Paytm parent One97 Communications on Wednesday said it has joined hands with Piramal Capital & Housing Finance Ltd to expand distribution of merchant loans to the small cities and towns of India.

The partnership aims to expand Paytm's loan distribution business, aided by Piramal Finance's wide network of over 300 branches across India. It will also help drive financial inclusion by bringing access-to-credit to small businesses and retailers, the digital payments firm says in an exchange filing.

This comes days after Paytm said its loan distribution business has scaled up significantly over the last 12 months. The number of loans grew 492% year-on-year to 8.5 million while value of loans grew 779% YoY to ₹5,554 crore.

The value of Paytm Postpaid loans – or buy now pay later loans – disbursed saw a jump of 656% to ₹3,383 crore from ₹447 crore a year ago. Personal loans grew 1,106% YoY to ₹1,344 crore while merchant loans grew 1,031% to ₹827 crore.

Paytm has acquired a large number of merchants from big and small cities across the country, amassing a large base which Piramal Finance plans to leverage and bring ease of credit to small business owners through data-driven underwriting along with credit sanctions based on business income, the stock exchange filing says.

The partnership, which will be expanded to include personal loans, aims to bring new-to-credit merchant partners to the platform. Merchant partners will be able to avail loans of up to ₹10 lakh with a tenure of 6-24 months, the filing says, adding that Paytm will enable a completely digital onboarding process with minimum documentation.

Paytm says the wide acceptance of merchant loans on the platform is reflected through the high volume of repeat loans, with over 50% of the total value of loans disbursed to merchants who had taken a loan earlier. The company has also seen an increase in the average ticket size of the loans.

With 309 active branches, Piramal Finance continues to invest in its expansion plans to be present in 1,000 towns and cities in the country over the near term.

"We aim to cater to the lending needs of the merchants in the Bharat markets through a variety of products that are relevant to this core segment. Many of these merchants are loyal Paytm customers and this partnership will bolster our proposition through a mix of technology and network of branches located in tier-II and tier-Ill towns. Our ability to underwrite this segment and collect in local markets, coupled with Paytm's digital access to this base, we believe we can offer compelling lending solutions," says Jairam Sridharan, managing director, Piramal Capital & Housing Finance Ltd.

Paytm has created a strong foothold in the digital lending market in India. “Our partnership with Piramal Finance is another step in that direction, where we will together bring more merchants into the formal credit economy," says Bhavesh Gupta, CEO of lending and head of payments at Paytm.

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