With around US$84 million in funding, Khatabook is the early market leader for digital bookkeeping in India, ahead of rivals such as OkCredit and Vyapar

November 27, 2020

With around US$84 million in funding, Khatabook is the early market leader for digital bookkeeping in India, ahead of rivals such as OkCredit and Vyapar

The digital bookkeeping sector in India has taken off over the past two years, with more small merchants going online.
Smartphone proliferation, cheap data plans, and the push for digital payments are powering growth in the sector.
With around US$84 million in funding, Khatabook is the early market leader, ahead of rivals such as OkCredit and Vyapar.
Khatabook and others are already expanding across the MSME ecosystem, with new apps launched for e-commerce enablement and staff management
Because of his work, Business Insider named Ravish Naresh, CEO and cofounder of Khatabook, to our annual list of the 10 leaders transforming retail in Asia.
Visit Business Insider's Transforming Business homepage for more stories.

Earlier this year, Indian startup Khatabook secured US$60 million in B-Series funding for its digital bookkeeping app. The investment was the largest funding drive to date for the Bengaluru-based company that in just two years has raised some US$87 million in total capital.

The idea behind Khatabook is simple. While an increasing number of micro, small, and medium enterprises (MSMEs) are now mobile-first in much of their business operations, many are still turning to traditional ledger books to do their accounting. Khatabook offers them a simple to use alternative.

Khatabook's co-founder and CEO Ravish Naresh and his team saw an opportunity to digitize these millions of MSMEs and offer a digital alternative to the manual process. "In India, most of the individual shopkeepers have been working with a pen and paper for decades," he said. "They're only just beginning to come online and for the first time, using a digital tool like Khatabook for business."

Khatabook is not alone in the market; the recent investment also signaled a heating up of competition in the relatively-niche digital bookkeeping sector. OkCredit, which was launched one year earlier than Khatabook, managed to raise around US$84 million within two years, while other players such as Vyapar and GimBooks are also competing for market share.

Asutosh Upadhyay, head of programs at Axilor Ventures, sees three key drivers for the growth and popularity of the sector. "First, there is a significant proliferation of smartphones and drop in prices of data access," he said. "Second the rapid push for digital payments — the average retailer is continuously getting exposed to digital payment interfaces and it's a natural progression to move their B2B interactions to digital channels. Finally, there is a strong tailwind on being tax compliant. With the implementation of Goods and Service Tax (GST) in India, there is a need for businesses to start building better account compliance."

The Khatabook recipe for success

Khatabook was founded in late 2018 by Naresh, Jaideep Poonia, Dhanesh Kumar, and Ashish Sonone — all graduates from the prestigious India Institute of Technology (IIT) in Mumbai. Within 18 months the app claimed to be active in 700 of India's 729 districts and is used in 4,000 cities and towns across 11 local languages, achieving 10 million downloads. The founders say this makes Khatabook one of the fastest-growing B2B apps in the world.

The app currently has an active user base of over 8 million small businesses, while its closest competitor OkCredit has just over 5 million. Likewise, Khatabook recorded 21 million downloads in the first 10 months of 2020, compared to 10.6 million for OkCredit.

Naresh said that a big part of Khatabook's current success comes from a behavioural understanding of is target audience. "Our users are new to the digital age. We deep dive into the business and financial management problems that MSMEs face in India's small towns before digitally solving those problems," he said. "The differentiation is in the value we can provide to improve business cash flows or time-saving on daily bookkeeping for our user base."

An example of this problem solving can be seen in how Khatabook has been designed according to the requirements of first-time mobile users, whose overall digital literacy is relatively low. Khatabook's features and UX mirror other apps such as WhatsApp, which are familiar with the target audience.

Users are able to record all transactions and maintain a digital record. They can also track business transactions safely and securely, have online payment collection, and send periodic reminders to creditors via SMS and WhatsApp. "The simplicity of the interface, language inclusion, and scalable tech platform are the primary product considerations that have helped us serve our user base better," said Naresh.

Naresh points out that the app is especially useful for chasing down payments in a retail culture that often relies on allowing credit to regular customers and where an estimated US$400 billion to US$500 billion worth of retail trade happens on credit receivables. "As soon as a merchant digitizes their books, we bring down pending credit receivables by almost half," he said. "All within the first few weeks of using the app."

Moving beyond digital bookkeeping

Khatabook and others are now looking to expand products into related areas of the MSME ecosystem. "The biggest efficiency gain that Khatabook will bring to the Indian economy is digitizing the entire supply chain, said Naresh. This will benefit not just retailers, but also end consumers in terms of overall efficiency and margins that increase for SMEs – just by becoming digital."

The first new offering came in e-commerce enablement, with both Khatabook and OkCredit introducing similar products. In September, OkCredit launched OkShop, an app that allows small and micro business merchants to set up their own online stores, create product catalogues, and share offers on WhatsApp.

This came one month after Khatabook introduce a similar app called MyStore, also aimed at helping small businesses open instant e-commerce stores. The company said that MyStore has been already installed by more than 2.5 million merchants in the country and it is available in 13 Indian languages.

Unlike bookkeeping, however, the SME e-commerce sector is crowed. Alongside established players such as Amazon, Flipkart, and Zomato, there are currently dozens of startups jostling for position. Both Khatabook and OkCredit will be hoping that integration with their more established bookkeeping services — in particular around the huge amounts of merchant data they already own — will give them an advantage.

"Now that we have 9 million-plus active monthly users, we are able to generate strong high-level insights on the platform to offer more relevant and targeted solutions to our users," said Naresh.

Most recently, the two competitors launched rival apps that target the staff management space, an area until now dominated by PagarBook. Khatabook launched its Pagarkhata app in November, shortly after OkCredit began offering its own app OkStaff. With healthy financial backing, both companies are expected to quickly mature in this new category.

For Naresh, this diversification is a natural progression. "There is a vast, untapped potential when it comes to our addressable user base," he said. "Moving forward, Khatabook's focus is to further the user base growth. In the coming months, you can expect us to augment our portfolio by adding breadth and depth of solutions for India's MSMEs. "

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