We’re seeing a shift towards credit in the payments ecosystem. Is the industry headed in that direction as pure payments are difficult to monetise?
Yes, absolutely. Payments and credit are meeting. It will definitely be a big theme. This is one way for payments to get monetised. The loans will still have to be booked by the banks and people providing credit, but this will give fintechs room for innovation.
Between credit cards and pre-sanctioned credit lines on UPI, which can be a gamechanger?
Both will have a place and have pros and cons. Credit lines on UPI make credit more accessible to millions who may not have access to card-accepting merchants. But everybody can be underwritten for a credit card, and some like RuPay also have rewards associated with it. Credit card cycles are usually for a month, whereas credit lines, by intent, are approved for 3-36 months and hence provide flexibility to consumers. They’re both launched at the same time, but I don’t believe one will get killed by the other.
Where are you seeing growth opportunities for Freo?
We have our UPI TPAP licence and are in the process of going live. We have just launched our RuPay credit card, and we will use credit lines. We will continue to provide multiple solutions to customers, and have been proactive about identifying their needs. Payments is a new segment for us and while we have a target figure in mind, it is tough to predict how the business will shape up. In the immediate future, our focus will continue to be on credit line on UPI, and RuPay credit card on UPI.
But there are concerns about the pace of credit growth and lower recoveries?
The key change in giving credit via UPI is simply crediting money in a bank account vis-a-vis a merchant. The focus of underwriting process will always be on risk analysis and judging the ability of the customer to pay, whether it’s ₹500 or ₹10,000 loan. This is just an additional convenience feature does not in anyway make it easier for them to avail credit. This, in my opinion, will bring in a whole set of people still using informal credit to formal credit cycles. People will continue to take credit, if you make it formal, it’s likely to be better regulated.
FLDG and BNPL have borne the brunt of regulatory crackdowns. Are these models still at play?
FLDG was not invented by fintechs, it was misused by a handful of people by getting into 90-100 per cent FLDG arrangements and earned a bad name. BNPL bore the brunt for a different reason. Again, perhaps only 5-6 per cent of the players misused it by being opportunistic and charging as much as 18-20 per cent. BNPL still exists today, but in more responsible set-ups.
What are the challenges from a regulatory perspective?
One can argue about 5 per cent being less or more, but for many fintechs clarity on FLDG being a valid arrangement is enough to continue the work they were doing. Regulators expect fintechs to be more aligned with banks/NBFCs, and it may lead to new models or some churn in the sector, but that’s a cycle we have seen over 7-8 years. For instance, credit line on UPI would not have been possible if we had not innovated. Seven years ago, Freo (then MoneyTap) launched credit line, now it’s the buzz word.
Has the appetite for innovation been curbed with increased regulatory scrutiny?
It has brought in a sense of caution, but not curbed innovation. Most players are ensuring their products/services are compliant. In many cases they are also reaching out to regulators for clarity. While the fintech community might have occasional setbacks, they continue to work towards innovations that they believe will solve particular needs of customers.
What is your growth outlook for the digital lending sector?
Customer penetration and growth would be about 50-100 per cent on year-on-year, but ticket sizes will be smaller, so revenue growth might lag a little. A large part of growth will be from Tier-2 and Tier3 cities. For Freo, too, it’ll be in a similar range.