On Monday, payments service and e-commerce firm Paytm said that it had tied up with financial institutions to provide collateral-free working capital loans for small merchants and kirana store owners on its platform.
Tying up with financial institutions like Capital Float, Paytm will pass on the credit profile and transaction history of merchants on its platform to these third party financial institutions for eligibility screening and assessment of their risk profile. The firm has also received interest from other financial lending institutions like Aditya Birla Finance and Capital First.
With the loan amount ranging from Rs 10,000 to a lakh, Paytm says these loans can be increased later based on the eligibility criteria and working capital needs of merchants.
According to Kiran Vasireddy, Senior Vice-President at Paytm, the chances of getting a loan increases as merchants’ usage on its platform increases, giving the firm more data for underwriting. The objective is to tap the under-banked and unbanked segments. He adds,
Financial inclusion is our main agenda. Availability of unsecured loans at low interest rates has been a challenge for small merchants till now, forcing them to borrow through high-cost methods like chit funds. By accepting payments through Paytm consistently, merchants can now get a digital footprint at zero cost, courtesy which they will get access to low-interest loans.
At present, the company claims to have four lakh offline merchants on its platform and is expected to cross a million merchants by the end of this year.
In terms of retail partnerships, the payments firm has entered into a strategic alliance with Spencer’s Retail, More, WHSmith, Heritage Fresh, V2 Retail, and Vivek’s Store, to name a few. Among beverage joints, it is currently accepted at KFC, Pizza Hut, Cafe Coffee Day, Costa Coffee, Barista, and Vaango, amongst others.
According to Gaurav Hinduja, co-founder at Capital Float, Paytm will pass a prepared offer to sellers it considers eligible for loans. This will require the merchant to download the Capital Float app and apply for a loan.
It is clear that Paytm is trying to lock in offline merchants while making them transact on the platform, garnering their next phase of growth in the untapped financial technology sector.
As of April, Paytm claimed to be have over 120 million users, with over 90 million transactions every month, and has invested in companies such as auto-rickshaw aggregator Jugnoo, data analytics and logistics company LogiNext Solutions, and hyperlocal app, Little.