Exclusive: Slice turns conservative amid slowdown, restricts ‘Pay-in-3’ feature to select card customers

Rajan Bajaj, Founder and CEO of Slice

Tiger Global-backed fintech Slice will allow only select customers with a good credit score or repayment history to use its standout ‘Pay-in-3’ feature on its credit-linked Visa card, in what is a key departure from its previous model. The move signals a more conservative approach amidst a tough growth environment with a focus on a profitable business model.

However, the feature will be extended to all customers for in-app payments, according to multiple people aware of the development. The move comes at a time when the company is looking to turn profitable soon, and driving up transactions with merchant partners on its app will help accelerate revenue growth.

Slice’s ‘Pay-in-3’ allowed customers to split their repayments into three parts for no extra charges or interest. Now only those customers with a good repayment track record and/or a good credit score will be allowed to access the feature on its Visa card which the company calls a ‘challenger card’.

Customers who will not be able to access the feature on the card will have to repay at the end of their 30-day credit cycle or avail of the option to pay in six or more installments along with interest.

Slice lends to sub-prime and new-to-credit customers, mainly millennials, and was issuing close to 300,000 cards per month, added one of the sources. The startup’s monthly card issuance had crossed even that of large private banks like ICICI Bank and HDFC Bank which issue around 200,000 cards per month.

“With such a huge customer base of sub-prime and new-to-credit customers, the company was seeing a faster revenue erosion. That surely has an impact on the pace at which they can achieve profitability,” said one of the sources.

Additionally, the company recently announced a realignment in its strategy from only lending in partnership with NBFCs to becoming mainly a payments app starting with the Unified Payments Interface (UPI).

While UPI payments do not yield any revenue to fintechs as they fall under the zero-Merchant Discount Rate (MDR) policy, which mandates that merchants should not be levied any charge on accepting payments via this mode, they open up a larger customer base, which fintechs then leverage to cross-sell other offerings.

Another fintech executive added, “By allowing Pay-in-3 for select card customers, the company is looking at reducing its credit risk. The focus on in-app payments is in line with the company’s strategy to become a payments player as opposed to only lending.”

By making the feature specific to the app, select customers will be able to use it only for purchases from companies that Slice has a tie-up with, giving the startup the benefit of earning a share of the transaction. This is as opposed to customers using the feature for all their payments with all merchants including those who Slice does not have a partnership with.

With more transactions on its app, the company is trying to ensure faster growth in revenues so that it can achieve profitability sooner. Additionally, removing the Pay-in-3 option for most customers will mean getting the full value of repayments every month, instead of every three months -- a quicker way to shore up revenues.

"They have a strong MDR arrangements with a lot of brands. But that only works when users buy the brands that they have a partnership with, hence the pull to drive up in-app purchases," explained a fintech industry source.

On its app, Slice has merchants including Licious, Miniso, Swiggy, BigBasket, and MakeMyTrip among a number of others.

The company is also in the midst of raising a fresh round amid a global slowdown and weak investor sentiment. At such a time, a clear profitability journey will be crucial for venture funds that may consider investing.

On May 19, when Slice launched UPI on its platform, the company’s founder and CEO Rajan Bajaj told Moneycontrol in an interview that the company aims to be profitable in a few months’ time and will now shift focus to building a larger payments play, with more payments products on the anvil.

He had added that lending, which until now was the startup’s core product, will become just one of the offerings on the app, a strategy opposite to that of many fintech players such as Walmart Inc's PhonePe, Google Pay, and Paytm among others, which started as payment apps first and then diversified to various financial services including lending.

“We are going to completely shift our focus from just providing credit to an exclusive set of customers to providing overall payments going forward. Strategically this is a priority that we want to focus on for the coming years,” Bajaj had said.

Another fintech executive added on condition of anonymity, “Collections for repayment of dues was also a challenge that they are working on. Given that they have added around 10 lakh new customers in a quarter, that is a huge exposure to manage in terms of repayment. The issue with credit is not giving the money but getting it back.”

“They would probably need a huge number of executives just to manage repayments and that is not something that they have or can afford to onboard at this point,” he added.

Moneycontrol reached out to Slice with queries. However, the spokesperson was not available to comment.

Slice will also be impacted by a recent Master Direction released by the RBI on credit and debit cards. The guidelines said that for co-branded cards like Slice, the role of the co-branding partner entity shall be limited to marketing and distribution of the cards. Additionally, the co-branding partner shall not have access to information relating to transactions undertaken through the card.

The move once in effect is likely to reduce Slice’s role drastically in its partnership with State Bank of Mauritius India, which is its partner for the Visa credit-linked cards.

On these norms, Bajaj had said, “We will work with our co-branding partner State Bank of Mauritius India and comply with the norms. We work closely with the Reserve Bank of India through our in-house NBFC Quadrillion Finance. There is some time for the new norms to come into effect, so if we have to make any changes we will figure that out closer to time.”

Slice competes with other Buy Now Pay Later (BNPL) players like Uni, PayU's LazyPay and ZestMoney which allow customers to split their credit repayments into multiple instalments.

Slice had turned into a unicorn, or a private company with a valuation of $1 billion or above, in November 2021 after it raised $220 million led by Tiger Global and Insight Partners. Founded by IIT Kharagpur alumnus Bajaj in 2016, the company currently has five million registered users.