Aiming to tap the under-banked and unbanked population of small retailers and bringing them into the fold of organised credit, mobile payments and commerce platform Paytm has tied up with financial institutions, which would facilitate collateral-free working capital loans to small merchants and service providers.
The likes of Kiran store owners and auto drivers could now get loans up to Rs 1 lakh. The company claims that 4-lakh offline merchants have already accepted Paytm, which will cross 1 million by the end of the year.
The third-party financial institutions like Capital Float, Aditya Birla Finance and Capital First will go through the credit profile of the merchants passed by Paytm, which will consist of their transaction history.
Kiran Vasireddy, senior vice-president at Paytm, said, “Chances of getting loan increases as the merchants’ usage of Paytm increases since there is more data available for underwriting. Paytm will, however, not underwrite the loans.”
Gaurav Hinduja, the co-founder of Capital Float stated that Paytm will pass a prepared offer to sellers, whom it considers eligible for loans. The merchant will then be prompted to download the Capital Float app and apply for a loan.
“For us, it opens a new segment of people and we plan to disburse loans sub Rs 50,000 through this tie-up,” Hinduja said.
This move to lock in offline merchants and encourage them to boost sales is critical to Paytm’s growth as in the market leader position as it looks to keep its position in a highly untapped financial tech sector.
The move is familiar with that of its investor Alipay, which too offers loans to Chinese customers and sellers within seconds by analysing their transaction patterns on the app. But while Alipay in China gives out loans itself, regulations in India do not allow e-commerce marketplaces or payments bank to disburse loans, which is prompting the company to tie up with institutions.
Paytm stated that this move would enable a small shop owner to meet his working capital needs, saving him from the clutches of the money lenders. “He now gets access to quick, easy and affordable credit,” said Vasireddy.
