PayU: Move over cash, credit is king     

Buy now, pay later. Zero interest instalments. Free credit. There’s a cacophony out there in planet retail, where sellers are pulling out all the stops to woo buyers. Discounts work, of course, but a more profitable option for sellers is the EMI or equated monthly instalment offer. Time was when such offers were restricted to “expensive” goods such as televisions, washing machines, and the like. Today, even PVR Cinemas offers an EMI option.

Deferred payment is a great idea—in theory. Does it work so well in practice? The British used to call this the ‘never never’ plan. For buyers, it was as if they would never stop paying for a product; for sellers, it was often the case that they never got their money. Unscrupulous buyers would start the EMI payments and then vanish with the product. Of course, the opposite is also true. For many aspirational buyers, EMIs are the best way for them to own products they really cannot afford. And this is what PayU, the company that recently shut its digital wallet service in India, wants to capitalise on. Backed by global investor Naspers, PayU has decided to focus on micro-credit. “We think that Indian consumers could spend a lot more if they are given a great credit experience. If we can merge that with our core payments business, we think we could be a powerhouse on the credit side,” says Amrish Rau, chief executive officer, PayU India.

It seems like a risky business, but there’s some logic to it. A large segment of the population is unbanked, and a large segment of those with banking access have no access to credit. Add to this a growing aspirational class in both urban and rural India, and it’s easy to see the gap that fintech companies can plug. “India is the most exciting place for the payments ecosystem and there is no doubt about that,” Laurent Le Moal, CEO, PayU, tells Fortune India in an email. “A year or two ago, it was all about the wallet. The entire digital payments commentary was synonymous with wallets. However, the game has now changed. UPI has made wallets redundant. India offers an even bigger opportunity in form of access to credit and other financial services.”

It’s not that deferred payment is a new concept, even in online shopping. Credit cards have been offering this option for some years. But this process is tedious, say merchants. Also, not all buyers have credit cards. Moreover, Pallav Jain, business head (consumer) at PayU India, says the payment process at many e-retailers is arduous, with a success rate of 80-85%. Enter PayU’s LazyPay. At first glance, this looks like one of the many payment options offered by merchants— Paytm, BHIM, credit card, net-banking… But there’s a crucial difference. In the case of digital wallets, you need money in those wallets to pay upfront. In the case of cards or net-banking, you need to go through the entire process of entering details, remembering passwords and so on. LazyPay offers you credit without the effort.

It works like this. You register on LazyPay once, after which you only need to enter a one-time password that is sent to your phone. When you choose the LazyPay option at any e-retailer, you need to enter this password. And then buy. “The customer comes to a website to purchase, not to pay,” says Jain. All your LazyPay transactions are consolidated, and PayU sends a combined invoice to you every 15 days. You have three days to pay up before late fees kick in. In effect, it’s a virtual credit card.

PayU India has also partnered with Reliance Money—a part of Reliance Capital—to offer instant app-based personal loans via LazyPay. Customers can avail loans between `100 and `1 lakh, and they can be repaid in 15 days to 24 months. The entire process is digital. The company says the credit market in India is underserved with about 150 million potential borrowers. It has also applied to the Reserve Bank of India to become a non-banking financial company.

PayU isn’t the only fintech company that offers credit, but it seems to have found a niche in the payments market. Others in the business include CASHe, which has a unique credit rating system based on people’s social media behaviour to determine their credit worthiness, and EarlySalary, an app that offers short-term instant loans to young salaried individuals. The big question is whether this will work. In a country where getting the better of the system is a badge of honour, will PayU see more defaults than payments? Rau says PayU’s payments business has given it a wealth of data and insight into customers and their credit-worthiness. “We have a very good understanding of the consumer.”

PayU is one of the largest payment gateways in the country. It says it powers about half of all e-commerce transactions in India, and processes about `10,000 crore on a monthly basis on its payments platform. In 2017-18, these helped the company hit $100 million in revenues. “The most interesting challenge in India and our other growth markets is the heavy reliance on cash. This offers us an opportunity to innovate and offer products and services that are inclusive and support all consumers, including those who rely on alternative payment methods,” Le Moal says.

Analysts say the digital payments industry will eventually move to lending, banking, and insurance. A 2017 fintech trends report by PwC says that alternative lending is a growing industry for digital lending aimed at different borrowing needs, including consumer loans, SME loans, working capital loans, and payday loans, among others. “Overall, on the fintech sector, we foresee pure digital payments players pivoting to become financial product malls with tailored products and experiences for their customer base on both the retail and SME front,” says Vivek Belgavi, partner and leader, fintech, PwC India.

Clearly, PayU is moving with the industry. It is also investing in smaller fintech firms like PaySense. PayU’s Rau says Naspers continues to see huge potential in the Indian market, and will invest more. “We today are in a position where we want to commit further to the Indian market, and want to create an ecosystem around fintech,” he says.

All of which makes sense for a company that has financial data on customers. But if companies that cannot gauge the credit-worthiness of customers enter this space, it may be time to change “caveat emptor” to “caveat seller”.

( This article was originally published in the September 2018 issue of the magazine.)