Walmart-backed PhonePe has kicked off digital lending pilots for merchants and the company would launch it officially soon, a move that will be a shot in the arm for the fintech decacorn putting it in direct competition in the lending space with its largest rival Paytm.
PhonePe’s lending forays would be platform-based and the company would not be building its own book to begin with, Sameer Nigam, co-founder and CEO of the firm, told Moneycontrol in an interview on the sidelines of the launch of Pincode, an e-commerce buyer app built on top of ONDC (open network for digital commerce).
“We are working now (on digital lending) and we are adding more partners there. Demand is insane, because you already have merchant relationships for so long, but we don’t want to build books. We don’t want to do manufacturing, even here we are doing merchant lending as partners,” said Nigam.
However, eventually, it may apply for an NBFC (non-banking financial company) licence, Nigam said. As per the Reserve Bank of India’s (RBI’s) regulations, if a company’s financial assets account for 50 percent of its income and total assets, it must register as an NBFC.
“Somewhere we may apply for an NBFC, just to test out new cohorts. But we don’t want to build the balance sheet, we want to take the lenders, which is banks and NBFCs, to the borrower,” he added.
PhonePe’s digital lending forays come on the heels of its massive $1 billion fundraise that it announced earlier this year at a $12 billion valuation, which made it India’s most-valued fintech startup.
While PhonePe's funding made its valuation over 2x bigger, and much more than the current market capitalisation of Paytm, which got listed in November 2021, its FY22 (2021-22) revenue was less than half of Paytm. As of FY22, Paytm had a revenue of Rs 3,892.40 crore, while PhonePe had a revenue of Rs 1,646 crore.
But a lending foray could give the Walmart-backed fintech company a much-needed push. PhonePe had stayed away from digital lending unlike its peers such as Paytm and BharatPe, which have a large portion of their earnings coming from lending.
PhonePe was even weighing acquisition of ZestMoney, a buy-now-pay-later (BNPL) platform, which could have potentially given its consumer lending forays a fillip, but pulled out of it after the deliberations went on for over six months because of due diligence concerns, Moneycontrol reported.
Confirming the development for the first time officially, Nigam said that due diligence did not meet PhonePe’s bar and so the company did not go ahead with the deal.
When asked if PhonePe’s move to walk away from the deal was in ‘bad faith,’ Nigam said, “There's only two things we were looking to buy. One was the assets, the other was the people. So that is part of the DD. That is not why it fell, though. We liked the people for whatever it matters,” suggesting that ZestMoney’s assets were the primary reason for PhonePe to pull out of the deal.
PhonePe was founded in 2015 by former Flipkart executives Sameer Nigam, Rahul Chari, and Burzin Engineer. The fintech has over 400 million registered users and is the market leader in Unified Payments Interface (UPI) transactions. In terms of monthly UPI volumes, the company has a 47 percent market share.
In 2017, the company expanded into financial services, allowing customers to buy gold, insurance, and mutual funds on its platform in addition to making bill and utility payments.
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