Business
Merchants crack QR code to secure loans from NBFCs
Non-banking finance companies (NBFC) such as Aditya Birla Finance (ABFL), L&T Finance, Poonawala Fincorp, and SMFG India Credit are among those extending credit to small businesses, harnessing the technology backbone offered by payment firms such as BharatPe, Paytm and PhonePe.
As sourcing partners for these NBFCs, fintechs are paid a commission for each of these loans that have low delinquency rates due to the practice of daily partial repayments. “Around Rs 1,000-1,500 crore of monthly disbursals get sourced from these payment applications, and non-performing assets (NPA) are very low,” said the founder of a digital payments startup, on the condition of anonymity.
One97 Communications-run Paytm has disclosed around Rs 4,500 crore of quarterly disbursal volumes. Other fintech apps could be doing around Rs 3,000 to 4,000 crore in monthly disbursals, said the founder cited above.
These small-ticket merchant loans have become money-spinners for fintechs beset with curbs on unsecured consumer lending and a payments platform that remains free.
Also Read: Paytm revenue rises 24%; to focus on merchants, AI, & loyalty: CEO Vijay Shekar Sharma
Tied to cash flowsNBFCs, too, are drawing comfort from cash flow-based underwriting and daily repayments being processed by these fintech applications.
In theory, these are unsecured and risky loans. But daily repayments make it easier for the payment companies to predict defaults, a partner at a venture capital firm said, thereby adding comfort to these NBFCs.
“If a merchant has taken a loan and stops using the QR code to process payments for three-four days on the trot, collections agencies can be deployed to ensure repayments,” the investor added.
A top executive at an NBFC pointed out that there is a gap in the market unaddressed by banks — at least for now.
“Banks have stringent regulations to abide by; so, they are more careful about lending to risky clients, focusing on more organised borrowers and retail,” said the executive cited above. “But they will enter this space very soon, given their focus on QR code merchant payments,” he added.
Addressing stock market analysts after its September quarter results, Rakesh Singh, chief executive officer, ABFL, said that more than 55% of ABFL’s portfolio comprises business loans to MSMEs, up 23% year-on-year. Out of this, 82% is secured and 18% is unsecured. ABFL’s current MSME portfolio stands at Rs 77,532 crore.
“Disbursements in unsecured business loans grew 37% sequentially,” he had said then.
Poonawala Fincorp said it has launched a new line of business — shopkeeper loans — where lending happens at the point of sale.
The NBFC issues Rs 1 lakh to Rs 15 lakh in credit for a tenure of six months to four years. Products like gold loans, education loans and shopkeeper loans comprise around 17% of its overall disbursements, the company said.
Acquiring these merchants is cheaper, given the loan offers get shown on the merchant applications of all these payment platforms. Also, these payment companies deploy field staff to service these merchants that also offer the loans during their visits.
Low cost to serve
“Most of the merchants are pre-approved for a specific loan amount, hence, disbursal is fast and repayments happen on a daily basis, which is helpful,” said Raman Khanduja, cofounder, Mintoak, a fintech startup that powers QR code-based payments for banks.
Khanduja explained that monthly EMI repayments work well for salaried customers but are not ideal for these small merchants. Daily payments mean repaying such loans is easier and payment applications deduct the EMI from their end-of-day settlement cycles.
Payment apps are also keen that more of their merchants take loans through them, which will help build a sticky customer base and also generate strong revenues.
Paytm said it opened up financial services to 650,000 merchants at the end of the September quarter compared to 600,000 a year ago. But the company is also expanding this business slowly to ensure asset quality remains strong.
“We could do a lot more in the next six months if we started to get a bit aggressive. But the idea is let’s reap all the benefits that come with the fact that the partner is seeing fantastic credit quality and existing and new partners want to do more business with us,” Paytm Group CFO Madhur Deora said during the September quarter analysts’ call.
