Last throw of the dice

The year 2017 was the year of reckoning for Tapzo. The company had to make money. More so because it was coming off of a year where it ratcheted up a loss of almost Rs 100 crore ($15.4 million). In June, Singla told his team that the company needs to break even by the first quarter of 2018. To do that the company needed ideas, so in June 2017, Tapzo took three different paths: a wallet, a subscription plan, and bank integration.

Biggest challenge faced

Tapzo’s biggest challenge over the years has been to keep customers from uninstalling the app. The company realized early that the only way customers stayed on as if a monetary carrot was dangled. That’s how the wallet comes into the picture. The wallet would encourage customers to park some cash there and keep them loyal. But it didn’t always work the way Tapzo expected it to.

Very few customers actually used it. And they used it when Tapzo promised cashbacks or discounts on transactions. Whenever the cashbacks were removed, the customers dropped out. “It [wallets] was always supposed to be a hook, but not a very good one,” says a former Tapzo executive. He asked not to be identified out of respect to his former employer.

Late last year, the profitability mantra grew louder and the money spent on customer acquisition dropped. And thus, the customers dropped out. Last we heard, the company plans to pull the plug on the wallet.

Lesson 1: On paper, a wallet sounds like a good idea; it removes friction, it enhances loyalty, it engineers lock-in. But in practice, a wallet works only as of the last leg of the value proposition chain. It doesn’t work either as a lead use case or when there are a hundred other startups who are all trying the exact same playbook.

It then tried a subscription model called Tapzo Gold. Here for Rs 99, the company would give customers cashbacks and better services from vendors. “Now, the customers would have some investment in Tapzo and so they would stay on,” adds the former executive. But that’s not how it played out either. In the larger scheme of things, Tapzo was competing with wallets who were giving cashbacks and discounts without a subscription fee.

Lesson 2: Subscription works in two ways: when there is a distinctive product with a clear value proposition as a prerequisite and when there is already a significant user base who you want to keep loyal. Tapzo’s primary value proposition was a transactional one—cash backs and discounts—that attracted bargain hunters and one-time use. The volume of unique customers was also not large enough to engender a subscription play.

Integration with banks is the latest throw of the dice.

Undertaking the new business

In September 2017, the company added an item to its AoA (Articles of Association) in which it proposed to undertake a “new line of business in the area of the financial sector, by offering products and services through the company’s software solutions and distribution networks”.

The idea is to “act as representative and/or agent to promote, offer or sell financial products/services of the financial institutions including but not limited to Banks, Investment Companies, Insurance Companies, and Non-banking Financial Institutions through our software solutions and distribution networks.”

To simplify it, Tapzo would integrate itself with bank apps. “It was supposed to be a win-win for everyone,” says the former executive. The banks would have more use cases on their app, so customers would spend more time, Tapzo would get transactions. And customers? They would get a seamless experience.

The challenge with this business is similar but worse than Tapzo’s original commission on services idea. In a way, it represents “commission on commission” and is therefore likely to have even thinner margins than the original business. For this business to succeed, Tapzo needed volume. And for that, it needed to spend big. But with profitability in mind, the company had turned down most of its marketing spends and it was left with, “only those who came on Tapzo organically,” says the former executive.