Agencies(This story originally appeared in 
on Dec 01, 2019)
An email from a familiar sender — Neha from ClearTax — became more frequent in the inbox of anyone who had tried the services of the Bengalurubased fintech startup as the deadline to file tax returns neared. on Dec 01, 2019)For the 4-million customer base, made up largely of millennials, Neha was a reliable reminder that time was running out to file tax returns. Conventional wisdom dictated that ClearTax, the first local startup to secure the backing of Silicon Valley’s famed accelerator Y Combinator, should build on this base to increase penetration. After all, it had raised one of the largest Series A funding of 2016 — $12 million — and later mopped up another $50 million from marquee investors like Composite Capital, Sequoia Capital and Saif Partners.
But Archit Gupta, founder and CEO of ClearTax, decided to flip the script. From a business-to-customer (B2C) platform offering tax filing services, he pivoted to develop offerings for the larger business-to-business (B2B) segment. The GST rollout by the Narendra Modi government in 2017 had a significant role to play in it.
“As the government was being aggressive to launch GST in July 2017, we realised there was a big opportunity on the B2B side. We started working on GST solutions much before the tax system was introduced; we knew they could be scaled up quickly once GST came into effect,” Gupta told STOI . Since then, 3 lakh to 4 lakh businesses of different size and scale have used ClearTax’s GST solutions.
Earlier this week, ClearTax obtained the licence to be a GST Suvidha Provider, enabling it to offer tech solutions to taxpayers and stakeholders for compliance on GSTIN, which manages the tax system’s technology infrastructure.
Not just ClearTax, other growth-stage fintech companies are also starting to extend their services to merchant partners, calling it full-stack. Razorpay, for instance, has built a neo-bank platform along with lending. SME-focused fintech firms Khatabook and Open are also expanding their bouquet of services.
Gupta is doubling down on the proposition in what is a clear pivot to ‘fintech SaaS (software-as-a-service)’. ClearTax already provides the e-way bill service to businesses. Startups, too, can access services related to setting up companies, compliance and regulatory filings. Next year, the company will add new products to cater to these ventures.
What prompted ClearTax to readjust its priorities?
“According to income tax data, at a broad level, 50% of taxpayers are B2B and 50% B2C. What we realised is that to increase our addressable market, it was important to serve customer constituencies [SMEs] with our software. Nobody else would really want to touch this space [B2B tax compliance] except a startup like us,” Gupta said.
The firm now works with 1,200 large companies, including FMCG players Marico and Reckitt Benckiser, and Tata Group’s Titan. This is where the technology aspect of ClearTax comes into play: to onboard established organisations like Zomato. Such entities and the market in general, according to Gupta, were not getting adequate technology solutions from traditional tax consulting firms. This opened up a huge opportunity for ClearTax.
“B2B fintech is underserved. We started with GST, built on it and invested heavily. This (GST) is like Unified Payments Interface moment for digitisation of Indian businesses,” he said. UPI is one of the fastest growing digital payment networks in India, recording over a billion transactions in October.
The change in Gupta’s strategy is evident in ClearTax’s revenue roadmap. Currently, it sees annual recurring revenue of $6 million to $7 million, according to people tracking the company.
Through its B2B services, ClearTax aims to have an annual recurring revenue of $15 million to $18 million in the next 10 months. “That’s our internal guidance. In three years, the same should be about $60 million,” Gupta said.
Mridul Arora, managing director of Saif Partners, doesn’t see ClearTax’s focus on B2B as a move away from B2C. “What has happened is that they have recognised what’s core to the company, from the founder’s vantage point. And what’s core to them is to solve the massive problem of tax and compliance in India. If your skillset is to solve tax compliance, the core is very clear, whether it’s for consumers or businesses,” said Arora, who led Saif’s investment in ClearTax.
Ankur Pahwa, partner and national leader, e-commerce and consumer internet, EY India, said the emphasis on B2B was a natural move for ClearTax. “I think it’s a natural transition as the consumer market is getting more competitive with multiple online tax filing platforms, including the government’s own. SMEs are a sweet spot from a target market perspective, especially with the increased focus on tax compliance and lack of quality talent available to them,” he said.
Pahwa added: “However, their lead as a technologyfirst company is narrowing considerably as traditional consulting companies are also increasing their focus on integrating technology into similar consulting and advisory work. Continuous innovation, more service offerings and greater engagement is essential for any business.”
Pressing ahead
ClearTax plans to offer credit, analytics, e-invoicing and bot-led capture of data from documents for account-payable automation. GST data can help Gupta in assessing credit risk of suppliers and distributors, who also work with ClearTax’s larger accounts like FMCG firm Marico. To acquire capabilities for the new services, CearTax has lined up a little under $10 million.
“We are looking at, for example, a team which has worked on machine learning. The idea is to acquire these teams and technologies. We have already bought Dose FM as part of this strategy,” Gupta added. Dose FM is an early-stage audio streaming platform which can broadcast messages on ClearTax’s GST services.
A fintech-focused investor said starting credit could be challenging at a scale. “They have been in this transition for some time now. Lending to SMEs could be tricky in terms of recovery, but their database on SMEs would come into play there. Competition is also growing since many others are looking to offer similar services to small and medium businesses,” he said.
Despite its strong focus on the B2B market, ClearTax has not given up on expanding its consumer business. It is currently running a consumer-focused pilot of mutual fund investments for tax savings. The pilot, small at this stage, targets millennials who are looking for smart saving options online, Gupta said. The firm is also working on technology solutions for businesses involved in import and export. Gupta said 6% of businesses in the country were engaged in import and export, and the amounts involved were massive.
ClearTax’s plans have been finalised, but much will depend on the execution in 2020.
