Paisabazaar is looking to accelerate its recurring revenue business model for lending business as the PB Fintech brand looks to cushion itself from any future shocks such as COVID-19.
During the pandemic, the company had seen its 90% revenue disappear in a matter of weeks. Called trail book, it accounted for around 14 percent of the revenue during the June quarter. The company is looking to raise this to around 25 percent in the next couple of years.
Paisabazaar refers to this as the trail book as it generates revenue over time instead of the usual commission at disbursal. In the last quarter, one-third of the new loans disbursed followed the trail model, which began only 15 months ago.
“This makes us more like a manufacturer and keeps our customers and us engaged throughout the relationship rather than just the transactional nature in the commission model,” Naveen Kukreja, co-founder and CEO of Paisabazaar tells Moneycontrol.
For instance, hypothetically Paisabazaar was getting Rs 100 for disbursing a loan, it now gets Rs 150 per loan. Out of which Rs 60 is earned on the day of disbursal and the rest along with customers making their monthly payments.
“The product itself is often co-created with the bank and this backbook gives us around 85 percent higher profitability over time as the customer comes back to us for other products such as more loans or insurance,” says Kukreja. A typical loan on the Paisabazaar platform has a 36-month tenure.
The competition
During the June quarter, the credit disbursals grew to Rs 3,542 crore, compared with Rs 2,320 crore in the same quarter of last year, a growth of 53 percent. Paisabazaar reported Rs 16,000 crore worth of loan disbursal on an annualised run rate basis for the June quarter.
Also read: PB Fintech sharply narrows loss to Rs 12 crore, operational income up 32% in June quarter
The company has been in the lending business for more than seven years but lags behind Paytm, which disburses around Rs 15,000 crore in credit every quarter including merchant and micro, small and medium enterprise (MSME) lending. Paisabazaar’s SME lending is 25 percent of its overall portfolio.
“Every player has a different strategy and fundamentals. We cater to a different set of customers and the risk profiles are also different. Our target is to grow twice the rate of the overall credit growth and we actually grew thrice during the June quarter. We grew four times the industry growth last year and feel good about our position,” says Kukreja, adding that the company does not compare with others.
The consumer credit market in India is valued at Rs 8.5 lakh crore annually or Rs 70,000 crore monthly. However, India's household debt is only 14 percent compared to the US at 65 percent and UK at 90 percent, indicating a large untapped potential. Two-thirds of loan applicants in India are rejected, and those who are rejected often turn to unregulated informal channels or money lenders with high-interest rates.
Paisabazaar aims to increase its market share from 1.5% to 4% and considers itself a large enough market. The company has been profitable for the last seven months with a 7% EBITDA ratio.
“A lot of digital players are taking market share from the offline segment. We are looking at 25 percent EBITDA and that is what our shareholders will like us to do. We are looking at prime and super prime customers who have the potential to get the best deals on loans whereas some of the digital lenders are working the subprime segments,” says Kukreja.
End-to-end digital experience
Almost 85 percent of its portfolio is unsecured as the secured portfolio comprising housing loans is still not digitised as property documents are not fully digital in the country. Kukreja says that it is mostly trying to make 100% digital distribution of credit.
“Sharing leads creates breakages in experience and is not a long-term revenue generator. Also, a lender who has come to our platform has never left indicating the stickiness that we offer,” adds Kukreja. This is the case with customers as well with 75 percent being existing ones. The company has over 3.7 crore customers who checked their credit scores on the platform.
Paisabazaar is also talking to the government’s ONDC network to be one of the credit suppliers on the platform.
Paisabazaar is also distributing 5.8 lakh credit cards at an annual run rate extrapolated from the June quarter performance, a growth of 47 percent. The company is co-creating credit cards whereas it takes commission on total outstanding dues as well as on card spending. For those with no credit history and credit score, it also offers a credit card in partnership with SBM Bank where it issues a card after the customer creates an FD with the bank.
PB Fintech, the parent company of insurance aggregator Policybazaar and credit marketplace Paisabazaar, reported a sharp contraction in its consolidated loss at Rs 12 crore for the quarter ended June 2023, a dramatic reduction from Rs 204 crore loss it reported during the first quarter of last year.
The insurance aggregator’s operational income for Q1 came in at Rs 666 crore, up 32 percent against Rs 505 crore registered in the corresponding quarter of the previous fiscal. It reported a total income of Rs 757 crore.
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