PhonePe taps merchants in big lending push

To begin with, the payments major has gone live with loans for the more-than-35-million merchants who accept UPI payments through PhonePe. To be eligible, a merchant should have used the app actively over the last six months. They would also have to process more than Rs 25,000 per month continuously for these six months through their PhonePe QR code stickers to avail of the offer.

“They (Phone Pe) are also building a credit underwriting model on the basis of the merchant’s transaction history on the app,” said a top fintech executive in the know.

PhonePe confirmed the development to ET. It has already processed around 20,000 loans in its pilot, which was launched in May, and has achieved an annual loan disbursal rate of Rs 1,000 crore, a company spokesperson said.

Currently, PhonePe will offer loans in the range of Rs 15,000 up to Rs 5 lakh.

It will offer a lending marketplace to its merchants who can choose the best offer from the partner lenders, the spokesperson added.

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“PhonePe has partnered with around three to four non-banking finance companies and more partnerships are in the works,” the company said.ET understands that PhonePe has applied afresh for an NBFC licence. Its previous application was reportedly rejected by the banking regulator.

Commenting on its NBFC plans, the company said it is a platform play for PhonePe currently, through which banks and NBFCs can lend to their customers.

“We are not starting an NBFC business of our own,” the spokesperson said.

PhonePe’s entry into merchant lending assumes significance in the wake of its closest rival Paytm generating a large chunk of its topline from credit to its merchants. As per its March filings, Paytm disbursed Rs 2,313 crore worth of merchant loans in that quarter.

PhonePe also needs its credit business to fire, as it holds tremendous potential to boost its topline. As of FY 22, PhonePe reported total revenue of Rs 1,698 crore. In FY22 Paytm had reported total revenue of almost Rs 5,000 crore, which jumped to nearly Rs 8,000 crore in FY23.

“Paytm is generating good revenue from its credit business, PhonePe needs to get into the space quickly else it will miss the bus,” said the executive on condition of anonymity. “Also, with BharatPe having its own troubles, it is a good opportunity for PhonePe to grab some market share.”

With lending, PhonePe also completes the entire gamut of financial services. It had launched investment options in 2017 and then general insurance products in 2021.

Another top fintech executive aware of these developments said PhonePe will not restrict itself to merchant lending. Eventually, it will get into consumer lending too. It tried to get into that space through the acquisition of buy-now-pay-later player ZestMoney, which did not go through. Now PhonePe might build its own platform or look for fresh inorganic growth opportunities.

Credit is a major opportunity and transaction-led underwriting is opening up in a big way. ET wrote on June 21 that large banks like HDFC Bank, ICICI Bank and others are also looking at offering credit to small merchants who use their QR codes to accept payments.

But when it comes to credit and repayment of loans it will be interesting to track who prefers to use which service provider. And also competing with the fintechs will be the traditional lenders. The field is only going to get crowded and more competitive.