Anuj Kacker, DLAI Executive Committee Member and Freo Co-Founder
We are seeing a shift in the payments ecosystem towards credit. Is the industry moving in this direction as pure payments are difficult to monetize?
Yes, that’s right. Payment and credit are being met. This is definitely going to be a big topic. This is a way to monetize payments. These loans will still need to be registered by the bank and the person extending the credit, but this will give fintech room to innovate.
Between credit card and pre-approved credit limit on UPI, which one is the game changer?
Both will have their place, and each has its pros and cons. Credit lines on UPI make credit more accessible to millions of people who don’t have access to credit card accepting merchants. But everyone can apply for a credit card, and credit cards like RuPay also have rewards associated with them. Credit card periods are typically one month, and credit limits are intentionally approved for 3-36 months, thus providing flexibility to consumers. They were both fired at the same time, but I don’t believe one of them was killed by the other.
Where do you see growth opportunities for Freo?
We have UPI TPAP license and are in the process of going live. We have just launched the RuPay credit card and we will use the credit limit. We will continue to provide our customers with multiple solutions and be proactive in understanding their needs. Payments is a new area for us, and while we have a target number in mind, it’s difficult to predict how the business will develop. In the near term, our focus will continue to be on Credit Limit on UPI and RuPay Credit Card on UPI.
But are there concerns about lower rates of credit growth and recovery?
The key change in offering credit through UPI is depositing funds into the merchant’s bank account. The focus of the underwriting process is always on risk analysis and judgment on the customer’s ability to pay, whether it is a loan of Rs 500 or Rs 10,000. It’s just an added convenience feature that doesn’t make it easier for them to get credit in any way. In my view, this will bring a large number of people who are still using informal credit into the formal credit cycle. People will continue to get credit, and if you formalize it, it might be better regulated.
FLDG and BNPL have borne the brunt of the regulatory blow. Are these models still working?
FLDG was not invented by fintech companies, it has been misused by a few who are involved in 90-100% of FLDG arrangements and has earned a bad reputation. BNPL bore the brunt of this for different reasons. Again, maybe only 5-6% of players abuse it, opportunistically, and charge as much as 18-20%. BNPL still exists today, but is structured in a more responsible manner.
What are the challenges from a regulatory perspective?
People may debate whether 5% is less or more, but for many fintech companies, knowing that the FLDG is a valid arrangement is enough to continue what they are doing. Regulators expect fintech companies to become more aligned with banks/non-bank financial companies, which may lead to new models or some disruption in the industry, but this is a cycle we see in 7-8 years. For example, the UPI credit line would not have been possible if we had not innovated. Freo (then MoneyTap) launched credit lines seven years ago, and now it’s become a buzzword.
Is increased regulatory scrutiny curbing the desire to innovate?
It brings a sense of caution but doesn’t stifle innovation. Most players ensure that their products/services are compliant. In many cases, they also seek clarification from regulators. While the fintech community may encounter occasional setbacks, they continue to work on innovations that they believe will solve the unique needs of their customers.
What are your views on the growth prospects of the digital lending industry?
Customer penetration and growth rate will be about 50-100% year-on-year, but the ticket size will be smaller, so revenue growth may lag slightly. A large part of the growth will come from tier-2 and tier-3 cities. For Freo, it will be in a similar range.