Stock broking startups Groww, Upstox eye lending, payments to expand revenue base

Two major challenger brands in the broking ecosystem, Groww and Upstox, are doubling down on their credit business, according to people in the know. The ultimate idea is to retain the customers coming to the platform to invest.

Mumbai-based Upstox is aspiring to start the credit business quickly by partnering with banks and NBFCs to begin with and eventually will get a non-banking finance company (NBFC) licence and might apply to the Reserve Bank of India very soon.

“We will also focus on collaborating with banks and NBFCs to provide lending products, ensuring strict adherence to regulatory standards and eventually apply for a NBFC licence as we go on to expand our product suite,” said Ravi Kumar, cofounder, Upstox.

Credit as a big opportunity is being tapped by its competitor Groww too. Two people in the know have told ET that Groww is building a full-fledged financial services application. It will foray into personal, consumer, two-wheeler loans and even lend for large ticket size products like home loans.

“They have abandoned their neo-banking dreams, but they eventually want to become a full-service financial player with lending as a critical part of the business,” said one of the persons ET spoke to.

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Nilufer Mullanfiroze, who joined Groww from Federal Bank in 2021 is leading this business, he said.Emailed queries to Groww went unanswered till presstime.

Keeping the flock together

For Groww and Upstox the challenges are different, but the idea is to diversify the product base to increase customers stickiness.

Groww currently has a base of more than 5 million active traders and around 10-15 million investors. If this base needs to go up further, Groww needs more mass-market offerings like payments and credit.

Groww is a third-party payment app on Unified Payments Interface. It has also received an in-principle approval from the Reserve Bank of India for a payment aggregator licence besides an in house NBFC licence.

“With lending, Groww wants to cover a large part of the spectrum of financial services,” said the person quoted above.

For Upstox the challenge is to keep its flock together. Over the last one year, the Tiger Global backed startup lost around 2.6 million traders. Kumar wants to expand his product offering hoping to retain users. But he is not bullish on other financial services. He wants to stick to core investments.

During IPL advertisements, Upstox managed to onboard many users. Kumar told ET that most of his customers were looking for simple investment options that were not present on the app then.

Today Upstox has created an ‘Invest’ mode within the app, which has been made the default mode. Customers can get mutual funds, sector specific basket of funds, content around stock movements and curated top-rated funds for long term investments.

“Only those customers who want to do F&O trades or are into professional trading, can toggle onto the Pro mode on the app,” said Kumar.

With ‘Invest’ and credit, Kumar is hoping to get back into the top of the leader board among broking platforms.

Matching up to valuation

Broking is a massive revenue generating business but is a very niche sector. Only a small fraction of India trades actively. But these apps which command a valuation of north of $3 billion (Rs 24,000 crore approx), need more revenue generating avenues to justify the valuation.

Even at a $250 million or Rs 2000 crore of annual revenue run rate, Groww is technically trading at a 12 times revenue multiple. Compare that with Angel One, a listed tech broker, which is trading at four times its revenue. It has an ARR of around Rs 2500 crore and a market capitalisation of Rs 11,000 crore.

And brokers get around 80-90% of their revenue from F&O traders. And only a small segment of their customer base typically does these high frequency trades.

“These venture funded players need to expand their revenue generating user base and hence they need to expand their product offerings too,” said a founder of a wealthtech startup. “The big bet on lending and long-term investing can keep customers loyal and sticky.”