Growth Hacking & the Rise of Bookkeeping Fintech Apps

The rise of bookkeeping fintech apps

Bookkeeping Apps are growth hacking cleverly in acquiring merchants.

There are 70 million small merchants in India and a large part of them run neighborhood stores.

They are the first port of call for most Indian households for everything from soaps to pulses and contribute heavily to the sales of large consumer goods companies.

More than 40% of sales at these stores are made on credit. These merchants maintain the transaction records in a notebook which they call “bahi khata”.

Multi-Million Dollar Digital Bookkeeping Apps

“Hisaab mein likh lena”, which translates to “put it on my tab”, is a very common phrase instead of immediate payment.

This has led to the creation of multi-million dollar apps like Khatabook & OkCredit.

Yes, Multi-million Dollars! Both these Apps are valued at $300 million & $227 million respectively.

Khatabook has got 8 million active merchants in its platform, and OkCredit has more than 5 million merchants.

With the rise of Cheap smartphones & low-cost Internet (thanks to Jio) — merchants have turned to apps to manage their bookkeeping and inventory.

Data security and trust are the most critical factors for them to start using an app for their business.

Word of Mouth or Growth Hacking

OkCredit & Khatabook both claim that it’s the word of mouth that helped them to spread so quickly.

I explored these Apps with a growth hacking mindset and found something interesting.

Let’s take the case of Khatabook here to understand how are these Apps growing so fast with such high retention rates.

The answer lies in the “Transaction SMS” that is sent every time a merchant adds a credit/debit entry in the App for a customer.

This growth hack is very similar to Hotmail’s “P.S. I love you. Get your free email at Hotmail” at the end of every email. You can read more about it here

Each Transaction SMS contains a web link to check the Transaction history of the user with the merchant. See image below –

As you can see in the image above that, the web page has the app install CTA at the bottom, which is essentially free Ad placement for them

Growth Hacking Mathematics

In September 2019, Khatabook claimed that they have acquired a total of 5 million merchants and had recorded a transaction of over $3 billion (credit and debit combined) for August.

Considering 40% (2 million) of them were active in the same month, simple mathematics tells that each merchant had recorded an average transaction of approx. ₹1,05,000 that month.

If we assume that on average, ₹500 credit/debit entry was being recorded in the app, then each merchant would have added 210 transactions in the app.

Two hundred ten transactions mean 210 transactional SMSes are generated for that month by a single merchant.

Let’s say these 210 SMSes had gone to 52 unique customers, out of which 5 are merchants themselves (highly probable in Tier-2 & Tier-3 cities).

So, the 2 million merchants would have generated 10 million SMSes (to other merchants) with a web link to check the transaction history.

This potentially translates to 5–6 million impressions of the App Install CTA at the bottom of the transaction history page (Transactional SMSes usually have a high CTR, as high as 50–60%)

Assuming that they get a mere 2% conversion rate on the CTA, they would have generated 100k-120k merchant registrations in August 2019 through that CTA placement alone.

Social Proof & High Retention Rate

These transactional SMSes also triggers social proof as they are from a fellow merchant and makes it easier for a new merchant to start using the Khatabook app for his business.

This growth hack combined with influencer campaigns on TikTok & Youtube has helped Khatabook add more than 3 million merchants over 9–10 months.

The high retention rate of this kind of apps is due to the cognitive bias called the “IKEA effect”.

It says — more effort we put into something, more likely we are to value it.

So, as merchants record more and more transactions in the app, they are less likely to shift to any other app.

Monetization is going to be an uphill battle

This is all good for an app that is available for free. Their biggest challenge is going to be in monetizing these merchants.

Khatabook app hasn’t made any revenue so far. However, they have taken their first step towards monetization by launching a feature to accept payments using their QR Code.

For Khatabook, it is the most authentic way to collect transactional data of the merchants and use it to disburse micro-loans and earn a commission from NBFC partners (unless they decide to apply for payments bank license and offer the loan themselves)

They also have to fight with the well-established companies like Paytm, PhonePe, BharatPe for the QR code space.

PhonePe & Paytm have already started offering digital bookkeeping as a feature inside their merchant apps. I have written about this extensively here

In Feb this year Paytm had launched All-in-One Android POS devices that can handle everything a merchant needs to strengthen their relationship.

This is just the start of a long battle that Khatabook will have to fight to find their Monetization-Market fit (I don’t even know if that’s a term).

I have been closely following this space and will continue writing here.

Also, I would love to know your thoughts on this in the comment section below.

PS — I have made assumptions on several numbers in the article to give you a better understanding of the growth hack.

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