About the Authors

Roopa Kudva

Managing Director at Omidyar Network India

Siddharth Nautiyal

Partner at Omidyar Network India


A special thanks to

Aman Totla, Badri Pillapakkam, Kartik Sahni, Rohan Vyavaharkar, and Shreya Deb

About Omidyar Network India

Omidyar Network India invests in bold entrepreneurs who help create a meaningful life for every Indian, especially the hundreds of millions of Indians in low-income and lower-middle-income populations, ranging from the poorest among us to the existing middle class. To drive empowerment and social impact at scale, we work with entrepreneurs in the private, nonprofit and public sectors, who are tackling India’s hardest and most chronic problems.

We make equity investments in early stage enterprises and provide grants to nonprofits in the areas of Digital Identity, Education, Emerging Tech, Financial Inclusion, Governance & Citizen Engagement, and Property Rights. Omidyar Network India is part of The Omidyar Group, a diverse collection of companies, organizations and initiatives, supported by philanthropists Pam and Pierre Omidyar, founder of eBay.

Executive Summary

The Next Half Billion (NHB) refers to the nearly 500 million Indians who will come online for the first time by 2022, and predominantly from the bottom 60% of India’s income distribution. Our investment thesis postulated that internet and mobile phones could unlock greater incomes, opportunities and choices for the NHB through new tech-led business models. Five years since we began focusing on this segment, this paper takes stock of how our thesis is playing out and how NHB-focused business models have evolved. It also anticipates the next frontiers in the NHB’s digital journey and the opportunities for entrepreneurs serving them.

A
Significant progress in addressing barriers in the NHB’s digital journey, though much remains to be done

Expansion of internet and mobile services, public digital infrastructure and entrepreneurial innovations have spurred an increase in both the quantum and range of uses of the internet. Covid-19 significantly accelerated this trend.

Affordable access to data: good progress

Low data costs, due to the advent of Jio

Availability of Indian language content: getting better

Local language content proliferating; video becoming the dominant mode of content consumption

Local apps for social/entertainment: start made / more to be done

Local apps competing with international ones

Design for extreme affordability: progress made / needs to be more ingrained

Frugal innovation has enabled affordable offerings

Low confidence in transacting online: progress made / needs to be more ingrained

Online social communities, simple payment mechanisms and vernacular language are increasing trust

Low rates of internet access amongst women: progress made / more to be done

Women’s use of mobiles and women-centric digital platforms seeing traction

Adapting UI/UX to the NHB’s context: getting better

Use of relatable language and inclusive user interface/experience (UI/UX)

B
“Utilitarian” sectors have taken centre-stage in serving the NHB

“Utilitarian” sectors have gained momentum as the NHB became more comfortable with accessing various services on the internet. Business models in each of these sectors have evolved alongside the NHB’s digital journey:

Agri-tech:

from eliminating intermediaries to serving the entire value chain

Education:

from brick-and-mortar to online; from asynchronous to live learning

Financial Inclusion:

from consumer credit to their financial health; early stages of inclusive solutions for small businesses

Health-tech:

from health content to community, medical advice and commerce

Mobility:

from travel information to ride sharing and intra-city mobility

SME digital solutions:

from bringing small businesses online to embedded solutions

C
Next frontiers for NHB business models will see deepening of “utilitarian” sectors
  • The digital journey of the NHB will continue to accelerate post-Covid.

  • The constrained income growth of the NHB will require frugality and patience, as monetization may be slow post-Covid

  • Entrepreneurs will have to push the bar on addressing barriers in the NHB’s digital journey, such as addressing language barriers, contextualizing models for the NHB and increasing women’s participation.

  • Focus on essential services and products will be accentuated; shifts towards the more aspirational areas will be slower than previously anticipated.

  • We will see new opportunities and greater deepening in the utilitarian segments.

Agri tech

Transition towards agri-outputs (from inputs) | newer agri-verticals (e.g. dairy, livestock) | wider range of business models (e.g. marketplaces, SaaS, IoT mechanization)

Education

Continuing momentum in ed-tech | early childhood education | foundational literacy and numeracy | life skills | parent engagement | workforce readiness

Financial Inclusion

Beyond credit solutions for NHB (e.g. insure-tech, savings) | inclusive financial services for small businesses (formal financial services and business-tech services)

Health tech

Tech-led patient-centric solutions | information and networks | digital health services | IT solutions & analytics | digital therapeutics

Mobility

Intra-city mobility solutions | first- and last-mile linkages | public transportation infrastructure innovation | electric vehicles

Other Areas

Civic-tech | legal-tech | privacy-tech | prop-tech

At Omidyar Network India, we have built a ‘tech-led’ portfolio focused on the NHB, shaped by our thesis on their digital journey. We have seen that while tech-based innovations might initially serve customers higher up in the income pyramid, over time, they tend to find acceptance amongst the NHB. Nearly 33% of our investees’ customers are from the NHB; we aim to increase this to 50% in the next two years. Our equity portfolio, including ~50 active investments, has reached 365 million1 Indians. As early stage investors, it is encouraging to see that over half the companies we have invested in are impacting more than one million lives each, valued at more than INR 5 billion, or both. We are encouraged by this experience, which reinforces our conviction about the potential to build large, sustainable and valuable businesses serving the NHB.

1As of June 2019; reach does not include unique lives since the same individual might be served by multiple investees

Recap of our NHB thesis 01

In December 2017, our publication “Innovating for the Next Half Billion” (NHB) laid out a thesis on the internet journey of India’s NHB - the next wave of new internet users coming online through their mobile phones for the first time by 2022. Our thesis was rooted in the belief that technology has the power to connect individuals and dramatically increase people’s incomes, opportunities and choices,as witnessed in the case of India’s urban middle class in the last two decades. We envisaged the NHB’s journey as starting with them coming online, then moving forward step-by-step to eventually making commercial transactions on the internet for essential as well as aspirational products and services.

The NHB differ in many ways from the initial waves of mobile internet users – they have very different income profiles, education levels, language skills, and social/cultural milieus. We had outlined seven barriers that the NHB face in their internet journey and how addressing them could create exciting business opportunities for purpose-driven entrepreneurs wanting to serve this segment.

Much has changed during the intervening period since our thesis was first published. Internet access has continued to expand at a rapid pace and India’s entrepreneurial ecosystem is brimming with innovation. Yet, the growth in income of the NHB, and indeed the country as a whole, has been slower than we had anticipated. To add to this, a devastating pandemic has created several uncertainties and accelerated many pre-existing trends. Three years on (and five years since we started focusing on this segment), this paper takes stock of how our thesis is playing out. It also anticipates what lies ahead in the digital journey of the NHB and opportunities for entrepreneurs to serve this segment.

India’s NHB – the next wave of new internet users coming online through their mobile phones for the first time by 2022. Our thesis was rooted in the belief that technology has the power to connect individuals and dramatically increase people’s incomes, opportunities and choices.

NHB Definition 02

The Next Half Billion refers to the 500 million Indians who will come online for the first time by 2022. The NHB come predominantly from the bottom 60% of India’s income distribution. They encompass a wide spectrum – a portion of middle income, the lower middle-income (aspirers) and a portion of lower income (deprived) households. Within this spectrum, the “aspirers” comprise the bulk of the NHB.

The NHB’s income

The NHB typically earn under Rs. 21,000 (~USD 300) per household per month
Figure 1

2 1. We’ve anchored the Deprived definition on World Bank’s 2011 global poverty line (<$1.9 per person per day in 2011 PPP) and the Aspirers definition on the low income line ($3.2 per person per day in 2011 PPP). We have used $9 per person per day in 2011 PPP as the Middle Income threshold, which aligns with CMIE (2018) data. 2. We have used the average exchange rate for 2018 i.e. 1 USD = 68.41 INR. 3. The total population of India is 1.353B in 2018 (World Bank) and the average number of people per household is 4.85 (NSSO, 2011). 2018 NSSO data is expected to be published in a few months, at which point, we will refine our analysis.

Traditionally, the NHB have been underserved, excluded and disempowered. Notwithstanding the differences in incomes, education levels and internet access that exist within this group, all of them tend to have significant unmet financial and daily living needs and are vulnerable to economic shocks. However, with the proliferation of mobile phones and affordable mobile data they can benefit from tech-led business models that provide them access to a range of affordable services and products that can improve their lives. With the mobile phone, businesses and governments can also reach and serve this segment much more easily than they previously could.

Digital journey of the NHB 03

Although a large segment of the NHB has internet access via a mobile device, that has yet to drive significant economic activity, since the number of users conducting financial and commercial transactions on their mobile devices remains relatively low.

The number of active internet users from the NHB segment is estimated at 200-2503 million. While this still represents just a third of the total internet users in India, this segment of users is growing at a rapid pace. The largest use case of the internet by far is for personal communication. From there, users move gradually towards more sophisticated use cases - consuming online content such as entertainment and gaming, engaging in online communities and conducting low value recharge transactions and money transfers. ‘Utilitarian’ services such as education, health and travel represent the next phase. The final transition – making regular purchases/transactions — is the hardest step in this digital journey (see Figure 2).

For entrepreneurs to serve the NHB effectively and build sustainable businesses, fostering NHB trust and confidence in the internet and online transactions / purchases is essential. Success requires addressing the barriers that this population segment perceives and experiences, as well as being attuned to their cultural contexts and social norms. The first step is simply to get more people online more frequently. The next step is to build their comfort level and trust with using the internet. That will likely follow the same evolution from simple to more sophisticated use cases outlined in the chart above.

The Covid-19 pandemic has been a game changer in this respect. It has rapidly increased comfort in using the internet and undoubtedly accelerated the digital journey of the NHB by several years. For instance, rural mobile data consumption in India grew nearly 30% in the first three months of the nation-wide lockdown imposed in March 2020, bridging the gap with urban consumption, which grew at 15-20%. Indians on average spent nearly 30 minutes extra per day on their smartphones during the lockdown compared to earlier.

Not only did the quantum of mobile and internet usage increase, the reasons for using them have also changed. At the heights of the lockdown during the pandemic, four out of five smartphone users relied on their device for information about government schemes, weather updates and market-related information on agricultural produce. As children became homebound, schools increased digital instruction and outreach. All this has perforce provided a massive surge in exposure of NHB families to the digital medium, building a familiarity and comfort that would otherwise have taken much longer to achieve. Vedantu and Doubtnut, which provide app-based and online education solutions to children, witnessed rapid growth in customer adoption during the pandemic, with number of users growing 3-5x and number of paid users growing by more than 5x.

The Covid-19 pandemic has been a game changer in this respect. It has rapidly increased comfort in using the internet and undoubtedly accelerated the digital journey of the NHB by several years.

3 Calculated as 30-35% of total internet users in India (~700M; Source: Statista)

Progress on the barriers that the NHB face 04

The digital journey of the NHB is not without obstacles. At the time of publishing our thesis, we had identified seven such barriers that the NHB face. Over the years, we have built a portfolio of investments addressing these barriers and creating business models to provide the NHB access to aspirational services. Figure 3 below provides some examples:

How has India progressed on addressing some of these barriers? Indeed, significant advances have been made. Digital maturity has dramatically increased in recent years and the average Indian mobile phone user today consumes more mobile internet data than users in more advanced economies like USA, UK, China, France, Germany, and South Korea. The digital infrastructure created by the government and private sector, together with the various innovative start-ups founded by Indian entrepreneurs have helped build far greater familiarity and comfort with the internet in the last 18-24 months. Consequently, we have seen progress in addressing each of the barriers:

Low data costs, attributable mainly to the advent of Jio, dramatically changed the mobile broadband landscape in India and led to data costs in India being amongst the lowest in the world. As of 2020, the average cost of 1 GB mobile data in India was $0.09 – nearly one-90th of the per-GB cost in the US and one-60th of the global average. In an important move to improve internet accessibility, the PM–WANI (Wi-Fi Access Network Interface) was announced in December 2020. The new architecture expects to unleash growth of 10 million small Wi-Fi hotspots in the country anchored by small retailers in low income areas. This will enable high speed internet in low income areas as well as extra income for small retailers. At the same time, it will make it easier for consumers to access low-cost public wi-fi on the go through a simplified mobile app-based infrastructure.

Local language content is proliferating, and video is the dominant mode of content consumption. Nine out ten new internet users added between 2015-20 consume content in Indian languages. Nearly 70% of Indian internet users are expected to be consumers of video content. Nevertheless, satisfaction with the local language experience still has some way to go. A recent survey showed that more than one-fourth of users feel that the search results in their local language are inaccurate. The same survey reported that 43% of the housewives surveyed feel that there are limited options to choose their preferred language on online shopping websites.

Social/communication is the dominant use for the internet. While the Facebook family (Facebook, WhatsApp and Instagram) continues to dominate Indian users’ screen-time, new players like Josh, Roposo and Sharechat contributed in a big way to expanding the reach into the NHB, including giving many an opportunity to earn income by generating their own content. For the first time, many NHB users are not just consumers, but also producers of digital content.

The purchasing power of the NHB is relatively low, which necessitates a frugal approach to provide them affordable offerings. Unified Payment Interface (UPI), a low-cost digital payment infrastructure, has been a key enabler for frugal innovation. Between FY17 and FY20, the total number of UPI transactions skyrocketed and grew nearly 700x (and 300x in terms of transaction value). Covid-19 gave an even greater boost to digital transactions, with total monthly UPI transactions doubling from nearly 1 billion in April 2020 to nearly 2 billion in October 2020.

Online social communities, which are built into the models of many start-ups, are helping build trust in the internet. Simple payment mechanisms (e.g. UPI) are also increasing confidence in transacting online. It also helps that many of these apps can be used in vernacular languages, further contributing to users’ comfort.

Women play an important role in decisions relating to basic and utilitarian consumption; bringing women online is therefore essential to be able to meaningfully harness the power of the internet for the NHB. Women’s use of mobile phones is increasing. In 11 states/union territories, more than 70% women now have their own personal mobile. Building off this, several women-centric digital platforms have emerged and are seeing strong traction. Healofy, a women-only platform fostering communities focused on maternity and childcare, has grown to 2 million monthly users engaging and transacting on its app. Pratilipi, a platform for online creation and consumption of content, mostly long-form written content, counts women as the majority of its 20 million monthly users. Nevertheless, there is much more work to be done. The digital divide between genders remains a harsh reality– it is estimated that still nearly twice as many men use mobile internet as compared to women. Research by Dvara and GSMA shows that women also use fewer features and a smaller range of services on the phone as compared to men. They are more constrained in the geographic location where they use the phone, for how long and for what purpose. The gender gap in smartphone ownership is higher than the gap in mobile phone usage, and women lack agency in making purchase decisions for smartphones. Removing the imbalance in phone usage patterns across genders represents an important imperative for the NHB to be able to fully leverage the power of the internet.

Finally, mobile-based services are increasingly trying to offer an experience that is more aligned to the social and cultural context of the NHB. Increasingly widespread use of relatable language, inclusive user interface and user experience (UI/UX) tools, such as mobile number-based logins (as opposed to e-mail logins), simple in-app navigation options, simplified menu options, and accompanying instructions/recommendations have been key to how the internet is being ‘reimagined’ for the NHB. For example, IndusOS’ India-specific app-store now has more than 100 million users.

Building an NHB focused portfolio 05

Our thesis about the digital journey of the NHB has been key in shaping our investment decisions at Omidyar Network India. Consequently, we have built a ‘tech-led’ portfolio focused on serving this segment. These include businesses that have NHB customers, are owned by the NHB or employ NHB workers in large numbers.

A 2019 survey of 3400+ customers of 16 organisations in our portfolio provided some useful insights about the profile of the NHB users (see Figure 4). On average, an NHB customer is a 32-year old man, living in a household of 6, who used a smartphone in the last week. A fourth of them are ‘new’ smartphone users, that is, those who began using a smartphone in the last two years.

In our work, we typically see ‘mixed income’ business models that serve customers across income levels. Based on the 2019 survey, we are encouraged to see that on average, 33% of our investees’ customers are from the NHB (varying, across the portfolio, from 15% to 59%). This early data validates our thesis that even though tech-based innovations might initially serve customers higher up in the income pyramid, over time they do tend to find acceptance amongst the NHB.

NHB CUSTOMER PROFILE

On average, a NHB customer is 32-year old man, living in a household of ~6, who used a smartphone in the last week
FIGURE 4

We believe our experience provides an emerging answer to the oft-asked question about whether it is possible to build large, sustainable and valuable businesses serving the NHB, given their lower income levels. As an early-stage investor, it is encouraging for us to see several examples of investees heading towards meaningful scale and valuations. In Figure 5 below, 14 early-stage startups (indicated in bold) have both a reach of 1 million+ lives and a valuation exceeding INR 5 billion. Another 12 more have either touched 1 million+ lives or have valuations exceeding INR 5 billion.

A good example of this is Bounce, India's first smart urban mobility solution. It provides two-wheelers for short-term rentals, with the goal of making daily commute time-saving, reliable and convenient. Riding a two-wheeler hired from Bounce is now cheaper than taking public bus transport in Bangalore. Similarly, Zest Money uses algorithmic credit underwriting to provide short-tenure consumer loans including personal credit lines, consumer durable financing, and funding major life expenses like education and healthcare. More than 30% of Zest Money’s 400,000+ customers are new to credit and have got access to their first significant line of formal institutional credit through the organisation. Transerve, a location intelligence platform, has impacted over 4 million households across urban India. Its geospatial analytics platform helps address complex urban development problems, such as inventorying city assets, revenue enhancement for urban bodies and property records modernisation. Its solutions are deployed in a variety of industries like government, infrastructure, environment, agriculture and telecom.

In many of these cases, our commitments were to ideas on paper, based on our belief in the motivations of the entrepreneurs and conviction in their unique approaches in improving access and inclusion for the NHB. In many others, we were the first institutional investor, often at the seed stage. With this context, a reach of over 1 million and a valuation of INR 5 billion represent the achievement of key maturity milestones in the journey of our investees covering the initial rough terrain of finding product-market fit, building the core team and initial customer acquisition.

In many of these cases, our commitments were to ideas on paper, based on our belief in the motivations of the entrepreneurs and conviction in their unique approaches in improving access and inclusion for the NHB. In many others, we were the first institutional investor, often at the seed stage.

The evolution of NHB business models 06

The evolution of our investee portfolio at Omidyar Network India offers a fascinating insight into the NHB digital journey and the progression of business models that can reach and serve them. Over the last decade, we have noted three trends across our portfolio which reflect the changing habits and preferences of the NHB alongside progress in their digital journey:

From online to “mobile-first”; and “consumer” solutions to “small business” solutions 6.1

Initially, a tech-led approach meant that our investments were in online businesses, for example Quikr, an online marketplace and classified advertising platform that we invested in in 2009. This coincided with a period of rapid expansion in e-commerce services in India. Since 2015, business models have moved to “mobile first” solutions (Railyatri, Kaleidofin, Doubtnut, and ZestMoney to name a few). Additionally, from an initial focus on consumer solutions, entrepreneurs began focusing on small business solutions, as these too created a “digital exhaust” – data trails that enable entrepreneurs to provide tech-led, personalised and affordable services to small businesses. Indifi, Gramfactory and Pickrr are some examples of such companies in our portfolio.

Local language provides the breakthrough into the NHB 6.2

The breakthrough into the NHB segment came from local language solutions. Two investees, Dailyhunt and Indus OS, were pioneers in this respect and contributed to this learning.

In 2015, the main offering of Indus OS was an Indian language mobile phone operating system working primarily with Indian handset makers, with features many of us take for granted today – Indian language keyboard, translation and transliteration, customised app launcher for Indian audience etc. The smartphone market in India shifted radically and in working with top foreign handset brands, the company found good product-market-fit with its Indian language app store App Bazaar. App Bazaar now reaches ~100 million users. Free for users and most long-tail apps, Indus monetises the app store by charging apps that run targeted promotional campaigns.

When we invested in Dailyhunt (VerSe) in 2010, it was a provider of value-added services that telecom companies could offer to their customers on a subscription basis. Their core offering at the time was general classifieds. With the acquisition of Newshunt in 2012, it pivoted to becoming an Indian language news aggregator. Today, it has over 160 million monthly users on its app, offers 100,000 news articles in 14 languages, and reaches 95% of India’s pin codes. In addition, Dailyhunt operates Josh, which is amongst the leading Indian short-video creation and sharing apps, with more than 30 million monthly users.

Since then, B2C solutions incorporating Indian language or “Hinglish” in their offering has become a common feature.

The rise of the “utilitarian” segments 6.3

While e-commerce and gig-economy start-ups were in the limelight, momentum was also building in the less high-profile but more “utilitarian” sectors such as health, mobility, job platforms, agri-tech, financial inclusion, and education. For investors like us seeking to serve the NHB, this was an opportunity to make a big leap forward. In recent years, these sectors have taken center-stage in the Indian entrepreneurship ecosystem.

a

Agri-tech: from eliminating intermediaries to serving the entire agriculture value chain

The earliest models in agri-tech were “farm to fork” focused on eliminating intermediaries in the agriculture value chain. This value chain in India is indeed very complex, with at least five intermediaries between the farm and the consumer. While startups are working on disintermediation, this has primarily been at either of the two ends of the value chain.

Newer models are addressing problems across the value chain. For instance, Bijak, a company we invested in in 2019, connects buyers and sellers of agri commodities on a real-time trading platform. Besides helping multiple trading parties discover each other, Bijak is also helping in digitisation of physical mandis, artiyas (commission agents), dalaals (brokers), loaders, mills, and middlemen. In 18 months, Bijak has scaled to 600 regions across 25 states, and facilitated trade in over 100 agricultural commodities. From a gross merchandise value (GMV) of Rs 5 million in October 2019, the platform now has an annualised GMV of over Rs 13 billion. Bijak records daily trading volumes of 2,000 tonnes. Its app has connected more than 25,000 buyers and suppliers across several states.

b

Education: from Brick & Mortar to online; from asynchronous to live learning

Our early investments were in brick and mortar models such as Treehouse or ecosystem enablers like CENTA, which supports teacher professional development. The last two years have seen the rise of ed-tech solutions that reach students directly through quality after-school solutions. A majority of children and youth from middle and lower-income segments as well as those from Tier 2 cities are using technology for education for the first time. In a relatively short period, ed-tech has seen a significant penetration in the NHB segment as well. Covid-19 undoubtedly provided the sector a greater momentum.

Learning solutions have also expanded beyond curriculum-aligned after-school “tuitions” and test prep to newer areas like doubt resolution, coding skills, and English language training. We are also seeing experiments in education financing with models such as income-sharing arrangements and loans not linked to parent income but to estimated earning potential of the students, like those offered by Credenc.

DoubtNut is a doubt resolution app for math and science subjects for grades 6 through 12. 60% of its users come from state board affiliated schools, where typically the medium of instruction is not English. And over half its 7 million monthly app users have come online for the first time in the last 12 months. 85% of students live outside India’s top 10 cities. A quick study of sample student profiles indicates locations like Balliya, Supaul, Itarsi and Bettiah with their parents working as farm-labourers, drivers, vegetable sellers and shop owners.

Another trend in the rise of ed-tech is the increasing receptiveness among schools themselves to adopt solutions that support various non-pedagogical functions. For instance, Uolo partners with private schools to bring the teacher-student-parent community online through its mobile app. The Uolo platform helps schools to connect, collaborate and communicate with parents as a step to helping students learn better. Uolo works with more than 2,000 schools and 1 million students in more than 200 Indian cities. 30% of its students are located in Tier 3 cities with a population of below 1 million. And in 21% of its partner schools, the monthly fee per student is less than INR 1,000.

Arguably the most exciting development has been the move from asynchronous models to live learning in large “virtual classrooms” – this not only enhances the learning experience, but also makes ed-tech more affordable. Live interaction with teachers helps students understand concepts, clarify doubts, and benefit from peer interaction with other students. Self-paced learning can be hard for most students and assisted learning helps provide guidance and structure in the learning process.

Vedantu, one of India’s leading online learning companies, offers live tutoring from some of India's best-curated teachers. The company’s 500+ teachers taught more than 100,000 students in 2020 in a one-to-many setting. Feedback from students and outcomes are encouraging. For example, Sumit Jain is a special needs student from Satna, Madhya Pradesh, with impaired vision. Working with Vedantu, Sumit progressed from All India Rank (AIR) 982 in the Joint Entrance Examination (JEE) Main, to achieving an AIR 455 in JEE Advanced exam, and was the All-India topper in the ‘person with disability’ category in 2019.

c

Financial Inclusion: from consumer credit to financial health; early stages of inclusive solutions for small businesses

India has become a beacon for financial inclusion globally, led by rapid expansion in access to formal financial services through bank accounts and an efficient, low-cost digital payments infrastructure. However, the financial services industry continues to largely serve the urban, richer India, with usage among the NHB continuing to be a challenge. The small business segment too continues to remain underserved by formal financial services. The goal of taking mainstream finance in full measure to the masses is yet to be accomplished.

In the past few years, many nimble fintech firms have emerged that leverage public data platforms (such as India Stack) and seek to serve the NHB and small businesses with low-cost, low-ticket financial solutions. Fintech firms use alternative data for underwriting and finding the best solution for the customer, and deliver their products to the consumers using technology.

The visible increase in startups that go beyond payments and credit, and into areas like savings, investments and insurance is an encouraging trend. We are also seeing the advent of neo-banks which eschew a provider and product-centric view of financial services – instead they structure and bundle products that are embedded in the business value chain or life of the consumers.

The evolution of our own portfolio reflects these shifts. We have constructed our financial services portfolio with the thesis that financial solutions relevant to the context of consumers and provided in a low-cost and personalised manner can help bridge the usage gap and increase penetration of formal financial services among the NHB and small businesses.

Our initial investments in brick and mortar lending businesses – such as Vistaar, lending to rural SMEs; Varthana, lending to affordable private schools; Swarnapragati and Sitara, both providing loans for affordable housing – were followed by a gradual movement towards digital lending businesses. Today, Sitara has helped over 10,000 families build their own homes and 47% of these properties are owned by women.

Indifi uses anchors/aggregators (for example, travel portals) to source potential borrowers and enable digital collections. It combines this with a marketplace model for third-party lenders (banks and non-banking financial corporations) to benefit from Indifi's sectoral knowledge, technology platform, and underwriting capabilities. Of the 30,000+ loans that Indifi has extended to date, 25%+ are to first-time borrowers, 20%+ are to small businesses with women promoters, 35%+ are to businesses with less than two years of operations, and 30%+ of the borrowers do not own property of any kind.


Looking beyond payments and access to credit, we considered the wider issue of NHB financial health. This led to investments in insure-tech (GramCover and Toffee), savings & investment products (Affordplan and Scripbox) and neo-banks (Kaleidofin and Yelo). GramCover, for instance has reached 1.3 million unique farmers in rural India. 90% of these customers are buying insurance for the first time. The company is now moving beyond crop to personal accident, hospital cash, and two-wheeler insurance. Kaleidofin is a neo-bank, providing tailored ‘wealth-tech’ solutions to customers so that they can meet their real-life financial goals. It serves women working in the informal segment with no verifiable evidence of occupation or income. 97% of its customers have income below INR 25,000 per month and 73% have income below INR 10,000 per month. Over 90% of Kaleidofin’s users are new to capital market products.

In a further evolution, we recognise that solutions - digital “pipes” - that enable large incumbent players to more effectively reach a larger consumer base with insurance products, as well as reach small businesses with digital financial products, can potentially deepen inclusive finance for the NHB. We have an active pipeline of opportunities in these areas.

d

Health-tech: from content to community, medical advice and commerce

1mg began its journey by empowering the consumer with transparent information on medicines, a first in the Indian market. The company aims to make healthcare easy-to-understand, accessible, and affordable. Their platform allows patients to get credible medical information, buy medicines, book lab tests and consult doctors. 1mg has delivered over 25 million orders, built a great team and attracted a strong investor profile. Going forward, the company’s efforts would be directed to building their data science capabilities for new products (such as a ‘digital doctor’ and AI-powered health bots) and deeper penetration into smaller cities for undeserved customers.

Healofy and myUpchar led the foray into Indian language-led health information and online community platforms. This enabled both companies to build a strong presence outside the metros.

64% of Healofy’s users come from outside the top 6 metro cities in India, with cities/towns outside the top 25 cities accounting for a quarter of the company’s users. For myUpchar, metro cities account for only 10% of users, with Tier II cities accounting for 30%, Tier III towns accounting for 50% and the balance coming from even smaller urban and rural agglomerations. Healofy is today amongst the largest women-focused online platforms in India, and myUpchar has established itself as the leading online source of health-content in Indian languages.

e

Mobility: from travel information to ride sharing

Railyatri, one of our investments from 2015, began its journey providing information to simplify travel for India’s nearly 25 million passengers who travel and commute daily by train. It provided its users an estimate of the probability of their train bookings getting confirmed, train schedules, live train information, platform of train arrival etc. It later enabled booking of tickets, buying food on trains and transportation at passenger destinations. It has now expanded its business to become an intercity bus operator – IntrCity SmartBus is a fleet of branded buses that provide a quality, standardised, safe, secure and comfortable bus travel experience. IntrCity SmartBus started operations with 2 cities in early 2019, and now connects over 100 cities across India.

As this sector progressed, the subsequent developments were in the form of business models offering various mobility-sharing services for the less affluent. Bounce is a dockless self-drive scooter service. Before the Covid-19 lockdown, Bounce did about 130,000 rides every day, and plans to transition to a 100% electric vehicle fleet over the next few quarters.

f

SME digital solutions: from bringing small businesses online to embedded solutions

NowFloats, an early entrant into the small business solutions space, helps SMEs establish an online and social media presence so that their potential customers could better discover them. Business models serving small businesses now include other embedded solutions. GramFactory is a fast growing B2B ordering app for small retailers (kirana stores). It streamlines their sourcing, better monetises their assets through branding support and modernising the stores, and gets them access to trade credit. It has built expertise in sourcing and merchandising to partner with kiranas and launched 100 neighbourhood-format branded stores offering discounted prices and large product assortment to NHB customers. The typical kirana that partners with Gramfactory to open a neigbourhood-format modern store is able to double its income within 3-6 months, while offering significantly lower prices to a much larger customer base.

Pickrr helps small businesses get access to best-in-class logistics services. With Pickrr, Micro, Small & Medium Enterprises (MSME) are able to digitise their shipping workflow, lower their courier rates and improve efficiency of delivery, resulting in greater revenue and profits.

The next frontiers 07

What do these trends augur for the NHB and the businesses that serve them? What are next frontiers to be overcome and where will opportunities lie for entrepreneurs and investors seeking to play a supporting role?

As we think about these questions, we are also mindful that in the medium term, the NHB thesis will play out in the context of the massive health and economic shock that the global Covid-19 pandemic has created. Looking forward, there are a few trends that we expect :

7.1

The digital journey of the NHB will continue to accelerate post-Covid

Users are clearly more willing to experiment with the digital medium. This is good news for entrepreneurs – we expect sustained innovation across all the “utilitarian” segments, with expansion and deepening of opportunities (see point 5 below) as the openness of users to new solutions and business models increases.

7.2

The constrained income growth of the NHB will require frugality and patience.

In the aftermath of Covid-19, income levels of the NHB have been adversely hit and indeed, the vulnerability of a large part of this population has increased. Frugality will therefore be vital, and investors will need to be patient as monetisation continues to be slow.

7.3

There is work to be done on addressing the barriers and inequities in the NHB’s digital journey

Entrepreneurs will need to push the bar further on the language barriers, further contextualise models for the NHB context and increase women’s participation. Through 2021, we will conduct new deep-dive research on the digital journey of the NHB and synthesise more nuanced learnings from our portfolio on the NHB’s digital journey and share them widely for entrepreneurs to leverage in their innovation journey.

7.4

Within the utilitarian segment, the focus on essential services and products will be accentuated

The shifts towards the more aspirational areas (example brands, sports etc.) will be slower than previously anticipated, and customers will be highly value conscious in their buying decisions. Newer models like social commerce / group buying, which provide lower prices and better assortments in addition to providing opportunities to earn livelihoods, will begin to take off and further drive e-commerce adoption amongst the NHB.

7.5

We will see newer opportunities and greater deepening in each of the utilitarian segments

Agri-Tech

Investment opportunities will be driven by some clear trends:

Shift towards agri-outputs

We see a transition away from businesses providing farmer information and farm inputs through offline and asset-heavy business models. Not only are they capital intensive, they are hard to scale and monetise (since the farmer is the payer). Increasingly the shift is towards farm outputs and markets with aggregation-based, asset-light plays that scale faster and are capital efficient.

Increasing interest across agri-verticals

While grains & pulses and fruits & vegetables remain the focal points, other verticals like dairy/livestock, meat, poultry, seafood/aquaculture, warehousing, etc. will also attract interest.

Emergence of different types of business models

Marketplaces, SAAS, vertically-integrated brands and IoT/mechanisation plays.

Education

The new National Education Policy (NEP) emphasises early childhood education, foundational literacy and numeracy, life skills and a greater focus on learning outcomes. We see the strong momentum in ed-tech continuing, with the following areas seeing greater traction:

Life skills

Basic life skills, such as socio-emotional awareness and interpersonal relationships, as well as cognitive skills, such as critical thinking, problem solving, creativity and digital literacy.

Early childhood education

With the policy focus on universal early childhood education that is integrated with the school system, innovations in this space will emerge.

Parent engagement

The pandemic has led to a meaningful increase in parent engagement (including fathers) with their children’s education as reflected in Pratham’s recent Annual Status of Education Report 2020 - various family members such as mothers, fathers, older siblings and others like uncles, aunts, and grandparents helped children in studying at home. Family involvement positively impacts children’s academic achievement. These findings point to the potential for enhanced collaboration between homes and schools, as evidenced by our investee Uolo.

Workforce readiness

The trend of workforce readiness has seen shifts from traditional skill development courses with limited linkage to employment outcomes to more holistic and outcome-linked models and areas like upskilling and reskilling. This space will see continuous evolution to meet the needs of a large young working age population as massive changes in technology redefine the future of work.

Financial inclusion

We are at the very early stages of the journey of solutions beyond credit for the NHB consumer. Inclusive financial services for small businesses too are at a relatively nascent stage. In the coming years we see significant potential for growth in insure-tech and savings opportunities for the NHB and providing small businesses access to the full range of formal financial services and business-tech services.

health tech

For the NHB, the most meaningful solutions will be those at the intersection of being technology-led (asset-light, capital-efficient, scalable), patient-centric (affordability, accessibility) and focused on improving health outcomes and not just reducing process inefficiencies or streamlining workflows of care providers. Key opportunity areas include:

Information and networks

Tools promoting credible and relatable health information will become more prominent, such as those providing information for preventive care, knowledge platforms for care providers and networking with patients undergoing similar medical conditions.

Tech-led access to healthcare products & services

Digital solutions such as e-consultations, e-diagnostics, e-pharmacy, remote monitoring solutions and employer wellness programs have already started to emerge. Online-to-offline plays such as utilisation of excess capacity for non-critical surgeries and at-home care will also gain traction.

IT solutions and analytics focused on quality care

Electronic health records (EMR/EHR) management and transmission, population health data, data analytics on health records for early warning signals, telemedicine, remote ICU care, and AI-based screening/ diagnostic software are some solutions that could emerge to solve critical gaps in patient care.

Digital therapeutics

Software solutions to track, prevent and treat chronic medical disorders or diseases such as diabetes, hypertension, congestive heart failure, asthma, anxiety, depression, Alzheimer’s and dementia using evidence-based therapeutic interventions will emerge.

Mobility

With the growing urban population and increasing migration to the cities, there is tremendous need for accessible & affordable intra-city mobility solutions tailored to the needs of the NHB. Companies such as Bounce are focused on providing convenient and inexpensive first-mile and last-mile linkages that can be pivotal in accelerating adoption of public transportation infrastructure as well. Going forward, we expect much of this last-mile commute infrastructure, as well as last-mile logistics infrastructure, to shift to electric vehicles (EV). This transition should further improve affordability and help address the challenge of deteriorating air quality in Indian cities.

other areas

We expect to see emergence of several nascent areas related to providing citizen services to the NHB, such as civic-tech and legal-tech. Other areas like privacy-tech and prop-tech will also gather momentum. This will create opportunities for entrepreneurs to provide these services, including by partnering actively with the government and other stakeholders.

Conclusion 08

The Next Half Billion represent the heartbeat of an aspiring India. The fortunes of this segment will determine India’s future for the next several decades. The shock of a world altering pandemic has placed them at a critical juncture. For us at Omidyar Network India, it has been inspiring to partner with bold and purpose-driven entrepreneurs who seek to improve the lives of the NHB. A deep and nuanced understanding of this rapidly evolving segment with its diverse age groups, occupations and income levels is essential for entrepreneurs to successfully serve them. We are committed to contribute in building this understanding, sharing our learnings and working with entrepreneurs who will push the boundaries to help create a meaningful life for them.

ON India investments, 2009 – Present Annexure