Delivering 10x value proposition
The world is confronting one of the greatest health threats of a generation one thatprofoundly impacts the global economy and all of its citizens. Our thoughts remain withthe communities and individuals including healthcare workers and first responders mostdeeply hit by the COVID-19 crisis.
Resilience and relevance: Responding to COVID-19 challenges
We have always stood for our customers employees and communities in good and badtimes. COVID-19 is one of those extraordinary times and we have responded with agility tothis global crisis prioritising our various stakeholder groups. Our employees are ourgreatest asset and customer centricity is at the center of all our business discussionsand decisions.
We have very quickly mobilised and implemented work- from-home and other resiliencymeasures. To ensure business continuity we quickly procured laptops and arranged to movedesktops to employees' residences. During the lockdown in April over 90% of our staffacross all our offices worked from home. Even now with some relaxations majority of ourstaff continues to work from home with stabilised business flow flow making it the newnormal. For those coming to work we are reinforcing both basic and enhanced personal andoffice hygiene measures to keep them their colleagues and their clients safe. We havealso distributed face masks and check temperature to help protect employees and supportstaff.
The relevance of our Fintech solutions cannot be emphasised ever more than now. Werealised that consumers during lockdown will require a continuous and smooth flow ofdaily goods and services while limiting their outdoor mobility and maintaining socialdistance for safety. We realised that this will also become the new normal and ourdigital services will become part of their daily essentials. Thus we further deepened ourrelationship with merchants and banking partners.
We enabled many utility companies education institutes essential industry segmentsand penetrated across various industry verticals to allow end consumers to easily be ableto make payments for these services online. We added more banks to our portfolio of banksincluding international banks to allow a greater number of customers to use theirpreferred bank for payment.
In each of the businesses and solutions we offer we broke our own previous records ofintegrating and activating client accounts partnering with merchants and banks andsurpassing our own daily payment volume and value.
Sometimes conditions may have become unusual and difficult yet we are functioningsmoothly. In fact in the month of June we've crossed the pre-COVID daily paymentprocessing value and volume. Surprisingly we have seen consistent growth in the UAEmonth-on-month since beginning of the year with no negative impact from COVID-19especially during the months of March April and May.
Needless to say this success would have been impossible without our exceptionalemployees.
We recognise our responsibility to support both their professional and personal lives.
There are great lessons to be learned from this experience and we believe we willemerge stronger.
As we deal with the spiraling effects of this pandemic
I want to assure you that we remain strong resilient and are well-positioned tocapture the ongoing opportunities in digital. We are at an inflection point staring atmulti-year strong growth as consumers businesses banks and governments all transitionsteadily to adopt digital payments and digital platforms for transacting locally andglobally.
To capitalise on this opportunity our Company has undertaken various initiativesthrough the year to build a future-proof business backed by our comprehensive digitalsolutions and led by our strong leadership team and motivated employees.
Looking back over a decade and half we have come a long way and withstood someunprecedented challenges as we will with this current pandemic too which has not stoppedus from accomplishing some extraordinary feat. Today we are among the leading Fintechproviders in India as well as among the leaders in the international market we operate.Over a million merchants use one or more of our Fintech solution to transact digitally.
Our vision is to enhance the way customers and merchants live trade and transactthrough the digitisation and democratisation of commerce. We want to build a world classFintech company as our Fintech is 'Next Generation' and capable of delivering 10X valueproposition to the customer.
Challenging global and local macro-economic environment
The COVID-19 pandemic has gripped the world and severely impacted businesses trade andother economic activities. Several countries have announced financial stimulus packages touplift the economy businesses and people to help them ride through the pandemic.
For India FY 2019-20 marked one of the slowest growths since the previous financialcrises in 2008-2009. The full year GDP grew at only 4.2% with Q4 FY 2019-20 growing at theslowest pace at only 3.1%. The COVID-19 pandemic has created a dent in India's growth.Economists have projected a severe contraction in Q1 FY 2020-21 when the full impact ofthe lockdown is expected to drag the economy deeper into the negative territory. Thegrowth for full year FY21 remains uncertain at the moment for the economy.
India's government has announced significant stimulus packages amounting over '20trillion (approx. US$265 billion) comprising 10% of country's GDP. We are confident thatthe economy will pick-up from the second half of FY 2020-21 and should regain completenormalcy before the year ends.
Growing industry shift towards digital transactions
According to a report by BARC and Nielsen mobile payments in India gained positivetraction and rose by 4% between pre-COVID and third week post-COVID period when most ofthe other industries suffered heavily showing stark de-growth.
A survey report by Capgemini Research institute observed rapid adoption of digitalpayments amid COVID-19 outbreak. It said Indians are increasingly adopting digitalpayment methods even those in the older age groups. And India is currently at the top inusage of digital payments and will remain top in the next six months. Also the appetitefor online shopping and convenience will continue to grow after lockdowns are lifted.
In India and globally too structural and secular trends are driving digital paymentsmarket growth. In India there have been 3 billion monthly digital payments transactions3x in two years. Digital volume and value has expanded at 56% and 30% CAGR respectivelyfrom December 2015 to December 2019. Mobile banking has seen well over 50% growth involume and value of digital transactions. There is tremendous headroom to capture thegrowing demand for many years which will allow us to strongly perform in India. At thesame time we will also increase our share in the international market.
Globally as per Capgemini World Payments Report 2019 non-cash transactions areprojected to grow from 38.6 billion in 2017 to 1045.5 billion in 2022 growing at a CAGRof 14%. In Emerging Asia & the Middle East and Africa non-cash transactions areprojected to grow at 29.7% and 21.6% respectively.
A world-class Fintech company
In a short span of about three years we have grown to over a million merchants acrossour Fintech platforms from a factor of a magnitude lower at the end of FY 2016-17 almostrepresenting 10x jump. This will only grow with time. We processed transactions almostworth '900 billion across our platforms in FY 2019-20 from less than '10 billion in FY2016-17. We also processed government procurements which was worth '500 billion over thepast few years on the GeM portal since we signed the contract in second half of 2017.
We are amongst the top three digital payment solution providers in India and ranksecond in the UAE among non-bank private players. We are the only listed home-grownbootstrapped and profitable Fintech company with international operations and having acomprehensive Fintech portfolio of digital payment solutions comprising PaymentsAcquiring Payment Issuance and lending Domestic and International Remittances andEnterprise Software Platforms.
We have created strong brands across all our business segments. Our brands enjoytop-of-the-mind recall and continued trust of our merchant customers and other keystakeholders. We endeavour to strengthening these brands further by making the requisiteinvestments and leveraging the full potential of these brands.
We have received many prestigious awards by reputed institutions endorsing ourtechnology and leadership position in the Fintech business. We have been amongst the veryfew recognised as a Superbrand in 2019 both industry and consumer verified by Superbrandsin India. We have also been recognised and awarded 'Most Innovative Payments ServiceProvider' and 'Fastest Growing Online Payments Service Provider' in the UAE at theInternational Finance Awards 2019.
Accelerating business growth
In FY 2018-19 we scripted a multi-year growth story to build a future-prooforganisation which will create growing value for existing and prospective shareholders.During FY 2019-20 we began building each block which will be a continuous process.During this period we announced foraying into two new international markets adopting'country-in-a-box' strategy and adopting local model. We announced launching digitalpayment operations in the KSA and in USA to capitalise on immense digital opportunities inthese countries. We will expand in multiple geographies over the next few years. We arealso launching new businesses and hence adding new revenue streams with minimalisticinvestments under digital payments to leverage the growing need for capital and credit inIndia and also to meet certain demands from our merchants for these services namely;instant settlement of merchant funds pre-paid cards (physical and virtual) for corporateemployees for business and personal spends and issuing credit cards to corporates whichwill all generate significant business for our Company over a period of time. We also planto enter into lending by offering business loans bill discounting facility and more butat an appropriate time.
We are happy to announce 100% acquisition of Cardpay
Our mission is to provide digital platforms for trade commerce and payments.
Technologies Private Limited which we acquired on 5th June 2020. They which will be afully owned subsidiary of our Company through which we will offer physical and virtualcredit cards including a spend management platform to corporates under the brand name'GRIT'.
The World Bank estimates a credit gap of $380 billion by enterprises in India which isnot efficiently served by traditional channels. It presents a huge opportunity for us inthe credit issuance space. Cardpay Technologies has a strong technology team. Itstechnology platform is among the industry best with built-in artificial intelligence andmachine learning capabilities.
Going into FY 2020-21 and ahead we will keep working on how we can add more valueacross the digital payment solutions' value chain and simplify business and payments formerchants and businesses through our Fintech solutions. We are leaving no stone unturnedin capturing all opportunities to drive both organic and inorganic growth.
Maximising returns for our shareholders
FY 2019-20 was another year of solid performance by our Company. We achieved growthacross business segments and scaled new heights. We made long strides in our payments andplatforms businesses.
These businesses continue to grow with rising acceptance among users and growingmerchants. Payments business growth was marked by strong growth in merchant additions andtransaction volume growth. Platforms business growth was contributed by growing softwareupgrades and other requirements from existing merchants and strong growth on GeM platform.Our operating and profitability margins during FY-2019-20 were also the highest ever at33.4% and 15.4% respectively.
We are one of the very few profitable Fintech companies in India constantly thriving tocreate value for the shareholders. We have generated positive cash flow year-after-yeardue to our capex-light model. Our capex reduced year-after-year dropping to '301 millionin FY 2019-20 from '842 million in FY 2018-19 lowest ever. The capex investment cycle isbehind us excluding any inorganic investments.
We follow an efficient capital allocation strategy to generate high rate of free cashflow conversion and maximise shareholder's return. We have consistently converted EBITDAto cash flow and we have a cash conversion ratio of above 100%. We generated free cashflow of Rs.1630 million in FY 2019-20 compared to Rs.1975 million in FY 2018-19. We havenegligible debt of '264 million in the form of term loan which will be repaid in twoyears through internal accruals. Our capex requirement for running the business is low.Prudent and optimum use of capex has helped generate surplus cash which we can use fororganic and inorganic growth and maximising shareholders' returns.
Indian digital payments market is poised for strong growth including push from thegovernment and the Reserve Bank of India (RBI). In fact the government's agenda to makeIndia a less-cash economy has led to significant growth in digital transactions in thecountry which is positive for us. Globally the governments are mulling to increase theshare of digital transactions for ease speed safety and transparency which will lead togrowth of the economy.
Given our leading position and our strong Fintech portfolio we are well poised toaccelerate the growth of eCommerce and digital payments market both in India andinternationally. We will constantly focus on building and innovating solutions to simplifybusiness and payments for merchants enterprises and governments.
Our culture includes bias for action hard work innovation forward thinkingattention to details customer centricity and frugality all centered around enriching thelives of our business customers and eventually the end consumers. We will continue toenhance merchant and customer experience through the digitisation and democratisation ofcommerce.
We are committed to embrace the best corporate governance practices in our operationsand achieve higher transparency in our operations. To this end our Board of Directorsengages closely with the leadership team and acts as a guiding light to provide coursecorrection wherever needed.
Before I conclude I would like to extend my heart-felt gratitude to our talent poolfor their unwavering commitment to the organisation. I would also like to thank all ourstakeholders including customers merchants partners and the society at large for theirsupport to us.