Prepaid payments company Money on Mobile (My Mobile Payments Limited), has managed to make its own wallet heavier by raising $1.3 million in cash, and 1,845,385 shares, from twenty-five year old Texas-based electronic processing company, Caplain Inc; the company has a commitment of raising a total of $9.7 million in cash and 6,123,077 in common stock from Caplain, according to a filing with the US SEC. Calpain is public listed venture, and at current prices ($3.25) would be valued at $19.9 million, taking the fund raising to around $29.6 million. However, the issuance of shares is contingent upon “the lead founder delivering certain assurances from the company’s existing shareholders.” This is Calpian’s first investment outside of the US.

Launched in April 2011, after getting a nod for semi-closed service system from the RBI, MoM now claims to have a presence in over 200 cities by providing mobile payment services for phone or DTH recharge, and ticketing for rail, bus, flights, and movies, as well as the payment of utility bills. It has a user base of 2.7 million users, and on the basis of its January 2012 transactions, it processes around $72M in transactions each year – which works out to around Rs 30 crore per month. In April 2011, the company had claimed transactions of around Rs 10 crore a month.

Customers are allowed a transaction limit from Rs 5000 to Rs 50,000, using “mobile-based semi-closed prepaid instruments issued by non-banks” on par with other semi-closed payment instruments.

Structuring Of The Deal

What’s interesting about this deal is the way it has been structured. According to an SEC Filing:

– Indirect investment: Calpian hasn’t directly invested in Mobile on Money / My Mobile Payments Limited (MMPL). It has invested in a newly formed company Digital Payments Processing Limited. DPPL has entered into a services agreement with MMPL.

– Relationship between MMPL & DPPL: MMPL owns the distributor and retailer network contracts and maintains custody of the user’s funds in accordance with India’s regulations, while DPPL owns and operates the customer support call center, the sales support and back-end processing functions, and has licenses to use all the intellectual property necessary to process the millions of transactions occurring each day. DPPL will be managed by MMPL’s existing executive team.

In its risk factors related to the arrangement, Calpian mentions that while the two companies have a management, having different shareholders and different shareholdings may result in conflicts of interests; Calpian is dependent upon their ability to recognize actual and potential conflicts of interest and act in a manner in the best interests of its shareholders.

– Board seats: Calpian representatives, Montgomery and Pilotte, will hold two of the four Board positions in DPPL and Montgomery will be its Chairman and have a tie-breaking vote. In addition, he will hold one of the 6 Board positions in MMPL.

– Funding arrangement: Calpian has structured its investment in DPPL as an initial and second funding totaling $2.5 million, then quarterly tranches of approximately $1.2 million each over the next six quarters, resulting in a cash infusion of $9.7 million. Apart from this, a total of 6,123,077 shares of its Common Stock will be issued over the 6 quarters, although 4,863,077 of the shares are subject to being reclaimed by Calpian if certain financial performance metrics are not achieved.

It has raised approximately $1.3 million to meet the initial funding requirement, and expects to raise the remaining funds through additional private placements of its Common Stock.

Stake Sold

At the end of the transaction, Calpian will own 74% in DPPL. Note that there is talk of increasing foreign direct investment in mobile wallet services up to 100% (more here in The Economic Times), which would probably have prompted Calpian to take an early punt in picking up 74%, and eventually looking at a complete acquisition.

Competition

– Atom Technologies
– Bharti Airtel (Airtel M Commerce Services Ltd)
– OSSCard/ OSS Payments
– PayWorld / Smart Payment Solutions
– Beam-Suvidha
– Paymate, for its prepaid payment instrument called Giftmate
– Oxigen Services (India) – for its prepaid payments instrument OxiCash Cards
– ZipCash

There are others, and we’ve filed an RTI request with the Reserve Bank of India for an updated list of prepaid licensees, as well as information on transactions and amount transacted by each company.

Also read:

Beam Looking To Enter Virtual Goods Payments; How They’re Different From ITZ Cash

(With inputs from Shruti Shreya)