Thursday, August 25, 2016

How finance professional regulators like ICAI ICSI ICWAI are failing the public interest test

In a recent article, Prof Ajay Shah of NIFP advocated the separation of powers of professional regulators to ensure that 'poachers cannot be gamekeepers'. He cites the example of stock brokers regulation as a success model here.

Ever since the Medical Council of India(MCI) which was plagued by corruption was dissolved and a new body asked to be created with 4 verticals of UG education, PG education, Licensing and New College creation/Infra, there has been interest in figuring out models for others.

As regulators like CVC and CAG have put it below, professional regulation is not working enough: 

My view is that unless the disciplinary arm and academic arm is divorced from the membership body, we will have issues like lax disciplinary measures, pass rate depending on economic conditions(or so it appears to the outside world) and people joining the councils for reputation/business enhancement(eg coaching class owners who are clearly conflicted) rather than public service motto

Sunday, August 21, 2016

Indian startups suck at customer service-PAYTM is the latest example

Despite its higher charges and less attractive reward points, the reason I have retained my Citibank credit card is the fantastic customer service-right from the low IVR wait times, to the considerate customer service team who reminds to redeem reward points before surrendering the card. Unfortunately, I cannot say this about many other companies, and hardly any Indian startups. The reason I single out startups (and not established companies) is that they claim to be customer centric without hierarchy. The reality however is far different. This blog is a pent up series of issues prompted by my latest experience with PAYTM-where Uber added a toll to my fare and refused to remove it, and PAYTM(via which it was paid), refused to get involved.

  1. PAYTM: They delayed my premium wallet registration by 2 weeks. Also when I raised a vendor dispute with Uber, they said that they will not get involved. Bottomline: PAYTM CANNOT replace your credit card and is not a neutral marketplace. If you want safety and ability to chargeback, do not use the PAYTM wallet. Also, the customer care team has long wait lines and has very poor email etiquette 
  2. Citus Wallet: The one occassion I had to check for fraudulent withdrawal, they dragged their heels. Also, hardly willing to commit on phone and insist on an email
  3. Quikr: Nearly lost Rs 10,000 here when they disclaimed an escrow account claim. Only repeated threats of credit card chargebacks got them to budge
  4. Flipkart: Not tried it for a long time but lack of live chat is a bad thing
  5. Makemytrip: Technically this is no longer a startup but is quite bad in resolving issues fast
  6. Travel Triangle: My brother booked a tour package through them, the driver was quite bad, but they did not help/hold the fee. Finally he had to settle for a lower amount after much persuasion
  7. Zerodha: If you need help with technical issues like pending trades, god help you

To balance out the above negative view, some stellar examples in my experience

  1. OYO: I accidently missed a booking but they gave me a complimentary room to make up. 
  2. Ebay India: They helped me get the seller to cancel the order after he refused to change the shipping address. The team was helpful at a personal level
  3. Amazon India: Their live chat with a 2min wait time is just amazing.
  4. CityFlo: Prompt refund of unused balances despite stopping business
  5. Lifto: Customer care wanting to know 'VOC'(Voice of customer) often

Some foreign startups I have used and which have great customer service

  1. Getabstract: Willing to extend Indian/student discount without much procedure

We Indians have brought it upon ourselves by not (seemingly) being willing to pay a premium for customer service-but as 5 star hotels would attest-and 2 star OYO-there is a market for such things.
Just that Indian startups maybe feel that UX/UI/Ad/Promos are enough, and that customers will do 'JUgaad' to fix things. They might-but then you eventually pay for it

Has Zerodha lost its mojo?

Nearly 4years ago, I began using Zerodha inspired by its discount brokerage philosophy. Since then, the following are the good things I have seen

  • Android App: Changed from clunky app to the 'Kite' softwate
  • Technology: Kite and Backoffice are great features to use. 
  • Small investor helped with Order Types+Charting+Algos: This is a feature earlier only available to HNIs/Institutions but now available to other investors
  • Knowledge base: Zerodha Varsity is one of the best modules I have seen-far better than NSE-NCFM or any other paid material
  • People: Many of the people have stayed with them since start-this I recognize from the names of the people I speak to whenever I need support etc
  • Pricing: Still at the same levels-and removed for equity delivery trades. 
The disadvantage which I see is
  • Inadequate backup/redundancy: Whenever the website/app fails or slows down, the call centre strength is not ramped up. This leads to possible order loss and real losses if not able to exit the position. 
  • Compensation for failures is stopped: On an occassion last year, when the networks failed, Zerodha apologized and reversed brokerage charges for that day. But the last 2 times It has happened, there was only 1 apology and no talk of brokerage reversal
  • Frequent technology failures: I have faced inability to access/place orders, around once a month. 
  • No flexibility for third party demat accounts: One cannot sell from a non Zerodha demat account(but can take delivery). This inhibits safe custody of assets if one is not comfortable with IF&FS/Zerodha/CDSL
  • Poor support for demat/updates: Their ability to support for demat needs a change. Also they insist on physical signed requests instead of an online interface
  • Possible order flow leakage/Prop Trading competition: Zerodha runs its own prop trading arm and startups. They MIGHT be using the order flow data to trade/front run.
  • Non transparent revenues-do they earn for order flow routing: It is not clear whether like some brokers abroad, Zerodha earns money to route orders to the preferred exchange. While customer has the right to choose exchange, Zerodha could nudge him towards NSE/BSE for reasons other than best price..
  • No fund transfer on Saturday: They allow to fund the account 24*7 but not to withdraw the balance on Saturday. This is unfair
  • Mistakes on the app and/or Backoffice: Recently, I saw an absurdly high amount on my "Kite' page, and my father saw an incorrect ledger statements. These errors are not acceptable

Above are maybe common with other brokers but if the tech failures continue, I might reduce my usage of Zerodha.

How hyperlocal services startups are increasing/causing inflation

Have you ever used Urbanclap, Quikr or other hyperlocal startups to book a service like plumber, electrician, beautician, painter etc? If so, you may have unwittingly contributed to the growth of inflation for now and later. While it is good to have more visible choice online, this does not necessarily help the end consumer if there is no increase in supply. The reasons are manifold

  • Migration from informal sector to 'organized sector': With the activity getting recorded, there is only a matter of time before service tax/GST and TDS(on professional services deducted by the platform from payments made to the service provider) kicks in. And at ~19% and 10% respectively, you are already looking at a 30% inflation.
  • Premium for language skills/soft skills/training: While skilling of these workers is a good thing, it often results in expensive rates even for people who do not need this level of sophistication.  
  • Cross subsidization via standard ratecards: For example, an expat in Malabar hill and a housewife in the suburbs need not pay the same rate but they often end up doing so. 
  • Lack of fresh supply: When talent becomes more mobile and goes online, the rates would go up since the demand does not reduce
  • GMV Inflation: To increase GMV, these startups sometimes do a 'Lenskart' with high sticker prices and daily sales. This has the risk of increasing offline prices too for those not savvy enough to use the codes.

Other factors which seemingly affect inflation but which may not in reality
  • Platform fee/commission: The 10%-30% cut taken by the platform(in steady state) merely replaces the fee taken by the neighborhood shopkeeper. 
To sum up, an end-end integrated business model like one suggested by Sramana Mitra in her book India Vision 2020 might allow such services at affordable prices. But I am not holding my breath for this, since anything which might provoke deflation even if win-win might not be implemented fast

Monday, August 8, 2016

The bearish case for the Indian cotton Industry

It has always puzzled me why do good clothes cost so much in India-recently my parents went to Singapore and purchased a T shirt made in Thailand for Rs 500, which would have cost me around Rs 800+ in India. One reason could be export pricing being applied to India, very much like an Ipad, with no thought for PPP. There is already pushback against brands like Zodiac who are now struggling to make profit. While analysts are bullish on the industry and have lead investors to bid up shares like Page Industries, Kitex, Ambika Cotton, Indocount, Arvind Mills etc to new highs, there are global winds in the offing which are not so favourable. The Zodiac online annual report does a good job of flagging this. Thats probably the only notable thing in the otherwise bland report

  1. The TRANS PACIFIC Partnership (TPP Agreement) is expected to come into force circa end 2017. Of the currently 12 participants, Vietnam and Malaysia are the two TPP members who can pose a serious threat to India’s export of clothing, due to tariff concessions, practically zero duty access, that they would get in the US market. Vietnam is already one of the fastest growing major exporters to the US market, even without any tariff concessions. Also relevant is that Vietnam is already in negotiation with the EU for a FTA, expected to be finalized by 2018.
  2.  India’s own FTA with the EU, negotiations for which started in 2007, has not progressed substantially. In textiles and clothing there is already tentative agreement, that all customs duties can be abolished on both sides, but there are issues outside the Textiles space that remain to be resolved. While EU importers of India’s clothing are currently paying customs duty of 9.6%, many of our competitors, notably Bangladesh, have zero duty access. The FTA agreement is therefore of utmost importance, and can be a game changer. It needs to be signed at the earliest to harvest the competitive advantage that the economic package for clothing, announced in June 2016 by the Government of India envisages
  3.  Britain’s decision to leave the EU is likely to add to the complexity. From India’s export, 37% or USD 6.25 B goes to the EU, from which 15% or USD 1.8 billion goes to the UK, the risk being recession/contraction of growth, as well as further depreciation of their currencies. 
  4.  China diversifying its supply base to service their customers out of low cost/tariff benefit countries and thereby, yielding less ground. 
  5. In this decade of volatility, Forex volatility witnessed in the last few years constitutes a threat.
  6. How long will the global economy/consumer demand and the Indian consumer demand (including the additional constituent of fresh demand from the Demographic Dividend) take to revive? -
  7. The internal barrier to trade in India of Entry Permits needs to be extinguished forthwith.
While Point 1 & 2 may not emerge with the TPP almost dead, and Point 7 to be solved next year with the advent of GST, the danger is real.