As India’s eCommerce sector begins to morph into one of the world's biggest online retail markets, CNBC recently outlined some of the sector's woes that might be familiar to investors in Rediff.com India Limited (NASDAQ: REDF), but a little known small cap stock called Calpian Inc (OTC: CLPI) could have an answer to one of the sector's biggest problems - payment for online goods or services.
India’s eCommerce Sector and Rediff.com India Limited (REDF)
According to experts quoted in the CNBC article along with internet analytics firm comScore, there are some 110 million people out of India’s population of 1 billion plus people who have regular Internet access of some kind and one out of five of these online Indians visited retail websites in the 12 months up to November 2012 for a 50% growth rate. That means India was the fastest growing online market among the BRIC (Brazil, Russia, India and China) countries during that period, but online retail still only makes up less than 1% of India's retail market according to Euromonitor (its expected to reach up to 8% market share by 2020) while US based Amazon.com (NASDAQ: AMZN) would be considered a major player as it also runs Indian website Junglee.com.
The problem for India’s eCommerce sector is that ecommerce companies have been forced to spend a ton of money to get started – meaning they have a very high activation cost while the cost of acquisition can be much higher than the average purchase or business generated from a customer. This makes Indian eCommerce businesses unprofitable.
Case in point would be Rediff.com India Limited, which isn’t exactly a pure Amazon.com India type of play as its an online provider of news, information, communication, entertainment and shopping services (eCommerce offerings would include Rediff Shopping, Rediff Auctions and Rediff Books). Rediff.com India’s revenues for the past four fiscal years ending in March have been $19.94M (fiscal 2012), $21.80M (fiscal 2011), $18.84M (fiscal 2010) and $25.43M (fiscal 2009) along with net losses of $7.68M (fiscal 2012), $6.57M (fiscal 2011), $8.03M (fiscal 2010) and $11.26M (fiscal 2009). And the current fiscal year for Rediff.com India isn’t looking much better while for investors the stock is down 59.4% over the past year and down 65.7% over the past five years.
One of the major problems for companies like Rediff.com India and Amazon.com obviously involves payment as ecommerce retailers have been forced to use expensive tactics such as payment by cash or credit card on delivery along with no questions asked return policies to lure customers. Indian eCommerce players will likely need to scale back on some of these tactics, but that also means missing out on a huge segment of the Indian consumer base who do not have bank accounts or debit and credit cards as they still pay for everything in cash. In fact, India is an 85% cash economy – something that won’t change overnight.
What is Calpian Inc’s (CLPI) Solution?
That brings me to US based small cap Calpian Inc which works as an intermediary between large processors and merchants to facilitate payment for goods and services at the retail point-of-sale. Calpian Inc has an Indian subsidiary offering Money-on-Mobile - a pre-paid mobile payment solution for the country’s unbanked that could be an answer for India’s eCommerce payment woes. Money-on-Mobile is already India's largest mobile payment platform which acts as an m-wallet or mobile wallet for users who can now carry all of their credit/debit cards and bank accounts on their mobile device. This makes everything from paying for travel services to the sending and receiving of remittances much easier.
Calpian Inc has recently announced that the number of locations supporting the Money-on-Mobile service have increased from 118,000 on December 31, 2012 to more than 122,340 retail locations at the end of January. In addition, access to the Money-on-Mobile service by unique phone numbers rose from 32.5 million to approximately 35.8 million plus processed transaction volume rose 16 million INR to 636.7 million INR in January (or approximately $11.9 million).
Of course, it should be remembered that Calpian Inc is a small cap stock that has only really been trading actively for a few months:
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