Shopbacks Guarantee Policy and How it Compares with Other Companies

A Singapore-based VC who passed on an early investment in ShopBack said that its unit economics, while solid, didn’t seem like the foundations for a mega company that could yield big returns. ShopBack could be profitable, but the VC doubted its potential to be a truly huge player.

One of ShopBack’s key growth engines to prove such naysayers wrong is currently on ice. ShopBack Go, its offline rewards programme, is grounded in Singapore—the only market where it is available. Singapore’s national circuit breaker to combat Covid-19 has limited business opening hours and restricted public movement.

A pandemic may be a good time for deals—as businesses chase revenue and consumers get thriftier—but there are immediate challenges. Offers from big names like Grab, Deliveroo, eBay, Marriott and InterContinental Hotels Group have vanished. Deals from others, including Shopee, Lazada, Traveloka and Thai Airways, are limited to select markets.

ShopBack’s recent financing gives it immediate peace of mind over its future, but its cashback empire is reliant on economic bounce-back.

Sales window

ShopBack is a growth-stage startup in every sense. The company claims it reached US$2 billion in GMV in 2019, up from US$700 million the previous year. That’s impressive given market leader Shopee’s US$17.6 billion GMV in 2019.

This year is trickier to track because of Covid-19. “At the end of this quarter we’ll have a better read as every month is very different,” Chan—who is also CEO—said in a recent interview.

Cashback services typically bank 0.5%-10% for each sale they drive, some of which is split with the buyer. Commission varies based on the vertical, with electronics typically low, and fashion among the higher ones. Deals are sourced via platforms like Involve Asia and ACCESSTRADE, which aggregate offers from a long tail of small merchants. But a player of ShopBack’s scale can strike direct deals with e-commerce sites and brands for a higher rate and thus more income.

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“We always kept to positive unit economics; then the only thing you need to contend with is scale,” said Chan, adding that most of ShopBack’s deals are direct with brands or marketplaces. “We had two or three markets close to break-even on all costs in early 2020.”

Financial filings show that ShopBack has burnt significant capital. It banked US$28.6 million in revenue from March 2018 to March 2019, according to VentureCap Insights. That was double the previous year but it came at a cost: losses grew to US$47.5 million from US$10.9 million. In a way, Covid-19 couldn’t have come at a worse time.

But ShopBack’s affiliate marketing model—which typically receives less investment than click-based advertising models from Google and Facebook—is a reason for optimism.

Travel revenue has disappeared, but other areas have stepped up, particularly e-commerce marketplaces. Brands that were reliant on brick-and-mortar retail are now seeking new ways to reach consumers. In the US, for example, Pepsi, Heinz and Nestle are among F&B giants that have launched their own websites to sell directly to consumers.


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However, domestic travel—which saw a recovery in April, according to a Flight Global report—kept the lights on for three of China’s largest carriers. The state-owned carriers, however, had to resort to a steep drop in fares—by as much as 90% in some cases—to attract flyers.

India-SEA tourism ties

India-SEA tourism ties

International budget carriers also connect tier II cities in India with overseas destinations in Southeast Asia—there’s Thai Smile to Varanasi, Jaipur, Ahmedabad, Lucknow and Gaya; Thai AirAsia which flies to Trichy, Scoot by Singapore Airlines connects to Jaipur; and AirAsia flights from Bhubaneshwar to Kuala Lumpur

There might not be a similar recovery in other countries as OTAs and airlines are already struggling, says Sanjay Goel, vice president of engineering for flights at OTA Cleartrip.

“For airlines, the biggest priority will be to optimise their inventory, given that occupancy is expected to remain low. As a result, they may cut down on the number of flights in certain sectors. The short-haul sectors will be affected the most as people will prefer using private vehicles for short-haul trips,” says Goel.

Hotels press the panic button

With flights grounded, hotels saw fewer customers. The data for the drop in scheduled flights and drop in hotel room bookings—and the rise in cancellations rates—in each country are similar, tied to when and how strict the lockdowns were.

Singapore is an exception. The city-state saw a drop in booking numbers much earlier—around early January. However, the country’s hotels got some respite in mid-to-late March, when they hosted Malaysian workers left stranded after the border between the two countries were closed.

Tourist-heavy destinations Thailand, Malaysia and Indonesia recorded the steepest drops—74.8%, 87.8%, and 93.8%, respectively—from the eleventh week onwards. The bookings were also lower since the start of the year as the number of tourists from China dropped due to the spread of the novel coronavirus.

The particularly sharp drop in Malaysia’s numbers was due to its Movement Control Order (MCO)—a kind of lockdown—issued on 18 March. The country closed its borders to international visitors and decreed that hotels could not accept guests.

“China is a major source market for Malaysia from an inbound perspective. Its staggered ban of Chinese nationals—based on the provinces they resided in—since end-January also explains the severe drop,” said Chetan Kapoor, co-founder and COO of Videc, a hospitality advisory and analytics firm.

Unusual dichotomy—shallow demand but rising rates

Ajay Bakaya, managing director of Sarovar Hotels, says the chain is operating only 20 out of its 83 hotels in India. Though he expects travel to revive sooner rather than later, he also expects room rates to take a hit.

However, RateGain’s data, which was not available for all countries, shows that average daily rates ( ADRs) are back to the levels they were in January for India. In Indonesia, they have actually risen since the start of the year.

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RateGain culled and analysed data from its platform for more than 135,000 hotels across India, China, Singapore, Thailand, Malaysia, Indonesia, and the Philippines. It also shared data on over 900 commercial airlines in partnership with OAG, an aviation data intelligence company. The data is divided into two periods—January through the first week of May this year, and the same period last year, with an equal number of samples taken for both periods.

Buckle your seatbelts

Buckle your seatbelts

While airlines have suffered in general as travellers shelved their plans, flight schedule data mapped out by country show some larger patterns.

This covers both international and domestic commercial flights in each country, irrespective of the carrier.

The sharp drop in India and the Philippines is reflective of the sudden ban on flights. In India, international flights were suspended from 22 March, while domestic flights were suspended two days later when the nationwide lockdown started. The last week of March, therefore, shows a 68% plunge in scheduled flights as compared to last year.

Similarly, in the Philippines, on 16 March the government said it would stop issuing visas and placed a blanket ban on incoming foreign visitors of all nationalities. Filipinos travelling as tourists were barred from leaving the country. This resulted in a 31% drop in scheduled flights that week. Both domestic and international flights in the country are suspended until 31 May.

Singapore is an interesting case since all flights taking off and landing in the island nation are international flights. As other countries—notably China—started closing their borders in early 2020, Singapore saw a steady drop in scheduled flights. The drop accelerated in late March, when Singapore Airlines said it would halt 96% of its flights.

Transit is a huge business for the country’s national carrier, Singapore Airlines. With that coming to a stop, schedules have taken a hit and the airline slumped to its first net loss in its 48-year history. The island nation’s Changi Airport also suspended operations at two of its terminals this month.

“Singapore’s strong position in connecting traffic has been impacted through Covid, but as travel restrictions ease, it will undoubtedly recover to its previous position of strength”, says Mayur Patel, regional sales director of Japan and Asia-Pacific for OAG.

But while the number of scheduled flights crashed, they did not go to zero in any country. Some carriers have ferried medical personnel or have been used to rescue nationals stranded in other countries. Some airlines also use passenger aircrafts for cargo operations, says Patel.

Aviation—“that sinking feeling”

In Indonesia, where the lockdown has not been as severe as in other countries, the drop in scheduled flights is a relatively tepid 25.9% for the week of 4 May—compared to the same period last year.

China, though, gives hope. Its flight traffic is picking up, albeit gradually. The country where the first case of Covid was recorded went into and emerged from its lockdown much before others. Still, as of last week, scheduled flights in China were down 32% year-on-year, largely due to little to no international air traffic.


The view I have is I think I’m invested in building OYO for the very long term

Now the growth will definitely change. If the growth was 200% or 300%, it may come down. It may not be that triple-digit percentage, maybe 60%, or maybe 80%. Something in that range. In today’s world, growth is not at the top of my mind. To survive, serve your key stakeholders, recover, and then grow, is. My belief is we are still left with, after the cost structure changes that we’ve done, a significant amount of firepower for incremental growth.

Firepower for incremental growth

Firepower for incremental growth

Q. Tragic as the pandemic has been, it is, in a sense, bringing to the fore, two strengths that OYO has. First, capital as a moat, given that you have more than US$1 billion of dry powder. Secondly, increased leverage with hotel partners since many hotels might be looking to partner with companies like yours in these uncertain times.

Regarding the capital, the goal at this point of time is to see through the crisis by serving our consumers and our partners. And when the world comes back, keep a decent amount of capital available so that we can invest in growth at that point of time.

I am putting my money where my mouth is. Remember that I have not sold a single share of mine in any secondary so far, and it’s not like I have a ton of savings.


The second one is where we see opportunity in two ways; first with new owners and the second with old owners. With new owners, to build and forge relationships, especially in locations where we’ve always wanted to be, and we could not find opportunity to get into. This is what we are seeing in China, for example, post-Covid. Earlier, we had challenges in China, but Covid seems to have really reset people’s minds in every manner.

Q. One of the most talked about fundings of last year was when you borrowed US$2 billion to invest into OYO alongside SoftBank. Doesn’t that put you on a ticking time bomb, at least from one sense, that now you need to think about your own loan and making sure that margin call does not happen? As opposed to wondering about what is good for the company, maybe, at that point of time. Does OYO need to save Ritesh Agarwal, rather than the other way around?

For me, building OYO and making this successful is the most important thing. And I am not just saying this—I am putting my money where my mouth is. Remember that I have not sold a single share of mine in any secondary so far, and it’s not like I have a ton of savings. The only money I have is that loan, which also sits in a holding company that I cannot use to pay for my normal expenses.

So if I were to look at my personal situation—on paper, the wealth may be worth whatever, but the actual savings situation would be very, very slim. But I don’t mind it.

Just Thinking About It Makes Me Vomit

And this is something that we believe we will see in most markets across the world, that the economy hotels will be the first one to come out, partly because of the young people who will have a higher need and will be less risk-averse comparatively.

But coming back to cost, we hope we can help our partners in four important areas. This is what we call the OYO partner survival programme.

What’s Behind the Curve?

What's Behind the Curve

The first one is helping our partners negotiate their leases in a more fair manner. Because if you have negotiated your leases at a RevPar of 900, when the new RevPar is going to be 700 or 600, you will not make money. But it’s also unfair to expect your owner to give you a new lease and not expect a recovery in the future. So we are helping our partners come up with a lease programme. It is a fixed-plus-variable programme, where you say “RevPar is going to drop, so give me a base amount”. But as the RevPar increases, OYO will directly give transparent visibility to the owner and the lease will keep increasing.

The second, reducing operating expenses, like I mentioned. Third is ensuring that we bring sanitisation and trust to the underlying hotel owner. And the fourth is enabling debts or loans by the MSME (Micro, Small, and Medium Enterprises) programme of the government or by means of NBFC partners that we may have, to be able to let them scale their business themselves.

NBFC partners

Q. And what about OYO itself? What are your plans for the next 12 months? What are the top three things that you’re doing to make sure that you survive or thrive in this pandemic and after?

Last year, 2019, we saw significant growth. We served a lot more customers and partners; we brought in a lot of employees than we ever did in the history of our company—many multiples right?

But that said, this gives us an opportunity to really get back and get deeper to say: How do we make sure every customer who comes to OYO gets a great experience? How do we make sure we build deeper bridges with a partner?

And third is with our employees. This is the time to really have deep engagement with our employees and build the culture and the values of our company that we stand for, which is very hard to be able to share with three or four times the number of people in six months. But now gives us an opportunity to over invest and spend the time to do that.

Of course, we are also making sure that we are prudent about all controllable costs, including capex, marketing, any significant additional expenditures that we may have. The most unfortunate thing… is right after a restructuring in January, having to unfortunately follow through with some furloughs at this point of time. That has been the toughest thing at this point of time. But again, I think that was something that needed to be done to ensure that we get through the crisis and come out stronger.

ritesh agarwal interview

Lessening the burden of payments due and accrue; multiple charges have been waived for the month of March onwards, including value-added service charges, Wizard membership accruals, etc. Under these initiatives, a total of Rs 24 crore (US$3.1 million) discounts has already been offered to over 3,000 OYO partners and continues to impact several others.

At the same time, thousands of partners who wanted to become a part of OYO Secure—a financial product similar to an online wallet for simplified deal benefits and real-time visibility of their earnings—were offered support. Support in terms of reduced joining amounts as well as a complimentary 30% top-up from OYO for every recharge to the asset owner’s OYO Secure wallet.

OYO Secure wallet

OYO Secure wallet

March onwards, irrespective of past dues at the property, we continue to make weekly payments and reconciliation settlements. This is helping thousands of partners immensely with managing working capital requirements.

We have also partnered with multiple lending institutions in India, ranging from non-banking financial institutions (NBFCs), private sector banks, new-age fintech companies to identify and facilitate adequate financing for hotel transformation, upgradation, capex, and working capital requirements. Over the past few months, the disbursals under these renovation and up-gradation advances have crossed over Rs 160 crore (US$21 million). The company’s partnership with these institutions helps fast track the loan process while reducing processing time as well as documentation delays. Starting April, we also launched a retention-linked discount for certain sections of asset owners. The discounts range from 50% on base fees for April and May and an extended discount of 20-25% across June-December.

Owners across the country

Certain services for a large section of eligible asset owners are also being provided free of charge for the said period. These include Free Tariff Manager Value Added Services

Through these fiscal relief and support measures as well as OYO Sambandh, we are maintaining a constant line of communication with our partners.

Q. How do you see all these initiatives actually impacting your economics? Who is bearing the cost for all this?

The first thing is the cost structure linked to a lot of these programmes is not very significant. For a long time, the hospitality industry has sort of operated with higher cost structures than it should. Like how over-staffing is a visible issue. And if you think that you’re just seeing this in businesses which are four-star, five-star, you’re mistaken.

Partly because of the cost structure reduction, and partly due to the migrant crisis, this is not going to do anymore. Hotels will have to learn to operate with significantly lower cost structures and we are going to be very focused in enabling that for our hotel partners.

So if you see the occupancy report from our China business, you will see that the budget and mid-market hotels have been able to ramp up the occupancy to ~45-50% levels. Whereas the luxury hotels are still loitering in the 13-14% range.

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The second bit is our room-rate pricing being very low. That was, is, and will remain only a very low single-digit percentage of transactions. Number three; on a full year basis, we have always been able to generate a positive take rate even if it was very low earlier. Over time, it has increased because of the various system changes and an increased value proposition to consumers and partners.

Also at that time, we used to report the “booked room nights” metric externally because that is what other peers were doing. Internally, this was never a metric that our team was concerned about and instead, we were firmly focused on “used room nights”.

Regarding minimum guarantees

Finally, regarding minimum guarantees. For us, minimum guarantees were always a thin wedge that we used to open up relationships with new partners, both domestically in India as well as in new markets. Our plan was to use minimum guarantees to give ourselves the flexibility to set pricing for hotel rooms and thus improve occupancy by matching supply and demand dynamically.

As of today, the majority of our partner relationships are based on revenue sharing and we only have 2-3% of contracts as minimum guarantees. Also, even earlier, there were only a small percentage of properties that would significantly account for minimum guarantee losses. Over time, each, if not every, such partnership would be net accretive to us from a revenue perspective.

Revenue perspective

Q. Ok, now can we talk about the elephant in the room—the Covid pandemic? How has the pandemic impacted OYO and what are you doing in response?

Sure. Look, first of all, there is no question that we are heavily impacted, given the crisis that it has brought with itself. India, specifically, because there is a nationwide lockdown right now, and it doesn’t seem like it’s going to get better as we speak.

From my perspective, there are a few important areas. The first one is to make sure that we are prepared to ensure that our partners need us more than ever before today. So it’s critical that we can prepare our partner ecosystem. The first thing in the path that we are preparing is a ‘sanitised stay’ tag in our hotels. We have set up a bunch of policies right from entry at the hotel, check in, in-room service and housekeeping, check out, baggage collection and baggage departure.

For each part of the experience, we are working to make sure that we are prepared. At this point in time, it is still difficult to predict in what direction the business is going to go. But, we are seeing some early greenshoots in markets like China, where we have now reached occupancy of 45%, up from 20% or so during the peak of the pandemic.

Q. In the post-Covid world, hotel partners will be faced with challenges they have never seen before. How will you help them? What are you doing to strengthen your relationship with asset owners?

Covid-19 is having a huge impact on the entire hospitality industry worldwide, with occupancy rates plunging.

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So, what else could we have done better? Improve our relative ability to resolve issues. Earlier, our owners will give the job of accounting to their CA or the accountant, and their accountant would like to have a discussion with OYO’s accountant. Whenever discussions are non-principal to non-principal, it’s incredibly hard to make resolutions happen.

With ‘Sambandh’, our new partner-focused initiative, 100% of OYO business development officers were trained to do reconciliation. So, the person who signs the contract will also know the exact accounting system and they will engage with the owner directly. The owner’s accountant is free to sit in the same room, so that it is now principal to principal. So that, in my view, is a problem that has been solved significantly. I wouldn’t say it’s 100%, but I would say 95% plus of the resolution situation has improved.

OYO business development

OYO business development

But that said, the three things we could have, we will do better, and have been doing since January. These are things that we did along with the restructuring in January. The first is in our deal constructs; we need to not just simplify our deal constructs, but also the reconciliation statements. And we have simplified both of those.

The second; you may have heard that Flipkart, Ola, and a lot of these companies change their policies by means of electronic notifications, emails, and messages. In our situation, that has not worked.

Because when we send electronic messages for policy updates or changes, our partners sometimes don’t read them. So we have taken steps to ensure that our partners have actually received and understood the contract changes. One improvement we need to make is to speak to every partner before the final change is done and take more time. Instead of one month, maybe we can give two or three months before making a change.

I think, overall, we grew a bit faster than ideal in 2019 and along the way, some shortcuts were taken and some mistakes made. We are now cognisant of these and are taking steps to fix them.

How would you respond to that?

Q. Now if we could rewind the clock a bit, I want to take us back to one of the first stories we did about OYO, one in which we asked if OYO was a Ponzi scheme in that it could easily be gamed by ingredients like minimum guarantees, partial inventory, deeply-discounted room rates and reporting on vanity metrics like “booked room nights”. So much so that your take rates, and therefore, your revenue, were negative.

I think, first off, we should look at it from today’s position. Over the last three years or so, starting from early 2017, we started moving very significantly towards full inventory. I think I’d announced in 2017 that 80-90% of our supply had moved to full inventory supply. A full inventory supply, combined with positive take, which is visible from our filings as well, eliminates the loophole of gaming the system using the partial inventory model.

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We have an app to track how these potential hotel partners score, we have multiple levels of people go and visit the hotel physically to check and validate things.

Are there places where we’ve gotten the check operationally wrong or whether certain city benchmarks differed from other cities? Yes.

AI powered hospitality

AI powered hospitality

What have we done to make those changes? One, we’ve launched an ops bodyguard program, where there is one more check beyond the 140-point checklist. We exited 200 cities in the beginning of the year where we had one or two hotels, where we just found that the supply was just not ready to deliver the experience on OYO. That, by revenue, impacted us by like 1.5 to 2%. But that 1.5%, the noise that it would bring was disproportionate.

And the third one is we’ll try to help all our partners. But we saw that in some places, we just could not provide work with a partner for alignment. Even those were removed. We announced the 10,000 rooms-removal in December.

Oyo rooms video gallery, oyo hotel video gallery

Q. Complaints about OYO have not just been from customers, right? Over the last year or so, there have also been many vociferous complaints from your hotel partners. Firstly, in terms of contracts, with people saying that money was never paid as per contractual commitments. And secondly that there was no recourse—hotel partners didn’t have access to the right channels to complain or rectify those issues or it would just go into the ether, but nobody actually responded from OYO. Do you recognise these as genuine problems? If so, how are you planning to fix it?

First off, what are the things we added for our partners? You’d find it very hard to find a lot of partners that will come and complain about the occupancy of OYO. The second thing is OYO OS and the technologies that we bring. And the third is the repeat rate. These are three things that really added value.

Before I talk about the two problems that you laid out, let me share some complexity that we face in our business when we engage with our partners.

The first one is that the majority of our partners are good people. Now, among them, there is some percentage of owners who may sometimes try to short-circuit contracts. For example, there are roughly 25% owners who have said that there has never been any walk-ins at their hotel in their history with OYO. It is slightly unrealistic to believe this.

So, due to that, we will launch a policy of saying that we are going to ensure that going forward, we will have auditors go to the hotel. Or we will basically launch a policy to say that because the customer service is not good, after a certain number of complaints, there will be a fine.

Now, what happens is that disagreements creep in for those specific policies or systems. And those policies or systems disagreements lead to friction with partners. That’s one reason for friction. The second is the price point-volume equation and unrealistic expectations that we could have, in hindsight, managed better.

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But one of the big changes that I’m trying to architect is bringing in a culture of “No problem is too small; Every customer is critical”.

In terms of perceptions about customer satisfaction rating, a lot of times our competitors love to show our scores in India and say, “Oh, look at OYO scores that are not so good”. What people forget is OYO gets a decimal point worth of business from And most of these ratings are ones that we inherited from the past. The number of hotels listed on is also small. So it’s not just not representative.

Who is Ritesh Agarwal (R Bhashkar)?

We get many multiples of that booking just from MakeMyTrip and GoIbibo. If you look at MakeMyTrip, OYO’s average rating is 3.5 on 5, and the majority of our hotels are 4-plus in terms of their ratings and services.

Q. But how do you ensure quality when you are merely supplying customers to a hotel owner who runs the business. Like in the Bollywood movie Khosla ka Ghosla, one can ask OYO—“Aap party ho ya broker? ( Are you the principal or the agent?)”

From a consumer perspective, our proposition is very simple—low cost, reliable quality, and most importantly, owning the “end to end experience”. Whether it is a late checkout request, an early check-in, breakfast or any other service, if you booked a hotel room through an online travel agent, the OTA will ask you to discuss with the owner directly.

For us, being “party” or the principal is very critical. As far as the consumer is concerned, OYO is the party. Therefore, we should take decisions like a party so the consumer is assured that they don’t need to worry about what they can or can’t do.

Entrepreneurial Journey and the Principles

Entrepreneurial Journey and the Principles

That said, there are two parts of our experience that we have seen complaints over and are things that we want to improve.

The first is check-in experience. Sometimes you’ve heard about customers saying “I reached the hotel and I didn’t get the room”; “I was stranded”. That is evil. That is unacceptable.

There are some practical reasons this happened. For example, if there’s a medical customer who says that I don’t want to check out, but the hotel has sold to capacity, you’ll have to say no to a customer. So what we’ve done now is adopted a new policy. One strike and a hotel gets deprioritised 50%, two times and the hotel gets removed from the OYO platform.

We have also made this a top area of accountability for all our group CEOs—their bonuses are linked to this. Over the last three months, you’d have seen these issues, even on social media, would have crashed.

The second focus is sometimes you have customers complaining that OYO gave a poor-quality hotel that didn’t deserve to be in the OYO network. Now, the first thing that people sometimes get wrong is thinking that we do no work before we go to a hotel. We put in a lot of effort. There is a 140-point checklist before we put up the OYO signage.