Corporate Front: Start-Up [Can The Khaitans Process A Creditable Future?]

The Koshy brothers started years apart, but now face similar problems in related businesses.

Piyush (left) and Dhruv Khaitan (right)

FACT FILE

NAMES: Dhruv & Piyush K. Khaitan
AGES: Dhruv: 48 years; Piyush: 40 years
EDUCATION: Dhruv: M.S. in Computer Science, California U, Berkeley, 1971; Piyush: B.Com, Sydenham College, Mumbai, 1977
BUSINESS: Credit-card services
COMPANY: Equifax Venture Infotek
WORK EXPERIENCE: Dhruv: Director, Allen Bradley India, 1985-90; Director, Transaction Technologies, 1990-95; Chairman, Equifax Venture Infotek, 1997...; Piyush: Director, Infotek Business Centre, 1988-93; Director, Equifax Venture Infotek, 1996...
INITIAL INVESTMENT: Rs 18 lakh
TRACK-RECORD: Turnover grew from Rs 0.91 crore in 1996-97 to Rs 3.54 crore in 1997-98
NO. OF EMPLOYEES: 90
MANAGEMENT CREDO: To initiate change through people and systems
HOBBIES: Dhruv: Reading, travel; Piyush: Swimming, golf, reading

''It'll take a minute, Sir,'' says the sales manager, as he accepts the plastic with which you want to pay for that home theatre system you've just bought. He turns, and swipes it through a small black machine, slightly bigger than a calculator, which quickly (the lines willing) burps out a receipt. The deal is done, but what you do not realise is that it is a hi-tech start-up, rather than your credit card-issuer, that has actually processed the request.

All they wannabe is creditable back-room boys. Over the last 6 years, first-cousins and muppie techno-brats Dhruv and Piyush Khaitan have neatly latched onto the country's fledgling credit-cards industry as service-providers. Integrating forward from installing and maintaining Electronic Data Capture (EDC) machines-with which shops swipe credit cards in order to affirm their authenticity-the Khaitans now also process the data generated by these point-of-sale terminals on behalf of the credit card-issuing banks.

Last year, 1997-98, their Equifax Venture Infotek (EVI)-a 50:50 joint venture with the $1.70-billion Equifax Corp. of the US-serviced 48 per cent of the 4,000-odd merchant establishments in the land that use EDC machines. And EVI, which has since diversified into more card-related services-like application- and card-issual processing as well as voice-authorisation services-notched up an income of Rs 3.45 crore. Declares Dhruv Khaitan, 48, Chairman, EVI: ''It's a heady feeling knowing that there is so much yet unexplored in this field.''

So it was in 1990, when a cash-strapped Dhruv sold off his 61 per cent stake in an industrial automation joint venture company with the $11.76-billion Rockwell of the US, Allen-Bradley India. Scouting around, he learnt that the $400-million VeriFone Inc. was looking for domestic distributors for its EDC machines. Managing an introduction, he successfully pitched for it even as his Bangalore-based cousin, Piyush-who was restless running business-centres-joined him. Explains Piyush, 40, Director, EVI: ''I was excited at the thought of doing something more intellectual.''

They set up DEI Ltd, which customised VeriFone machines to meet the heat, dust, and voltage-fluctuations of the local market. Some banks quickly bought the concept since the EDC machines not only brought down the misuse of cards, they also reduced transaction times. But most banks balked at the cost: an average EDC terminal used to cost between Rs 20,000 and Rs 40,000; some advanced models even retailed for Rs 80,000. So, between 1991 and 1966, DEI was only able to install an average of 500 machines a year.

Partly, these lacklustre sales were due to the nascent nature of the credit-cards market too, but the Khaitans sensed a deeper problem: the banks were facing infrastructural bottlenecks. Apart from telephone-lines, the equipment required networked hubs in the cities, with customised hardware and software, manned by specialists. ''The banks had neither the technological expertise to get into the infrastructure required nor was it their main line of business. So, we knew we had to do it,'' affirms Dhruv.

It took them some time to sell the idea of a full-fledged service-provider for credit card services to the banks. Fearing that sensitive customer-related information could leak out to their competitors, most of the banks were chary about sharing their databases with an outsider. It was only in April, 1996, that the Khaitans felt confident enough to set up Transaction Technologies to provide the banks with a range of such services. Meanwhile, they discontinued the distribution arrangement with VeriFone, but continued to install its machines. Says a VeriFone spokesperson: ''EVI pioneered the concept of third-party financial transaction processing in this country.''

Eight months later, the Khaitans got their big breaks: bob Cards, the credit-card division of the Bank of Baroda, and Bank of America signed up as their first clients for transaction-processing services. Emboldened, in August, 1996, the company entered into a strategic alliance with the $78.50-billion IBM, which meets EVI's requirements of hardware and software. Says Mukesh Aghi, 45, President, Tata-IBM: ''EVI brought its in-depth knowledge and business processes in the credit cards and payments industry.''

As business boomed, not only did more banks join up-as did professionals from the credit-cards industry-EVI's income from transaction fees also went up. Transaction Technologies closed 1997 with revenues of Rs 70 lakh-up from scratch the previous year. That only made the Khaitans feel the need for a big-ticket partner to pump in money and technology even more.

So, in November, 1997, they tied up with Equifax to set up EVI, into which the businesses of Transaction Technologies was transferred. While the Khaitans pumped Rs 8 crore into the venture, raised internally and supplemented by loans, Equifax put in Rs 26 crore-including a premium for Transaction Technologies' sweat equity. Says Mike Bush, 48, Senior Vice-President (Global Sales & Marketing), Equifax Card Services: ''EVI is part of Equifax's strategy to move its services business globally.''

As of now, EVI's central hub in Mumbai feeds 8 regional ones-Ahmedabad, Calcutta, Bangalore, Delhi, Mumbai, Chennai, Hyderabad, and Pune, which also service 9 satellite towns-a number Dhruv expects to grow to 100 by 2000. Says A.R. Shetty, 53, Additional General Manager, Vijaya Bank, Bangalore: ''EVI's services go a long way in providing safeguards to the bank.'' Adds M.C. Reddy, 45, Proprietor, Eden Park Restaurant, Bangalore: ''The EVI service has high reliability in terms of the end-of-the-day batch settlement. So, we get our payments from the bank the next morning.''

At the same time, the large players manage their business in-house. For instance, the largest, Citibank (1997-98 income: Rs 1,607 crore), and Hongkong Bank (1997-98 income: Rs 832.56), have their own EDC terminals and processing services. Explains Vivek Kudwa, 39, Head (Credit Cards), Hongkong Bank: ''We do not believe that Equifax Venture can match our relationship strengths.'' Adds Pushpendra Mehta, 40, Consultant, Credit Card & Management Consultancy (CCMC): ''Big names like Hypercom are already here, and the new players in the EDC market, like Omron and Schlumberger, will provide competition to EVI in the EDC terminals market.''

On the face of it, there appears to be room for everyone. According to a study conducted by CCMC, the demand for EDC terminals will go up four-fold in the next 2 years. But, more than competition, the secretive nature of the credit-cards industry dictates that the serious players will, sooner or later, process their transactions themselves. Not surprisingly, EVI now plans to expand into related businesses, like credit-worthiness data, software development, and, of course, e-commerce. In that sense, the Khaitans are already processing the future of EVI.