Pencilton: A Digital Piggybank for Kids

The seed of an idea

At school we all learnt that the Mitochondria is the powerhouse of the cell and how Columbus discovered America in 1492. Years later as adults, however, we often struggle to keep our personal finances in order. Perhaps Financial Management 101 would have been a better fit in our school curriculum. In 2017, three Hyderabad-based entrepreneurs decided to do something to address this gap in learning among young children.

Pencilton has its roots in a college project that founder Vishwajit Pureti undertook in his second year at IIM Kozhikode. “It was very surprising that we were being taught the calculation of EMI and how interest rates worked after 95 per cent of my class had already taken loans. We had been taking these decisions based on nothing! Something seemed off,” says Vishwajit, recollecting the lightbulb moment that got him started on his entrepreneurial journey.

Vishwajit approached Pallavi Tipparaju and Ashish Singh, two friends from his undergraduate days at the Birla Institute of Technology and Science (BITS), to brainstorm ideas for a startup in the fintech space. The budding entrepreneurs’ interest was piqued when they learnt from their professors about RBI’s financial literacy project. Further research revealed that a staggering 75 percent of India’s adult population is financially illiterate. The trio concluded that the time was ripe to offer an innovative solution that educated young children on the basics of financial management. “It is a huge market for fintech,” states Vishwajit.

City smart

Since Pencilton’s founders believed that Bengaluru, India’s reigning startup capital, was reaching market saturation, they identified Hyderabad as the base for their venture. And their timing couldn’t have been better as Hyderabad was emerging as the new hotbed for entrepreneurs. In fact, the city had claimed a piece of the Indian startup pie back in 2015 when Hyderabad startups went from raising $43 million that year to a whopping $400.95 million in 2018, which is 3.5 per cent of the total amount raised by startups across the country. Further, between January 2017 and January 2018, Hyderabad-based start-ups had attracted $805 million in investment. By December 2018, the total number of startups in the city had risen to 4,000. Higher disposable income among Hyderabad’s urban consumers and their experimental purchase habits were other factors that made the southern city an attractive proposition to Pencilton’s founders.

By February 2019, as many as 164 of Hyderabad-based startups were operating in the fintech space. But unlike the majority that caters to adult consumers seeking services in banking and related financial services, children upwards of ten years form Pencilton’s target audience. However, since children mostly access apps through their parents’ phones, the latter are the actual decision-makers to purchase the product. Therefore, the startup is also focused on targeting this demographic for sustained growth.

Pre-seed funding received from a fellow BITS alumnus is expected to see the startup through early 2020.

The building blocks

Pencilton designed its app with the vision to teach children how to manage their finances using their pocket money. “We realised that the best way to build a product that’s both scalable, and, most importantly, sustainable, and achieve our goals is to teach children how to use their pocket money,” says Vishwajit.

The startup began by conducting preliminary research and pilots in schools in Keralaand Hyderabad. The initial spadework was required to determine how children could be taught to save their pocket money in an age-appropriate manner. This led to the idea of creating a gamified interface based on experiential learning. For a year, the founders worked on creating a simulation that ran on virtual currency wherein children could claim ‘salaries’ and spend them however they wished. However, Vishwajit and his team soon realised that the product lacked a concrete market.

Vishwajit believes that was probably the biggest challenge they faced — finding the right product-market fit. He adds that not giving test marketing enough importance in the initial stages was one of the biggest blunders they made. But once they took feedback from users, Pencilton’s founders were able to modify their product for a smoother ride thereon.

However, the founders still needed to get around understanding parents’ buying decisions. “Parents don’t give much importance to game-based learning or something that runs on virtual currency,” explains Vishwajit. This realisation convinced Pencilton’s founders about the need to approach parents directly, and not through a middle party.

The catalyst

In May 2018, when Pencilton was beginning to gain market traction, the founders decided to enter T-Hub’s Lab 32 incubation programme. At the time, the focus was on identifying the flaws in their business model from a scalability perspective. Vishwajit credits T-Hub with providing his team with the right insights at this crucial juncture in their entrepreneurial journey. Their association with the programme immediately opened doors to the larger ecosystem, an invaluable benefit that helped them grow from strength to strength. They went from being a fledgeling startup to a full-fledged venture in the fintech space. A year spent at the incubation programme also helped them refine their product offering. Pencilton’s app offers a Visa-powered debit card that its young customers can use for their transactions. The exposure at T-Hub helped the founders find a major nationalised bank to partner with for their operations. It was a crucial turning point for Pencilton as all card-based transactions require a license, which can only be provided by formal banks.

How it works

So how exactly does Pencilton intend to educate children to manage their precious pocket money? According to Vishwajit, the startup’s app that is at the beta stage is equipped with two components: one each for the parent and the child. Pencilton has taken a gamified approach to develop the interface. Parents can use this app to load money into a Visa-powered card designed by Pencilton. The app comes with an added feature to enable parents to monitor their child’s expenses and dole out ‘bonuses’ for chores. Additionally, they can also set specific targets for their children to achieve. For instance, the child’s progress will be monitored in different stages. In the first stage, children will be encouraged to save around 10 percent of their pocket money. In the second stage, they will be encouraged to donate a ballpark of Rs 5–10 to a cause that they believe in to inculcate a sense of social responsibility among youngsters.

“From our market research, we understood that savings are extremely important to parents,” says Vishwajit.” “We offer the best of both worlds. The child can see how much money is stored and can save towards a target. At the same time, parents are also aware of where this money is being spent.”

Piggy-banking to success

Plans are afoot to develop a marketing strategy via three channels: schools, corporates, and by directly approaching the customer through concerted digital content marketing, targeting both India and foreign markets. Pencilton has found a robust network of mentors and patrons in schools, a fertile ground for reaching out to their target audience. The founders have tested the beta version of their app with schools that gave it favourable ratings. Additionally, Pencilton is counting on their banking partner to recommend the product to other potential customers.

Vishwajit believes that though social media will be leveraged as a part of the company’s brand building strategy, it may not result in an immediate conversion.

Pre-bookings for Pencilton cards are currently open. Although they are targeting Hyderabad, Bengaluru, and Mumbai, Pencilton has also received several requests from the UK and other European countries. However, the company doesn’t have an overseas expansion strategy ready at the moment. “As of now, we don’t have any plans to go beyond India. India is a big enough market, and it will probably take a decade to cover India,” says Vishwajit.

Vishwajit ditched a promising corporate career after his graduation from IIM to follow his dream. Today, the entrepreneur has no regrets about his decision. He recalls how he was urged to share ideas with everyone — valuable advice that has held him in good stead while building the startup. “If we hadn’t openly shared our idea, we wouldn’t be getting input from everyone,” he signs off.