunity. But the moment you get into rural India, right? Can we grow on the back of this use case of digital ATM, right? And that’s what convinced us that this has legs of its own. And we decided to spin this business off and brand it as Spice Money. And we said we’re going to chase the rural consumer with a platform that can enable them to deliver financial services. 

Akshay 52:39

When did this happen?

Dilip 52:41

So this happened two and a half years back.

Akshay 52:44

How big is each of these businesses today?

Dilip 52:49

So we are still very young in our journey. This I would say is my, what I call my third leg of startups, right? I would say Spice Telecom, Spice Mobile, Spice Digital, those are my first and second, this is my third journey in my entrepreneurial journey. And where we are, is that if you look at our numbers, last financial year, we did a turnover of over 700 crores.

Akshay 53:18

I have a question. How did the merchant onboarding happen? How did merchants discover you? Or did you have a team of people who were out visiting villages and signing up merchants? Like how did that happen?

Dilip 53:33 

We, of course, had ours in house project team which was doing this work, which was meeting merchants, the early adopters and trying to figure out. But the early adopters of more in big cities, you know for the recharge remittance use case, obviously.

Akshay 53:49

This must have been almost like a decade back the recharge remittance use case.

Dilip 53:54

Yeah, so I think this project must have been. Yeah, I think a decade back was 2012-13. You know, they played around with this product and all that. But I think it was around 2016-17 when we saw this really pick upright, the Aadhar integration, bank account and all that. Right. So I think that

Akshay 54:19

You had that legacy set of merchants who were using it for recharge and remittance. 

Dilip 54:23

Yeah. And this was with whom we piloted the Aadhaar enabled system. And then of course, as Aadhaar seeding into bank accounts grew the adoption of this platform with merchants grew.

Akshay 54:36 

And was it organic, like spreading through word of mouth?

Dilip 54:39 

It was organic but then we also had a distributor layer. So we started appointing distributors as partners in different geographies. They played the role of onboarding merchants for us. So they used to have feet on the street. They used to go out and identify merchants, and send us their documents. And we used to help onboard. And this is a business we had learned in Spice Mobile, you know, appointing distributors who appointed merchants. The only difference was that they were buying a product like a phone and selling it to the merchant. Here, they were getting us, merchants, onboard onto our digital platform, which is we have an app. But effectively, the aspect of having distributors in every geography was something that we had done at Spice Mobile. And a lot of these distributors were like telco distributors who had access to the larger merchant network. Because the distributors of the telcos are like the FMCG and the tobacco company distributors, right, like, they have to make recharge available even at the paan shop. So to that extent, they know we were able to tap into that distributor network. And then they started helping us onboard merchants and also, you know because the product had a pull. Because wherever there was no ATM machine in a town or a village, the merchant saw a use case, right? Where they could suddenly solve a problem for the customer. So instead of travelling that distance to find the ATM machine, the customer could withdraw cash at that merchant point. So I think it was basically the use case that also drove the adoption.

Akshay 56:37

Okay, and how does the P&L of the merchant look like and a distributor? What is the upfront payment they make? And then what do they earn?

Dilip 56:48

This is a complete transaction led business model. So more than payments and all that I think upfront is more about KYC. They know that they have a valid bank account number.

Akshay 57:00

But you give them a device, right?

Dilip 57:02

I think in the early days, we used to give them biometric. But now most of them because biometric is now needed for a lot of use cases, including telco. So a lot of the telcos have already given the biometrics to all the merchants. So a biometric is not required because these are all interoperable. So wherever required, we give it like in the initial days, we used to give the biometric machine now we don’t, or wherever it is required, it’s available. And now what we started giving them is a card device, right? Where in addition to using Aadhar biometric to authenticate yourself, you can also authenticate yourself using a debit card. And so we’ve started giving them a small PIN pad device, which can accept a card, right? So like a partner, a machine, because now one thing, which is there with all the bank account holders is a debit card. What they don’t have is a credit card, but they all have a debit card. So basically, we grew on the back of this, and then we started layering other use cases. So when we reached a village, we realized that there could be multiple use cases, right? So for example, if he’s coming to the merchant point, to do his recharge or to withdraw or send money, then he can also at that same merchant point, pay all his bills, his electricity bill, his water bill, his gas bill. Again the problem of access, right? Because to pay his electricity bill, he has to go to the electricity office, you know, and stop and stand in a line to pay their bill. So again, can he pay his bill at the nearest merchant point? So we started building a lot of payment use cases on the back of this, and that’s how the whole Spice Money story started. And of course, during the last one and a half years, we have seen a 3x growth in our scale. Because the need for cash in rural and semi-urban India has grown. And the government has sent a lot of money in the form of subsidies into people’s bank accounts. And so the need for infrastructure, a network where you can go and withdraw this money. So I think we managed to set up or start this platform at the right time because when it was most needed, we had a ready platform. You can imagine a situation that if they were not platforms like ours, and the government had to distribute subsidies during the pandemic time and there was no ATM in the village, then how would people get access to that money? Now we are converting every Kirana store into an ATM. Right? So because smartphone and internet connectivity has reached every village, you know, we are able to deploy a platform on every smartphone of every Kirana store in every village. So that’s what I think was a very timely start to this project.

Akshay 01:00:28

Tell me about the growth numbers, like what was the merchant base pre-pandemic? What is it today? What kind of transaction numbers or revenue?

Dilip 01:00:37

So basically, we were growing at a pace of about adding close to about 5000-7000 merchants a month, right? That was the pace we are going up till the pandemic, I think maybe I would say, 5000-8000 merchants a month, from April 2020, when the lockdown started, our onboarding on our digital platform went up to 30,000 a month. So we went from 7000-8000 to 30,000 a month. And as a result of that, we’ve ramped up our network. During this pandemic time, we added over three and a half lakh merchants in one year. So we literally doubled. When we were about, what can I say about 200,000-250,000 merchants pre-pandemic, and as of today, we are close to 700,000 merchants. So we’ve been growing the network at an average of about 30,000 a month, and now we are getting ourselves ready for the next phase of growth.

Akshay 01:01:47

What is the next phase? Are you going to increase the coverage of products? Is it geographical coverage?

Dilip 01:01:55 

Both. So the next phase of growth is definitely around both products and coverage. Right. On the coverage side, we have realized that, while we grow organically across the country, right, there have definitely been pockets where we still do not have enough coverage. So our goal is that we think that we can get to at least, you know, a much bigger scale than where we are because what is happening is there are many districts where we are densely populated. And by dense, I mean like one APN per 1000 rural population. While there are many districts where we are sparsely populated, out of 700 districts in the country, I think, from a dense point of view, we are still between 100-150 districts. So they’re still about 550 districts, where we can go dense. Because our goal is that on every street, we should have a Spice Money Adhikari, at least one, right so that we can get it because our goal is to go as close to the customer as possible. And to the doorstep of the consumer. So obviously if you look at the nature of the market, you have 30 million merchants. So how many of them can be boarded onto our platform is the goal. And so we did call out our goal that we want to get to about 10 million entrepreneurs that we want to digitally and financially empowered. So that’s about one crore. Right? So against that, we are at seven lakh. So still a long way to go.

Akshay 01:03:33

Yeah. timeline for this goal?

Dilip 01:03:38

Well, I just got off a call with my team this morning, I’ve shrunk every timeline by half. So that three-year goal has already become one and a half years and one and a half year goal has become six months, and six-month goal has become three months. So I think we are trying to grow at the speed of the Internet economy or even faster. I don’t know, which is the faster speed of light or the speed of the internet economy, whichever is faster. The second is in terms of products. I think what we have is what we are now beginning to think of ourselves at Spice Money, Akshay, is in terms of reimagining a bank branch. So now, going forward, everyone talks about Neo Banks, and the future being that of Neo Banks, right where they know there’s no branch, people are onboarding themselves using their smartphone and all that. Now, while we agree that that’s the future, we also believe that in semi-urban and rural India, there is a huge need for assistance. So, I think the bank branch as you and I know it needs to be reimagined for rural India and for semi-urban India. And so the idea is that can my Adhikari also in addition to being an ATM, be a bank branch.

Akshay 01:04:56

What does that involve?

Dilip 01:04:58

When you think of a bank branch, right? You don’t go to a bank branch just to deposit and withdraw money, right? You go to a bank branch for many products, right? You go to open an account, you go to get a loan, you go to invest in a savings product, or mutual funds or banks have also started offering insurance products. So if I think of what a typical bank branch does, in terms of product offerings, I can reimagine that bank branch at a rural merchant point. So can my rural merchant function like what a bank branch functions? That’s where our next journey is going in terms of products. So the idea is that of this network we are building, how many of them can also play the role of a bank branch. So we believe our hypothesis is that while we agree that the future is branchless, what we believe is that the need for assistance in terms of KYC, the need for assistance in terms of education, the need for assistance in terms of direct product knowledge, all this is very paramount. So you know, we’ve interacted with many Neo Banks. And what we realized is that you know, that assistance can be a huge top up, right. And so you can imagine that everyone is doing everything on their smartphone. But in addition to that, if there is a place where people can go, and not only transact using cash, but more importantly, get assistance on uploading their documents, providing additional KYC related needs, and that point also becomes your point of collections. So tomorrow, Neo Banks can lend money. But we know that lending money is one thing, but collecting money is another, right? So while you can have a standing instruction from the bank account, but if you have a network on the ground, that can double up in terms of all elements of loan origination, loan documentation, management operations, as well as collection, then I think this can become a huge asset.

Akshay 01:07:17 

So how deep do you want to go into these products? I mean, you know, one approach could be that you just tie-up with a whole bunch of FinTechs, and become a sales platform for them. Or the second could be that you actually get an NBFC license and do lending or get an insurance broker license and sell the insurance yourself. So you know, how do you plan to do that?

Dilip 01:07:40

At Spice Money, we see ourselves more like a rural FinTech platform business. So what we are building out is a platform business where we will enable third party products. And we will own this digital network of merchants and entrepreneurs, through whom we will enable the delivery of these products to end consumers. So I think, at Spice Money, we are wanting to roll out a platform business. Having said that, they know if we see gaps in terms of the lack of credit products or lack of insurance products with third party manufacturers, there’s nothing stopping us from creating other vehicles, which can help us bridge those gaps. But Spice Money, we see ourselves as a platform business, which is working with third-party FinTechs and platforms for enabling financial inclusion within rural and semi-urban India.

Akshay 01:08:40

Would you look at acquisitions, I mean, you know, an acquisition could be a quick way to bring these products into the platform.

Dilip 01:08:50

We’re actually open to all options, right, organic and inorganic. And I think what is exciting us is to evolve around and with the rural consumer. And that’s what we will do. We will also keep our eyes and ears open in terms of which other startups who are wanting to target the rural consumer and the rural merchant and we will definitely, at the least offer them our platform as a way to access millions of merchants and consumers in rural India. And at the least, we can also go as far as investing and acquiring them, if economics works out at both ends.

Akshay 01:09:30

Okay. So these seven lakh merchants that you have, do they get classified as you know, I’m assuming they would be like 80-20?

Dilip 01:09:40 

Yeah. So of course, within this, you have different categories and profiles of merchants. So for example, there are pure financial merchants, right, who only do this business. Like a 500 square feet, a store or a room, right? Where they are sitting with their laptop and their mobile phone and people are walking in and all that. 

Akshay 01:10:04

Right. So yeah, how much would such a merchant earn?

Dilip 01:10:06

So our goal is that the merchant should earn at least 50,000 rupees a month. That’s our goal, right with every merchant. Now, it all depends on the effort and the focus that the merchant puts on the business. Obviously, the pure financial merchants end up earning more, right? Because they run this as a core business, right? But not a cohort of merchants or general Kirana stores, right, who would be more sitting in that whole 5000 to 10,000 rupees a month, kind of bucket. So our goal is now to add more products. We have recently rolled out a travel product for the merchants.

Akshay 01:10:54

Which I think was an acquisition, right?

Dilip 01:10:57

We created a separate platform called Travel Union in a partnership with Mr Sonu Sood. So we’ve rolled out, so Spice Money and Travel Union, and we’ve integrated the Travel Union product into our platform. So, this was a case where we did not find a B2B travel tech partner, right, like they were partners, but more B2C focused. And if they were B2B focused, it was more in urban India, not in rural India. So, we ended up rolling out a B2B travel tech platform for rural India. So, this is to give you an example of you know, if we do not find a partner, we create another vehicle in which we roll out that business. And through that, we are enabling our Spice Money Adhikari merchant to also become a travel agent.

Akshay 01:11:56

He can sell train tickets, I am assuming a bulk of the transaction will be train tickets.

Dilip 01:12:00

The majority of the transactions are train and bus and also going forward like accommodation, right? And then various packages.

Akshay 01:12:11

Accommodation like Oyo Rooms?

Dilip 01:12:15

Exactly, like I won’t quote anyone but a network like Oyo Rooms. Right? So if a person is travelling, then you know, how do you enable them to be able to get an end to end service in terms of both transport as well as accommodation, and then other benefits that go with it? So for us, we are rolling out multiple use cases, the financial services are the ones that are most exciting, but we’re also seeing excellent traction in products like travel. And also what we believe is another use case that we’re working on is tying up with a lot of enterprises working in rural India like microfinance and others, who still have a huge effort on cash collection. So, now, what is happening in many of these microfinance companies have a network of loan and collection officers who go and hold these meetings and self-help groups to give loans, but they also go to collect the money. Now, when they collect the cash because a lot of the dispersal has got digitized, the collection is still not digitized, right? So, they have collection officers going into the village to collect the cash and going to the branch to deposit the cash. Now, we are trying to reduce the cost of collection by something and our Adhikari can be my collection officer in the village. So we are bringing down the cost of collections within the value chain and we hope that that will help them bring down the cost of a loan to the customer. So we are seeing such kinds of use cases also built upon our platform.

Akshay 01:13:59 

Okay, let’s quickly spend a couple of minutes on Korero. So what can you tell me about it and the idea behind it?

Dilip 01:14:07

Why Korero is exciting to us is because, you know, at DigiSpice Technologies, we’ve been working with large enterprises like banks and utilities to enable their communications with the end customers using mobile channels like SMS and voice and digital channels like WhatsApp and email. So what is happening is that you would appreciate that a lot of communication with end customers of an enterprise is now moving from mobility to digital, right? Whether it’s a customer key use case, whether it is a marketing use case, whether it’s a transaction use case. So a lot of banks, for example, all your OTP works on SMS, right. So what you have is small banks, you have large banks, you have insurance companies, the need for automating communication is paramount.

That was Mr Dilip Modi telling us all about his wonderful journey and about building Spice Money. If you would like to know more, log on to www.digispice.com.

While numerous FinTech start-ups have started working towards empowering rural India, Spice Money is one such start-up that is working categorically towards the financial inclusion of rural India.

Founder Thesis brings you the inspirational journey of Dilip Modi, Founder, Spice Money, where he tells Akshay Datt about his experiences, from setting up a business in the then-nascent Telecom Industry to running a rural FinTech company.

Dilip embarked on his entrepreneurial journey at the young age of 21. He started a telecom provider business in collaboration with numerous international giants, which eventually got acquired by Idea Cellular in 2008.

Playing on the valuable experience and the distributor network provided by the Telecom Industry, Dilip started Spice Money in 2015 to provide financial services to lower-tier cities, rural areas, and underserved communities while enabling a source of employment for them.

Tune in to this episode to hear Dilip speak about how Spice Money is creating financial awareness in rural India.

What you must not miss!

  • Never take a big leap while setting up a business.
  • Experience in scaling up a telecom venture.
  • Survival tip: Keep pivoting!
  • The idea behind Spice Money.

EPISODE TRANSCRIPT

Akshay 01:36  

So Dilip you are of course from a family which has maybe a century-old legacy of being in the entrepreneurship and business space. Could you tell me about the family legacy?

Dilip 01:51  

Yeah, sure. So I’m a third-generation entrepreneur. Actually, my grandfather built a large business conglomerate, which spanned many sectors, commodities, manufacturing, and utilities. And you know that my father also built businesses in the space of office automation computing. Modi Xerox was one of the flagship businesses that he built. And then I’ve had my own journey as an entrepreneur. The common thing amongst all of us has been that my grandfather, my father, and myself, have all been entrepreneurs. But the way I would say it is that, in effect, we’ve all been first-generation entrepreneurs in terms of the fact that we’ve not run any of the businesses that the previous generation has built. So I think while I’m a third-generation entrepreneur, it’s like entrepreneurship runs in the blood. But effectively we’ve all built our own businesses, and it’s coming from the belief that you know, anything that you build has to be with your own passion and belief. And, sometimes they don’t match with someone else’s.

Akshay 03:13  

You would have had a very unique kind of childhood, I’m guessing. Being part of a family with multiple businesses running? What was that, like, you know, compared to most of us who grew up with a father who would have a nine to five job like, what was your growing up experience?

Dilip 03:33  

So, you know, if I recall, my whole childhood has been more away from home. So, effectively, I grew up in boarding school. And after I finished my schooling, I ended up…

Akshay 03:47  

Was it a tough adjustment to live without parents?

Dilip 03:51  

It was a tough journey, I would say, they were good and bad, right. The fact that I started very early, they say that it’s like putting the devil out of the baby out the bathwater, right? So, I was very, very young, so very excited to be amongst kids my age and doing things together and living together and all of that. So, I would say that it was so early that it was not like I was used to things at home, which were new to me, and I was missing out much. But, yeah, I just adjusted to it very fast. I was always inclined to do engineering, and that’s what I charted out to do. But I guess, I guess destiny has its own ways. So, you know, while I worked very hard, I would say I didn’t manage to get into it. But I did want to continue to pursue my dream for engineering and all of that. So I ended up going to the UK because I realized that if I want to do something I want to get into a good school. So, in the UK you have very specialized colleges. And one of the colleges that I picked up was Brunel University, which was known for science and engineering. And then I was very keen to pursue my dream for electronics and computers. And so I ended up joining Brunel, and I did my engineering from there. And then I was always keen to also go to the Imperial College of Science and Engineering in the UK, so what happened is that post my Bachelor’s, I also got an opportunity to go to Imperial, right, and then not only finish on wanting to be there from an engineering point of view but also pursue masters over there. And so I did my MBA from the business school at Imperial.

Akshay 05:53  

And why did you move out of engineering into management? 

Dilip 05:58  

I guess, what happens is when you grow up in a business family, what happens is that you know, every conversation in the family is around business and so whenever you’re having conversations, which is about companies and businesses and products and services, and, and profit and loss and all that. For me, you know, it was something which I just grew up in, right. And I thought to myself what are the set of core skills I want to build in myself. And so because I did not pursue commerce and accounting and all of that, I thought that if I’ve gone up, and I’ve worked through the science and engineering side, I should also add more skills to myself, in terms of business, economics, accounting, and all. And so that’s the reason I went for a post-grad management program and it just allowed me to learn more about different streams. And so I decided to combine Engineering and Management,

Akshay 07:11  

And you were clear that you would come back to India, or were you like, open-minded about staying in the UK?

Dilip 07:17  

There was stuff happening on campus. But I was very young, right? Like, the reason I did that one year program at Imperial, is because I could do it at the age of 20. Right? Had I decided to go to any MBA school in the US or something like that, it would mean more years of experience and all of that. And because, you know, I guess I just wanted to keep moving. I ended up doing it there. And I guess, for me, somehow the thought of working in the UK or outside India, I don’t know, somehow it did not come to me, right. I guess I was just so much focused on my studies, that really what I’m going to do, you know, in terms of a job or build a business or do something, I didn’t think about it too ahead of time. But it so happened, that when I finished my graduation, at the same time, India was opening up to telecom and the government was looking to issue these new licenses in telecom. And I still remember a call I got from my father, which said that the government is issuing telecom licenses, and this is a completely new industry. And since you’re in the UK, and you’re working there, and engineering and all that, why don’t you think through whether this whole mobile telephony is an interesting space. And, you know, now it seems obvious, but way back then it was very, very new. Right. And so, my dad had done this partnership with a company called Telstra from Australia. And, they had got this license to run a mobile telephone business. And so for my father, it was more like, we’ve done this, but really, I don’t really know whether I want to do this business. And, and so he was running his own set of businesses and all of that. And then he was like, do you want to give this a shot? Because if you do, then you would have to raise capital for it, you’ll have to figure it out and all of that. And so I recall from the UK, I actually straight flew to Australia. And I spent four months in Australia with Telstra just understanding the way they operate the business and all of that, and then after that, I spent a lot of time trying to figure out what we need to build this business. And before I realized it, I was working with them in the city of Kolkata to build a mobile phone network business. 

Akshay 10:10

How did Modi Telstra become Spice Telecom? 

Dilip 10:13

So what happened is that Telstra started facing challenges back home in terms of the competitive landscape. So, their main competitor Optus, which was promoted by SingTel, from Singapore, became very active in Australia. So, Telstra took a strategy to focus back on their home market. So they decided to exit all their overseas markets, and they changed their management team to make the shift. So, as part of that, the group CFO of Telstra spoke to us saying that they have to exit out of India as well. And so, you know, under the shareholders’ agreement, we had a right of first refusal. And so, we had an option to buy out their shares. And that started the journey of Spice Telecom because we ended up getting private equity to give Telstra an exit. And that’s the time when we decided to rebrand the network because we no longer had the Telstra brand. And we thought of our own brand called Spice. And so, we decided to brand the network Spice Telecom and bid.

Akshay 11:27  

How did you navigate the investment scenario? As you said, you got into private equity funds and all that, how did you navigate that? Like, I mean, you obviously, you know, at 25, you have not seen those kinds of things, how did you manage?

Dilip 11:45  

What happened is that, at that time, it was a very new industry. And while this industry was new to India, it was not new to the world. So, a lot of investors have made money in this industry in other parts of the world. So when this industry started opening up in India, investors started looking at this industry in India. So we were very fortunate that we managed to, you know, not only us reach out, but people were reaching out to us. And as a result of that, it was a two-way street. Right. And especially when these new licenses were being issued by the states, the incumbent operators who were operating in this in the metros. Right, they became the logical targets, you know, to create vehicles to expand. What happened is that the government decided to issue national licenses. Okay. And they only decided to…

Akshay 12:47  

When is this like a timeline?

Dilip 12:50  

2001 to 2002. Right. At that time, they only decided to issue two licenses for the whole country. So imagine from issuing two licenses per state, they decided to issue two licenses for the whole country. So in fact, it was the luck of the draw. Right? And because now you had like 9-10 players in the country, all vying for two national slots, and it was very clear that whoever secures these two slots, right, will become the consolidator. Right, because then you have national versus regional, and the way economics works in telecom, it’s a scale business. And you can’t be viable without scale. Right. So at the end of the day, what happened is that as you’re aware, Airtel and Hutchinson ended up securing those two slots to roll out national networks, otherwise, all of us were regional operators. And so, I remember my meeting with Mr Mittal. It was two days before the bidding was to happen. And he told me he said Dilip, I have two options: either I bid for the new license or I buy your network. It was very clear that in the city of Calcutta the market is not big enough to have more than two operators. So, if you have more than two operators, someone will bleed, right. And so, in my mind, it was very clear that instead of bleeding, it is better to unlock value. Then what happened is our investors because like I said, they were prefacing pressures in their home market in Hong Kong. So they wanted to exit India. And so because they wanted to focus on their home market and so we had to arrange for capital to give them an exit. So it was very tough, right? Because here now we’ve exited Calcutta or literally then we are exiting. And, you know, we’ve just got these two circles. There are national licenses that are rolled out. And I just thought to myself, I said, you know, this is a crazy situation, right? Who would give me capital to buy help buy out my investors, right? In a market that is getting consolidated. And as things have it, sometimes they know things have a way of working out. And I remember being introduced to Telekom Malaysia, the operator out of Malaysia, the leading operator from Malaysia, and I remember having a meeting with them. And the first thing I walked in, and I said to them, I said, guys, you know, I’m not a national player. I’m a regional player. And I remember their CEO telling me, they said, Dilip, what is the population of Punjab? And I said, about 55 million people. And they said, what is the population of Karnataka? I said, 85 million people. So they said, that is like 140 million people, right? What is the population of Malaysia? As I said, 20-25 million people. So they said, you know, there you have your answer. Right? So the thing was that for us, it’s not about national or local. The question is that if every market can support two operators, they don’t maybe one of them can be regional, right? Because India is not one market, but multiple markets. And so, yeah, we are excited. We have to come to India. And we like what you guys are doing. We like the brand. We like the story. And we’ll come and work with you. Right? And so they ended up investing, we ended up doing a partnership with Telekom Malaysia. I managed to give an exit to all my investors. And like we started our journey with Telstra. We kind of ended it with Telekom Malaysia. So in fact in a way in between, we got private equity. But, we finally ended up with a strategic operator. That was Telekom Malaysia. Right. So and then we took the time that we took the company public, because then we said, “Okay, now we want to raise money, we have to go public,” because where else do we raise money from? So we took the company public, we listed it. So when we were going public, I remember we were making this storyboard and all of those things. And then, you know, Telekom Malaysia, and we were doing roadshows and all of that stuff. And just after we closed we had this issue of going national, right, and we had also started procuring some licenses, and all that. And so we got a bid from Idea Cellular to buy our business because interestingly, in their footprint, the main two states that were missing out in the 900 megahertz spectrum were Punjab and Karnataka. So, they said that they would like to buy our business. Right. And then we had a board meeting and we sat down and we discussed it. And we said, okay, guys, we have two options, right? Either we roll out of an organic network across India, or we merge with Idea Cellular Punjab and Karnataka. And, we ended up becoming a part of an All India network. Right? Because Idea was building a national footprint. Right? So we said, Okay, two options, and then that’s where Telekom Malaysia guided me that we should merge rather than build because the government had issued nearly 10 national licenses. So, they said very clearly that the economics doesn’t work out. It’s better to be part of an existing network. Rather than go out and build an organically new network. It’ll just consume more capital and the competition. So if you recall, many of the new players who got licenses, right, most of them ended up shutting down their business.

Akshay 19:27  

This merger happened on the eve of your IPO?

Dilip 19:32  

So it was very interesting. I was on a roadshow. I remember I was in the UK, and I was making presentations. And I got a call from a banker. And so it was very funny. I was having two conversations: an IPO conversation and a merger conversation. And it was going in parallel, right. And I was so confused in my mind saying, Should I take this company public or should I just sell it? But I think we’ve just gone down so far in the roadmap of taking it public, that we decided to list the company. We said we have to list it, because if we don’t list it, we just committed, like we had gone way down the whole roadmap of listing the company, plus merger discussions can fail. Right. So we said that you know, let’s not wait for those negotiations to close. Because if we wait, and it doesn’t happen, and we don’t go public, then we lose the opportunity. Right. So as part of those negotiations, it so happened that Idea Cellular was backed by the Birla group, and they were already there as a strong Indian player. I decided that you know, there was an opportunity for us to take a cash exit rather than take shares because there were just too many of us in the room. Right. And, and so I guess, in July 2008, I exited the mobile network industry through a strategic exit.

Akshay 21:10

When did the IPO happen? 

Dilip 21:12

Just a quarter before.

Akshay 21:13  

Okay, in 2008 both IPO and merger.

Dilip 21:19  

Simultaneously. And as things have it, September 2008, October 2008, Lehman Brothers happened. And the whole economy, the global economy went for a toss. Right. Yeah, so my journey, which started in 1996 finally in 2008, ended up exiting the mobile network industry.

Akshay 21:45  

Okay, okay. So what’s next? From running a large organization to now, you know, like, what did you do next?

Dilip 21:57  

So very interesting. So now, what happens is that they don’t like it when you’re running a telco business, right, it’s a very prominent business. So because, you know, this is the only thing I’d ever done. For me, the natural thing was to do something which is connected to this, right? Because in my mind, the whole idea was that this is all I know, right? Like, I’m living and breathing Telecom, right? Every day. Right? So what are the other opportunities I can build around this? Right? So rather than go into a completely new industry, what else can I do within this industry? And I remember, we had some strategic consultants that we then started engaging with as a strategic investor. What started happening is when we were building Spice Telecom in Punjab. Airtel had launched in Punjab, as a national player. Right. And they came in with all guns blazing, in terms of offers and campaigns and all of that, and here’s a big national player coming to Punjab. And here we are a regional player trying to compete, right? So you can imagine the David versus Goliath story kind of thing. So we had to survive, right? And we had to thrive. It so happened that day, a blessing in disguise. I started looking out for ways to, you know, differentiate. And it so happened that I came across this new dual SIM technology, where at that time, Nokia and all these mobile phone companies only had a single SIM on their phones. Right. But I found out that in China, there is this dual SIM technology wherein a single phone can have two SIMs. So we ended up importing our first batch of dual SIM phones from China? Right? We branded them Spice. Right. And we ran an offer, which said to all Airtel customers that use Airtel in the day, use Spice in the evening. And it’s free, right. Because our network was relatively free at night. So we had this campaign run where we encouraged all the Airtel customers to take a spice phone, put their Airtel SIM in one slot, and their Spice SIM in the second slot and use it in certain hours where we gave them free calling, right? And we saw a huge rush of, especially youngsters, you know, at all these guys, you know, who wanted to talk late at night and all those things, you know, these night packs and all that stuff. And it became a huge success. And, you know, what started happening is they started giving that number out. Well, at that time, there was no number portability. So, because of that, we started getting some traffic in the daytime also. So it actually became a very viable model. So what happened is that within Spice Telecom, we created a handset vertical, right? And we called it Spice Mobile. And because the customer was the same, like, we were targeting the spice user, and we were trying to churn the user from Airtel to Spice. So the brand was Spice, right. So we started this vertical within Spice Telecom. And when we sold Spice Telecom, the buyer was not interested in this business, because they said we don’t want the phone business.  So we ended up taking over that vertical. And then, you know, then we realized that this is an industry of its own – Dual SIM mobile, and this I’m talking like, now you’re talking 2000s, between 2005 and 2008. So, we launched India’s first dual SIM phone in 2005, kind of thing under the name Spice Mobile, right. So in 2008, when we sold our business, by then China 50% of the handset industry was taken over by the dual SIM manufacturers. Today you know them, Oppo, Vivo, Huawei, all these guys, right? And India was still a Nokia market. Nokia and Samsung. So then we realize that there’s maybe an opportunity that India will replicate China. And so we said that let’s grow this business. So we said okay, we’ll build this dual SIM phone business and continue the Spice brand. Then instead of just selling in Punjab and Karnataka, we will sell across India. And because the brand was no longer a telecom brand, we kind of said, Okay, it’s a logical extension of the brand. Because from Spice Telecom, we became Spice Mobile, right? There was a little difference where customers were thinking of us in Punjab and Karnataka is a network brand. But outside Punjab and Karnataka people didn’t see us as a network brand. Right. So to that extent, we said, okay, there’s some overlap in Punjab and Karnataka, but maybe the larger opportunity is bigger. And so then, Spice Mobile became a line of business that we had an opportunity to think of post selling Spice Telecom. And there was this other business that had started which was called Spice Digital, which was basically, you know, we used to build a lot of content and application work in Spice Telecom. Like value-added services. And so what happened is that, you know, after selling Spice Telecom, there was no conflict of interest with other telcos. So, we thought that our IT team or engineering team can also now build solutions for all telcos. Right. So these two became our spin-offs, right? And it was called Cerebrum Technologies at that time. Right. So that later it was Spice Digital. And so when I sold my network business, I immediately started seeing my opportunities to scale up, both in terms of the dual SIM hardware business, as well as the value-added services business for telcos. So I immediately jumped from running Spice Telecom to thinking of these two businesses, and what should I do to scale them? So it kind of was a related journey, but a new journey, right, where I moved from infrastructure to hardware and services. That’s the new journey that I started in 2008.

Akshay 29:14  

You sold the telecom business and you had Spice Telecom as one venture to scale up and you had Spice Digital as the other venture to scale up. So tell me about the journeys of these?

Dilip 29:29  

So we had Spice Mobile and Spice Digital. Effectively, Spice Telecom was an infrastructure business and Spice Mobile was a hardware business and Spice Digital was a services business. So I continued with Spice in the consumer space through the hardware business. And the reason we branded services businesses Spice Digital is because our main customers were telecom operators. So that helped us and we ended up focusing on these two businesses. And so one of the things that happened next is, as we thought about building these two businesses, right, one of the things I also realized is that, when you build a business, you know, competition can come from anywhere. And at the end of the day, you have to understand whether you are part of a local playground or a global playground? And so, when we thought of the mobile hardware business and the services business, we realized that there’s no limitation to geography here. Because it is not about regulation, right, like Telecom was heavily regulated. Right. So the reason we could not go national is that the government decided to issue only two licenses at that time. So now we were in relatively unregulated spaces. And here, competition can come from anywhere. And so we said, now, we want to scale so we have to think not just about India, but at least regional if not global, because now you’re competing with Nokia, Samsung. And in the services space, you can go anywhere. Like all these IT service companies. They serve customers globally, right. So we said that you know, why not? Why not think outside India? And that is the time for both these businesses we started envisioning not just an India strategy, but a regional strategy. And, yeah, but it always started with hiring a country manager.

Akshay 31:29  

And what were the services of Spice Digital?

Dilip 31:31  

So what happened is that, you know, if you look at telecom networks, their main product is voice and data, right? But then, they also want to build other services, right? Because they are these big pipes through which content can flow. So the first set of services that we enabled for telcos was content services. So for example, music, music streaming, gaming. So we built a lot of music content related services, a lot of portals, games, and a lot of entertainment content, right. So we ended up going to geography like Africa, right? And, partnering with all the local content providers and bringing them on a platform so that the telco could then launch a service for their customers. So initially, it was not even a VAP portal in those days, because the internet was still picking up, right internet connectivity. So initially, it was an IVR portal, right? An interactive voice response, where our flagship product was called Mobile Radio. So you’re listening to music by dialling a number. So our flagship product was to host music content on a server. And people were dialling into that server and they could choose the song they wanted to listen to. And it was basically getting into the radio business, using mobility. And, then we move to VAP portals. And now we are doing apps. So as the telcos have invested from voice to data to video, we’ve also graduated in terms of building products and services for them.

Akshay 33:22  

Now you’re doing apps for telcos or apps for any startup or anybody because I mean, telcos are not really investing in apps.

Dilip  33:32  

So there’s a difference between India and other markets. So what is happening in India, you have Airtel doing the Wynk music app. Right? That is an app from the Airtel family, right? And as you see players like Jio have bought out Saavn. So similarly, there are many telcos in Asia and Africa who are wanting to have their own suite of apps. So we are working with telcos in those markets where now we are working with them to not only build the app, but the UI/UX, the whole content management system, and all the digital components, and again, running it as a managed services model for them. So whether it be Indonesia or countries in Africa, right now we are doing it. So now this company Spice Digital, Akshay is today what is called DigiSPICE technologies, which is our main flagship company. Which is a journey right now but between 2008 and 2018 while we kept building Spice Digital, we really focused a lot also on the hardware business Spice Mobile, and if you recall during that time, the leaders were players like Nokia, right? Like we were Nokia country, right? And at the same applied to Asia and Africa. These were all Nokia markets, right? Because it was on a feature phone and all that. So I remember at that time when we went outside India, we decided that we would build a very significant player, we will be a number two to Nokia, but a very strong number two driven by dual SIM and a lot of focus on industrial design. And if you recall, the Nokia phones at that time were mainly bar-type phones with those keypads, right. Grey in colour, black in colour, right. But coming out of China, we had all these flip phones, we had colourful phones, so a lot of focus on industrial design. And internet connectivity just started. So we had the browser come into the phone. So we could build portals embedded in the phone, so a bit of service. So a lot of our Spice Digital stuff we were working for telcos, we started integrating those services in our Spice Mobile phones as well. Right. And so when we grew outside India, and we combined the India business, our strategy was that we will build a parallel to Nokia. Right? But be more like a local champion, right? At the same time, you would see companies like Micromax, Karbon and Lava, many of these companies also came up in India and similar companies came up in the other regions. But then what happened is that business required a lot of investment in terms of inventory, and, and branding and all of that stuff. And when technology moved from feature phones to Android, right, that’s when a lot of companies fell off the cliff, including Nokia. Samsung rode the Android wave. Nokia went the Microsoft route and all that, right. So yes, this shift from a feature phone to a smartphone, right, is one shift that we as a company could not manage, right? Because we had invested a lot in inventory, across Asian markets. So I remember at that time, we had over a million smart feature phones that we had to write off in our books. And it had a huge impact on our balance sheet and all of that stuff. So that was a big learning for me, right? That we had this great ambition, which we were chasing, but we got hit by this technology shift and we could not manage that. Right. And we ended up going through this very difficult restructuring phase, right? Because when your balance sheet and write-downs and all that, losses and all that, you go through a lot of pain, right? A lot of Indian companies survive that pain because they are focused on India. While we had diversified geographically to Indonesia, Malaysia, Thailand, so the pain was bigger. So we decided how we should look at it? So then came another point of inflexion.

Akshay 38:17  

What was the lesson for you in that? 

Dilip 38:21  

So I think the biggest lesson for me was that sometimes don’t try to take a big leap. You know, when it comes to trying to build a business, right? I think the biggest lesson for me was to go at it step by step. Like for example, we thought that we could differentiate ourselves in the market by moving from a basic feature phone to a full-screen smart feature phone, right? And we bet the company on that strategy, right? Because we built nearly a million phones in that strategy. In retrospect, I would have taken a smaller step. For example, instead of a million, I may have done like 100,000. I would have first explored and seen whether it works or not right and if it works you scale it. So to me, the biggest thing was that when you’re building something do you, not pilot it, take that baby step test out the market fit and when the shocks come they don’t hit you that bad right because you kind of ring-fence a bit. But we were like these charged warriors out there. And there was this kind of we can go and get it and all this and we didn’t see this tsunami coming. So sometimes, while this aggression is good but you know, you just want to make sure you don’t bet the house and my biggest learning was never to bet the house, So today, it’s definitely helped me through my journey now where every time I need to take a big decision on something new, I try and take it one bite at a time, rather than take a huge big bite at it. And then tomorrow, I don’t know whether I’m betting the house or not. Right. So that was my biggest learning out of that. And, because of that, we ended up facing a huge financial challenge. And we had to shut down our hardware business outside India. In India, we still had a good business that was running. But when you end up taking that kind of pain, right? Your view on the business starts to sour, you don’t know exactly whether, you know, you can make it not make it and all that stuff. And so we decided that let’s just focus on our services business. Right, let’s try and scale up this. Let’s see where we can take this business. And we’ve learned from this journey, but let’s see, let’s build a new business. So while at Spice Telecom, I managed to take the company public and finally got a good exit. In the Spice Mobile case, it turned out to be a journey where I had to shut down the business which was a different experience.

Akshay 41:31  

I remember the Spice retail outlets, multi-brand retail outlets.

Dilip 41:39  

Yes. So what happened there was that we had this deal, which is part of the Spice Mobile business. So what happened is that as we were building out Spice Mobile, Akshay. We also rolled out these Spice stores, right? Which were initially to support the Spice Mobile phone business, because you see, everyone was stocking up Nokia phones. So how do we get people to experience the Spice phones? So we ended up setting up our own stores? And that is where Nokia had their own stores, we ended up building our own stores. But because customers coming into the Nokia stores in Nokia were only looking for Nokia phones because they had 90% market share, we had to show them all of the phones. So those Spice shops became multi-branded, but they were effectively part of the Spice Mobile journey. Right. So obviously, when we shut down the Spice Mobile business, right, we ended up exiting from that retail business as well, because it was very much part of the mobile business. You know, so I didn’t talk about that, because that was really part of that overall journey that we took and Spice Mobile. Right. So in my first company, we did a strategic exit. The second company we had, it didn’t work, we failed, and we shut down the business. And then we were left with our services business. Right. And we were working with telcos. And then we said, we want to diversify and do more in this space. And that is a business that we started building. I think it was really in 2014-2015, right when I really started focusing full time on Spice Digital. And as we started seeing what more we can do in this business. Now, of course, when you look at the services space, they’re so much right, in terms of not just working on digital platforms for telcos. But you can become a digital platform and solution provider for so many industries. And so when we started looking at this business, we said, “Okay, we understand digital, we understand apps, we understand digitization as a concept, right, how can we take this experience to other industries?” Right. So, you know, we started moving out and looking for other opportunities in other spaces. We’re very proud that one of the projects we got was from the Government of India, right to build a G2C app called Umang. So Prime Minister Modi in 2014, when he took power, he brought in this Digital India vision. And as part of that vision, he wanted to digitize all Government to Citizens Services. And the IT department envisioned this mobile app called Umang, which stood for, I think it was a Unified Mobile App for New-age Governance. And it was an RFP. So we at Spice Digital bid for that. And we managed to win that RFP. And so we ended up building the Umang app for the Government of India. So that became our way to start our digital platform journey. So we started working with banks, we started working with insurance companies we worked with which we continued our journey with telcos. And then really, Spice Digital became this playground for trying out a lot of new things. Right? And do you know not only building solutions for the government, but also for other enterprises? And Spice Money, which is the FinTech business that they know we are building today was a project that got born out of Spice Digital. And this was one project that got seeded so we had lots of projects being run as incubation in house and this project got born in Spice Digital and later got spun off as Spice Money.

Akshay 45:58

What was the idea behind Spice Money?

Dilip 46:00

So what happened is one of the things as we were rolling out the business, again, learning out of the telecom business, right? We realized that the mom and pop stores like that are selling these recharge vouchers, right? Are at some stage going to get digitized, right? Because we knew that smartphone penetration will grow, internet penetration will grow. So the traditional distribution of telecoms will also go digital. Right? So we said why don’t we build an app? For the merchant where he can buy recharge, using the digital platform, rather than traditional, right? So the journey started as a project for that. So amongst many projects we were doing, this was one very, very small project that was happening, which was like a digital recharge platform for a merchant. And we started that as Spice Digital. Right. And then before we realized it, once we got him to use our web app to do recharge, right, we realized that we could also enable other services on them. And so, the next service we started was remittances because most of this recharge platform got adopted first in bigger cities in urban India, right. So because they were the early adopters of digital. So, we could enable on the same platform that when people were coming to recharge at their shop, people could also come to the shop and give cash to sell back home in rural India. A lot of workers, labourers, and all that sending money to rural areas, where you come somewhere to deposit money to put cash in the bank. So Sunday from recharge, we added remittances as a product. Right. And we saw that it really picked up.

Akshay 48:11

This is also how Vodafone’s M-PESA experiment worked out, right? They had something similar.

Dilip 48:15

Exactly. So that in fact became the genesis of what is called payment banks. Right. So then the RBI came up with this whole licensing around payment banks. That’s why you see Airtel payment bank, Jio payment bank because it all started on the back of the recharge merchant. Right. So we saw the remittances use case really pick up Akshay. And I remember a meeting I was sitting at where we were reviewing many projects, and this was one of the new bets. We were reviewing. And I remember the team that was leading it, they just walked in the room and showed me a hockey stick. Like, like they just showed me like, last quarter we did x and this quarter, we’ve done like 2x. And by the way, next quarter, we’re going to do 4x. And I was like, Guys, what are you doing? Right? Like, who are you? What are you doing? And they were like, we are doing this project. So suddenly, they got excited because they believed something was happening. Right? And I’m like, Come on, guys, you know, this is like one of the projects I do. I was thinking more like building Umang and building all these big projects. And suddenly I see this hockey stick. Right. And that, you know, I think they had half an hour in the meeting for the presentation. And we cancelled all the other presentations and we said okay, let’s understand what’s happening here. So then we dug deep. And we realized that there could be an industry of its own, an opportunity of its own. And then the biggest thing which convinced us that this is a play of its own is what started happening was that when people were sending money back home, right, then people were going and withdrawing money. But then the third product that came was Aadhaar enabled cash withdrawal. So what started happening was one was remittances, the other was withdrawn. So what started happening is, when we labelled the APS product on our platform, we saw a whole different profile of merchants. Sign up for our platform. And most of these were from villages in rural India. Because that is where the money was going. And that people were coming to the shop to withdraw cash. So what was happening in the remittance product, that people were going to the shop to send cash. And what was happening in the withdrawal product, people were coming to the shop to withdraw cash. So we saw that that product had also begun to scale. 

Akshay 51:00

How does that work though, Aadhaar enabled cash withdrawal?

Dilip 51:04

It’s very simple, the bank account linked with that. Very simple that now most bank accounts are getting a link to the other. So what happens is that in villages now, Akshay, while the government opens 300-400 million Jan Dhan accounts, and they send the subsidies directly to the account, a person has two options to withdraw cash. Either he goes to his nearest ATM or a bank branch, which is quite a distance, right? Or he goes to a local merchant, which is onboarded on a digital platform like ours. And he authenticates himself using Aadhar and through our platform, we enable the money to move from his account to the Merchants Bank account. And the merchant pulls out cash and gives it to the customer. So that’s how it works. It’s very simple. So it’s riding on the Aadhaar stack. So when we saw these remittances and ATM use case pick up, then we realized that guys now this is like a blue ocean. Because urban India is one opportunity. But the moment you get into rural India, right? Can we grow on the back of this use case of digital ATM, right? And that’s what convinced us that this has legs of its own. And we decided to spin this business off and brand it as Spice Money. And we said we’re going to chase the rural consumer with a platform that can enable them to deliver financial services. 

Akshay 52:39

When did this happen?

Dilip 52:41

So this happened two and a half years back.

Akshay 52:44

How big is each of these businesses today?

Dilip 52:49

So we are still very young in our journey. This I would say is my, what I call my third leg of startups, right? I would say Spice Telecom, Spice Mobile, Spice Digital, those are my first and second, this is my third journey in my entrepreneurial journey. And where we are, is that if you look at our numbers, last financial year, we did a turnover of over 700 crores.

Akshay 53:18

I have a question. How did the merchant onboarding happen? How did merchants discover you? Or did you have a team of people who were out visiting villages and signing up merchants? Like how did that happen?

Dilip 53:33 

We, of course, had ours in house project team which was doing this work, which was meeting merchants, the early adopters and trying to figure out. But the early adopters of more in big cities, you know for the recharge remittance use case, obviously.

Akshay 53:49

This must have been almost like a decade back the recharge remittance use case.

Dilip 53:54

Yeah, so I think this project must have been. Yeah, I think a decade back was 2012-13. You know, they played around with this product and all that. But I think it was around 2016-17 when we saw this really pick upright, the Aadhar integration, bank account and all that. Right. So I think that

Akshay 54:19

You had that legacy set of merchants who were using it for recharge and remittance. 

Dilip 54:23

Yeah. And this was with whom we piloted the Aadhaar enabled system. And then of course, as Aadhaar seeding into bank accounts grew the adoption of this platform with merchants grew.

Akshay 54:36 

And was it organic, like spreading through word of mouth?

Dilip 54:39 

It was organic but then we also had a distributor layer. So we started appointing distributors as partners in different geographies. They played the role of onboarding merchants for us. So they used to have feet on the street. They used to go out and identify merchants, and send us their documents. And we used to help onboard. And this is a business we had learned in Spice Mobile, you know, appointing distributors who appointed merchants. The only difference was that they were buying a product like a phone and selling it to the merchant. Here, they were getting us, merchants, onboard onto our digital platform, which is we have an app. But effectively, the aspect of having distributors in every geography was something that we had done at Spice Mobile. And a lot of these distributors were like telco distributors who had access to the larger merchant network. Because the distributors of the telcos are like the FMCG and the tobacco company distributors, right, like, they have to make recharge available even at the paan shop. So to that extent, they know we were able to tap into that distributor network. And then they started helping us onboard merchants and also, you know because the product had a pull. Because wherever there was no ATM machine in a town or a village, the merchant saw a use case, right? Where they could suddenly solve a problem for the customer. So instead of travelling that distance to find the ATM machine, the customer could withdraw cash at that merchant point. So I think it was basically the use case that also drove the adoption.

Akshay 56:37

Okay, and how does the P&L of the merchant look like and a distributor? What is the upfront payment they make? And then what do they earn?

Dilip 56:48

This is a complete transaction led business model. So more than payments and all that I think upfront is more about KYC. They know that they have a valid bank account number.

Akshay 57:00

But you give them a device, right?

Dilip 57:02

I think in the early days, we used to give them biometric. But now most of them because biometric is now needed for a lot of use cases, including telco. So a lot of the telcos have already given the biometrics to all the merchants. So a biometric is not required because these are all interoperable. So wherever required, we give it like in the initial days, we used to give the biometric machine now we don’t, or wherever it is required, it’s available. And now what we started giving them is a card device, right? Where in addition to using Aadhar biometric to authenticate yourself, you can also authenticate yourself using a debit card. And so we’ve started giving them a small PIN pad device, which can accept a card, right? So like a partner, a machine, because now one thing, which is there with all the bank account holders is a debit card. What they don’t have is a credit card, but they all have a debit card. So basically, we grew on the back of this, and then we started layering other use cases. So when we reached a village, we realized that there could be multiple use cases, right? So for example, if he’s coming to the merchant point, to do his recharge or to withdraw or send money, then he can also at that same merchant point, pay all his bills, his electricity bill, his water bill, his gas bill. Again the problem of access, right? Because to pay his electricity bill, he has to go to the electricity office, you know, and stop and stand in a line to pay their bill. So again, can he pay his bill at the nearest merchant point? So we started building a lot of payment use cases on the back of this, and that’s how the whole Spice Money story started. And of course, during the last one and a half years, we have seen a 3x growth in our scale. Because the need for cash in rural and semi-urban India has grown. And the government has sent a lot of money in the form of subsidies into people’s bank accounts. And so the need for infrastructure, a network where you can go and withdraw this money. So I think we managed to set up or start this platform at the right time because when it was most needed, we had a ready platform. You can imagine a situation that if they were not platforms like ours, and the government had to distribute subsidies during the pandemic time and there was no ATM in the village, then how would people get access to that money? Now we are converting every Kirana store into an ATM. Right? So because smartphone and internet connectivity has reached every village, you know, we are able to deploy a platform on every smartphone of every Kirana store in every village. So that’s what I think was a very timely start to this project.

Akshay 01:00:28

Tell me about the growth numbers, like what was the merchant base pre-pandemic? What is it today? What kind of transaction numbers or revenue?

Dilip 01:00:37

So basically, we were growing at a pace of about adding close to about 5000-7000 merchants a month, right? That was the pace we are going up till the pandemic, I think maybe I would say, 5000-8000 merchants a month, from April 2020, when the lockdown started, our onboarding on our digital platform went up to 30,000 a month. So we went from 7000-8000 to 30,000 a month. And as a result of that, we’ve ramped up our network. During this pandemic time, we added over three and a half lakh merchants in one year. So we literally doubled. When we were about, what can I say about 200,000-250,000 merchants pre-pandemic, and as of today, we are close to 700,000 merchants. So we’ve been growing the network at an average of about 30,000 a month, and now we are getting ourselves ready for the next phase of growth.

Akshay 01:01:47

What is the next phase? Are you going to increase the coverage of products? Is it geographical coverage?

Dilip 01:01:55 

Both. So the next phase of growth is definitely around both products and coverage. Right. On the coverage side, we have realized that, while we grow organically across the country, right, there have definitely been pockets where we still do not have enough coverage. So our goal is that we think that we can get to at least, you know, a much bigger scale than where we are because what is happening is there are many districts where we are densely populated. And by dense, I mean like one APN per 1000 rural population. While there are many districts where we are sparsely populated, out of 700 districts in the country, I think, from a dense point of view, we are still between 100-150 districts. So they’re still about 550 districts, where we can go dense. Because our goal is that on every street, we should have a Spice Money Adhikari, at least one, right so that we can get it because our goal is to go as close to the customer as possible. And to the doorstep of the consumer. So obviously if you look at the nature of the market, you have 30 million merchants. So how many of them can be boarded onto our platform is the goal. And so we did call out our goal that we want to get to about 10 million entrepreneurs that we want to digitally and financially empowered. So that’s about one crore. Right? So against that, we are at seven lakh. So still a long way to go.

Akshay 01:03:33

Yeah. timeline for this goal?

Dilip 01:03:38

Well, I just got off a call with my team this morning, I’ve shrunk every timeline by half. So that three-year goal has already become one and a half years and one and a half year goal has become six months, and six-month goal has become three months. So I think we are trying to grow at the speed of the Internet economy or even faster. I don’t know, which is the faster speed of light or the speed of the internet economy, whichever is faster. The second is in terms of products. I think what we have is what we are now beginning to think of ourselves at Spice Money, Akshay, is in terms of reimagining a bank branch. So now, going forward, everyone talks about Neo Banks, and the future being that of Neo Banks, right where they know there’s no branch, people are onboarding themselves using their smartphone and all that. Now, while we agree that that’s the future, we also believe that in semi-urban and rural India, there is a huge need for assistance. So, I think the bank branch as you and I know it needs to be reimagined for rural India and for semi-urban India. And so the idea is that can my Adhikari also in addition to being an ATM, be a bank branch.

Akshay 01:04:56

What does that involve?

Dilip 01:04:58

When you think of a bank branch, right? You don’t go to a bank branch just to deposit and withdraw money, right? You go to a bank branch for many products, right? You go to open an account, you go to get a loan, you go to invest in a savings product, or mutual funds or banks have also started offering insurance products. So if I think of what a typical bank branch does, in terms of product offerings, I can reimagine that bank branch at a rural merchant point. So can my rural merchant function like what a bank branch functions? That’s where our next journey is going in terms of products. So the idea is that of this network we are building, how many of them can also play the role of a bank branch. So we believe our hypothesis is that while we agree that the future is branchless, what we believe is that the need for assistance in terms of KYC, the need for assistance in terms of education, the need for assistance in terms of direct product knowledge, all this is very paramount. So you know, we’ve interacted with many Neo Banks. And what we realized is that you know, that assistance can be a huge top up, right. And so you can imagine that everyone is doing everything on their smartphone. But in addition to that, if there is a place where people can go, and not only transact using cash, but more importantly, get assistance on uploading their documents, providing additional KYC related needs, and that point also becomes your point of collections. So tomorrow, Neo Banks can lend money. But we know that lending money is one thing, but collecting money is another, right? So while you can have a standing instruction from the bank account, but if you have a network on the ground, that can double up in terms of all elements of loan origination, loan documentation, management operations, as well as collection, then I think this can become a huge asset.

Akshay 01:07:17 

So how deep do you want to go into these products? I mean, you know, one approach could be that you just tie-up with a whole bunch of FinTechs, and become a sales platform for them. Or the second could be that you actually get an NBFC license and do lending or get an insurance broker license and sell the insurance yourself. So you know, how do you plan to do that?

Dilip 01:07:40

At Spice Money, we see ourselves more like a rural FinTech platform business. So what we are building out is a platform business where we will enable third party products. And we will own this digital network of merchants and entrepreneurs, through whom we will enable the delivery of these products to end consumers. So I think, at Spice Money, we are wanting to roll out a platform business. Having said that, they know if we see gaps in terms of the lack of credit products or lack of insurance products with third party manufacturers, there’s nothing stopping us from creating other vehicles, which can help us bridge those gaps. But Spice Money, we see ourselves as a platform business, which is working with third-party FinTechs and platforms for enabling financial inclusion within rural and semi-urban India.

Akshay 01:08:40

Would you look at acquisitions, I mean, you know, an acquisition could be a quick way to bring these products into the platform.

Dilip 01:08:50

We’re actually open to all options, right, organic and inorganic. And I think what is exciting us is to evolve around and with the rural consumer. And that’s what we will do. We will also keep our eyes and ears open in terms of which other startups who are wanting to target the rural consumer and the rural merchant and we will definitely, at the least offer them our platform as a way to access millions of merchants and consumers in rural India. And at the least, we can also go as far as investing and acquiring them, if economics works out at both ends.

Akshay 01:09:30

Okay. So these seven lakh merchants that you have, do they get classified as you know, I’m assuming they would be like 80-20?

Dilip 01:09:40 

Yeah. So of course, within this, you have different categories and profiles of merchants. So for example, there are pure financial merchants, right, who only do this business. Like a 500 square feet, a store or a room, right? Where they are sitting with their laptop and their mobile phone and people are walking in and all that. 

Akshay 01:10:04

Right. So yeah, how much would such a merchant earn?

Dilip 01:10:06

So our goal is that the merchant should earn at least 50,000 rupees a month. That’s our goal, right with every merchant. Now, it all depends on the effort and the focus that the merchant puts on the business. Obviously, the pure financial merchants end up earning more, right? Because they run this as a core business, right? But not a cohort of merchants or general Kirana stores, right, who would be more sitting in that whole 5000 to 10,000 rupees a month, kind of bucket. So our goal is now to add more products. We have recently rolled out a travel product for the merchants.

Akshay 01:10:54

Which I think was an acquisition, right?

Dilip 01:10:57

We created a separate platform called Travel Union in a partnership with Mr Sonu Sood. So we’ve rolled out, so Spice Money and Travel Union, and we’ve integrated the Travel Union product into our platform. So, this was a case where we did not find a B2B travel tech partner, right, like they were partners, but more B2C focused. And if they were B2B focused, it was more in urban India, not in rural India. So, we ended up rolling out a B2B travel tech platform for rural India. So, this is to give you an example of you know, if we do not find a partner, we create another vehicle in which we roll out that business. And through that, we are enabling our Spice Money Adhikari merchant to also become a travel agent.

Akshay 01:11:56

He can sell train tickets, I am assuming a bulk of the transaction will be train tickets.

Dilip 01:12:00

The majority of the transactions are train and bus and also going forward like accommodation, right? And then various packages.

Akshay 01:12:11

Accommodation like Oyo Rooms?

Dilip 01:12:15

Exactly, like I won’t quote anyone but a network like Oyo Rooms. Right? So if a person is travelling, then you know, how do you enable them to be able to get an end to end service in terms of both transport as well as accommodation, and then other benefits that go with it? So for us, we are rolling out multiple use cases, the financial services are the ones that are most exciting, but we’re also seeing excellent traction in products like travel. And also what we believe is another use case that we’re working on is tying up with a lot of enterprises working in rural India like microfinance and others, who still have a huge effort on cash collection. So, now, what is happening in many of these microfinance companies have a network of loan and collection officers who go and hold these meetings and self-help groups to give loans, but they also go to collect the money. Now, when they collect the cash because a lot of the dispersal has got digitized, the collection is still not digitized, right? So, they have collection officers going into the village to collect the cash and going to the branch to deposit the cash. Now, we are trying to reduce the cost of collection by something and our Adhikari can be my collection officer in the village. So we are bringing down the cost of collections within the value chain and we hope that that will help them bring down the cost of a loan to the customer. So we are seeing such kinds of use cases also built upon our platform.

Akshay 01:13:59 

Okay, let’s quickly spend a couple of minutes on Korero. So what can you tell me about it and the idea behind it?

Dilip 01:14:07

Why Korero is exciting to us is because, you know, at DigiSpice Technologies, we’ve been working with large enterprises like banks and utilities to enable their communications with the end customers using mobile channels like SMS and voice and digital channels like WhatsApp and email. So what is happening is that you would appreciate that a lot of communication with end customers of an enterprise is now moving from mobility to digital, right? Whether it’s a customer key use case, whether it is a marketing use case, whether it’s a transaction use case. So a lot of banks, for example, all your OTP works on SMS, right. So what you have is small banks, you have large banks, you have insurance companies, the need for automating communication is paramount.

That was Mr Dilip Modi telling us all about his wonderful journey and about building Spice Money. If you would like to know more, log on to www.digispice.com.

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Dilip Modi Founder, Spice Money

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