Fintech unicorn Mobikwik is looking to enter the business-to-business (B2B) merchant lending space to offer mid-size and small-ticket loans to its existing merchants and to expand its revenue base.
"In addition to QR-based payments and payment soundboxes for merchants, we will also be looking at offering merchant loans...We are experimenting with a few merchant lending products right now," said Upasana Taku, Co-founder and Chief Operating Officer (COO) of Mobikwik.
Mobikwik is yet to launch the product and is experimenting with its existing merchants. The firm will be majorly targeting Tier II and Tier III cities for small and medium enterprises (SMEs) for their working capital needs.
Gurugram-based Mobikwik has been offering lending and other credit products to its customers. Mobikwik has about 4 million merchants on its platform.
"We have been scaling lending in a very healthy manner. For Mobikwik, the lending business disbursals in FY21 were around Rs 300 crore, and in FY22 it was Rs 5,100 crore. Going ahead, it will be large with newer lending products," Taku said.
Merchant lending gets attractive
India's digital lending market stood at $270 billion in 2022, as per reports by Experian and Praxis Global Alliance.
India’s fintech startups, including some of the highest-valued companies, are increasingly jumping on the digital lending bandwagon, thanks to soaring disbursements seen in the previous fiscal year that showcased the massive opportunity offered by the country’s credit-starved market.
On June 23, fintech major PhonePe launched its merchant lending services on its platform, allowing banks and non-banking financial companies (NBFCs) to provide access to credit to its 35 million micro, small, and medium enterprise (MSME) merchants.
Paytm is also in the merchant lending business, where its merchants can avail of loans from Shriram Finance. PayTm has been disbursing loans of nearly Rs 14,000 to Rs 15,000 crore every quarter and has a merchant base of around 25 million on its platform.
In fact, in a big lending push, BharatPe acquired a majority stake in Mumbai-based NBFC Trillion Loans to offer credit facilities and loans to its customers and merchants.
MobiKwik has been offering various credit products to consumers, including Buy Now, Pay Later (BNPL) for shopping and EMI loans starting from Rs 50,000 to Rs 1.5 lakh with a period of 12-18 months.
"Mobikwik products, especially in the credit space, are mainly focused on middle India. Most of the users are using Rs 50,000 to Rs 60,000 per month and do not have access to loans at bigger banks," Taku said.
This also comes at a time when the Reserve Bank of India (RBI) has approved First Loss Default Guarantees (FLDG) between regulated and unregulated entities, while capping the same at 5 percent of the loan portfolio value.
In September 2022, the RBI prohibited regulated entities (REs) from entering into FLDG arrangements with unregulated entities. It had held that the loan offered to a consumer is ‘strictly between the lender and the consumer’, and the fintech partner was just a loan originator, basically like an agent.
But now the central bank has permitted REs to enter into FLDG arrangements with unregulated entities, subject to a 5 percent cap. As per the new framework, default cover could be provided for up to 5 percent of the loan portfolio and shall be invoked within a maximum overdue period of 120 days.
Mobikwik offers loan products in partnership with large banks and NBFCs.
"The loans are not on our balance sheet; they are with banks and NBFCs. This has been adding a lot of revenues to us and doing very well…Our customer repeat rate for all our credit products is around 80-90 percent," Taku said.
Outlook
Mobikwik claims to have turned profitable in the March quarter of FY23 and expects to almost double revenue to over Rs 1,000 crore in the current fiscal year, along with full-year profitability.
The company closed FY22 with 39 percent net revenue growth, at Rs 560 crore.
Mobikwik earns 50 percent of its revenues from payments and 50 percent from lending. It expects the number to move to 60-65 percent from financial services, including lending, as it looks to venture into merchant lending.
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