Digital payments major Paytm has ventured into the lending business with its Instant Personal Loan facility for salaried individuals, business owners and professionals, the company said in a press note on Wednesday.
The Noida-based company said that it has partnered with banks and NBFCs to process these loans and the aim is to extend credit to those ‘new to credit’ or consumers who do not have a credit history, thereby driving financial inclusion.
Paytm as a payments bank is not allowed to extend credit from its own books, hence the company has partnered with other lenders to process these loans. Paytm, however, has been dabbling in lending for quite some time, working with NBFCs such as Clix Capital. It has multiple loan products such as the Paytm First credit card, built in partnership with Citibank and Visa. It also offers Paytm Postpaid, where consumers can enjoy ‘buy now, pay later’ privileges.
Further, Paytm was also giving out small-value loans to businesses on the basis of their cash flows.
The entry into the personal-loan category is interesting since the broader sector has been facing a massive perception challenge. Loan sharks dressed as fintech lenders and the aggressive collection techniques employed by these platforms have caught the attention of the banking regulator as well as law enforcement agencies.
In the middle of this, Paytm, with its massive reach and strong investor support is looking to bring credibility to the space while capturing market share quickly. Further this also completes the larger financial services bouquet from Paytm, from payments to shopping, bill payments and recharges to insurance, wealth management and lending.
NPA challenge
However challenges do remain in the quality of customers coming through the funnel. Paytm will have to be careful about who it is lending to given that Covid-19 has disrupted cash flows for a significant chunk of the population and assessing their credit worthiness can be a challenge.
Moneycontrol wrote on December 24 about how fintech lending startups were looking to restructure loans to prevent them turning into NPAs and were staring at an asset quality challenge.
Vijay Shekhar Sharma, founder of Paytm, is up against Flipkart cofounder Sachin Bansal, who is offering a similar product in this segment through Navi, his fintech venture, along with multiple other fintech lending startups.
Users of the Paytm app can access this service from the financial services section in the app and apply for credit digitally. The Alibaba- and Softbank-backed company said that it would offer loans at a tenure of 18 to 36 months and that the customer can manage the account completely on the app.
It has set a target of disbursing credit to a million users by the fiscal year end. In the beta stage the product has been tested on 400 users.
“We aim to make Instant Personal Loans accessible to the self-employed, new to credit individuals and young professionals who need short-to-medium term personal loans to manage urgent expenses,” said Bhavesh Gupta, Chief Executive Officer, Paytm Lending.
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