Can Freecharge's bounceback plan help it catch up with fintech peers?

When Freecharge was acquired by India's third-largest private bank—Axis Bank—from Snapdeal in 2017, it made a resounding assertion—“We will continue to operate as a separate entity.”

Despite being under the Axis Bank umbrella, Freecharge was given a free run as an independent business. This was the perfect second chance for the company to build a strong digital platform for itself, regain its brand identity, and catch up with fintech peers Paytm, BharatPe, PhonePe and MobiKwik, which had leapfrogged into a larger financial play. 

Unfortunately, things didn’t quite pan out the way it’d desired. 

Weighed down by aggressive competition, declining valuation, and the burden of housekeeping, Freecharge–despite being a profitable firm–failed to establish its ground and was reduced to the status of being a technology service provider (TSP) to Axis Bank. Even its much-talked about neobanking pivot was called off amid regulatory uncertainty.  

So, where does the firm, backed by Peak XV Partners(formerly Sequoia Capital India and Southeast Asia), go from here? The company says it has been making some realignments in the past year and building capacity in silos–for lending, cards, UPI use cases, and merchant business. 

With some of its experiments dampening last year due to regulations and internal responsibilities, Freecharge is now ready with a new gameplan involving the relaunch of products such as a co-lending platform (personal and merchant loans) and a payments gateway. There are also plans around doubling down on digital credit cards and UPI use cases, Freecharge’s newly appointed Managing Director, Mohit Jain, tells YourStory.

“The assertion (by industry experts) of being silent (as a company) for sometime may not be wrong. Our pivot could have been faster. But there were a host of issues to be resolved,” opens up Jain, who took over the reins in April from former leader Siddharth Mehta. 

What caused the delay

Till a few years ago, the recharge app was battling head on with the likes of Paytm, PayU, BharatPe, PhonePe and MobiKwik, which also started out as recharge apps. 

While the other players managed to ride the UPI wave and venture into multiple verticals, including lending, payment devices, payment gateways, and wealth management (with payments at the core of the offerings), Freecharge missed the bus. 

Post its buyout by Axis Bank, Freecharge was required to operate as a TSP for the bank and work on creating digital properties and APIs that could be offered to other companies as well. For instance, it built APIs for co-branded credit cards and Jarvis, a cloud-native API-oriented lending platform. 

While this chapter began on a strong note, a lot of internal processes came in the way, including shifting of the data of Freecharge, which was owned by Snapdeal then, from Singapore. 

“Around 2018, a lot of time was spent on setting the house in order as Freecharge’s data was in Singapore (on Amazon Web Services). The shifting process took 9-10 months,” says a former senior executive, requesting anonymity. 

Stabilising the ship for the bank, including taking care of its technology needs and resources, became the focus at the time, he adds. 

Meanwhile, a separate team at Freecharge continued to experiment with different products, aiming for a pivot by 2020, particularly towards co-lending.

In between, Freecharge managed to roll out a co-branded digital card with Axis Bank and a merchants app with some value-added services. However, the bank didn’t have all the tech stack ready for a full-fledged play. 

“It took longer than we could have expected. Plus, the market was not fully ready for digital lending back then. What we wanted to do as a first thing in the industry didn’t happen,” admits Jain. 

In the midst of all this, Freecharge was hit by a tsunami of technical tasks during the pandemic. It had to prioritise the building of in-house digital tech capability for Axis Bank. 

It worked along with the bank to build some of the first industry products such as digital cards and a BNPL stack. Freecharge’s customers also wanted the same, but as the APIs were not compatible with Freecharge’s platform, the company had to work on building them for the customers. 

“Everything just added up (to the delay towards the pivot),” said the senior executive previously quoted. 

However, Jain points out that Freecharge chose the path of profitability and did not rush to scale up.

Freecharge’s operating revenue grew 23.2% to Rs 287 crore in FY22. Business support fees collected for providing financial and customer acquisition services to Axis Bank was the largest source of revenue, followed by TSP fee and commissions. 

“The larger agenda for acquiring Freecharge was that it’s a digital payment-first company, far more agile with unique talent, and hence the bank can build business on top of it. After the UPI wave came in, it was not able to put in the level of money that some of the new players did, despite building all the capabilities,” says Jain.

Freecharge had joined Axis with 50 million wallet users, 2 lakh merchants, and a team of 200 people.  

Commenting on the company's initial product development journey, an investor of another payments app says the company could have built a strong brand had it not been for the untimely events, which started the reversal in the fortunes of its previous owner Snapdeal, leading to a drastic effect on Freecharge’s value and volumes.

Slashing neobanking ambition 

Neobanking was among the core ambitions of Freecharge, which aimed to steer its existing customers towards fixed deposits, lending, BNPL, digital credit cards, and investments options such as mutual funds and digital gold, along with goal management tools. 

In late 2021, the company started a phased closed user group testing of the neobanking product; a few thousands users even signed up for it. 

The product was scheduled to be launched in the last quarter of FY22, but it has been parked for now or perhaps even shelved indefinitely, due to the overall regulatory uncertainty for neobanks in India.

Jain says the neobank framework is “undefined” for fintech firms, in the absence of licences and rules. 

“As a third party, you can’t store customer data. The entire thesis of neobanking is based around slicing and dicing that data to create personalised products for a particular segment. There was no point in creating a neobank if we were unable to create a differential product. Axis Bank already has one of the best apps,” he elaborates. 

A neobank platform from Freecharge would have ultimately become a part of Axis Bank’s universe, helping the bank strengthen its product portfolio and cross sell products across the two platforms. It would have created a larger revenue pool for Freecharge and provided another opportunity to regain lost ground. 

But, for now, the neobanking ambition will have to wait. 

Reviving old ideas with new plans 

Leaving behind old baggage, Freecharge has been rejigging its operations for the past one year–starting with the segregation of its consumer and merchant businesses. It is also looking to double down on lending and is closely watching newer segments such as credit on UPI.  

Jain also hints at a revamp of the Freercharge app. 

Under the consumer business, the company is aiming to solve the financial service requirement of salaried groups with an annual income in the range of Rs 1.5 lakh to 10 lakh. 

In tune with this objective, Freecharge launched a co-lending platform for consumers (personal loans) and Freecharge Pay Later+, a small-ticket lending product, to meet the short-term capital needs of consumers.

The company also introduced a small-ticket lending product called Merchant Cash Advance, focusing on small and micro business owners (leveraging QR codes) last year. 

Under the co-lending platform (for both personal and merchant loans), Freecharge claims to have disbursed a total of Rs 280 crore—before hitting the pause button within a few months, in order to understand and adapt itself to the new digital lending guidelines. 

As per its annual filings, Freecharge saw a traction in transactions from merchant business, powering the total unified payment transactions to over 7 million in FY22. 

While the company will not be continuing with the Pay Later product (BNPL), the co-lending platform will be restarted in the present quarter, says Jain, after honing and perfecting it. 

“We were not comfortable with some of the digital trends in credit-cost behaviour. As a bank subsidiary you have to be far more cautious with the risk outcomes,” he says. 

Although Axis Bank is the proprietary lending partner for Freecharge as of now, the company may open up to other lenders in the future, depending on the traction and scale it is able to achieve in the coming months/years.

“It takes about three years for a reasonable size NBFC to disburse Rs 1000-crore loans. For us, once we restart, the initial challenge is to hit the first-200 crore, and then the next Rs 500 crore to Rs 1000 crore is just a matter of a year,” says Jain confidently. 

Over the last six months, Freecharge has also been working on creating necessary capabilities to scale up fraud and risk analytics. Another major offering that Freecharge is looking at is payment gateway, which was tested out last year.  

“Our gateway (testing) did a decent business in a period of 6 months,” says the MD. 

However, its attempt to obtain a payment aggregator licence hit a roadblock in February, after the RBI returned its application, along with that of 57 other entities, including Paytm and PayU, and asked it to resubmit documents.  

Freecharge is banking on its parent’s extensive brand name and network for loans and cards and its corporate backing to push its proposed payment gateway business among enterprises and SMEs. However, it is unlikely to drive this business into the e-commerce space as the market is already catered to by players such as Razorpay and Cashfree and has a limited revenue pie.  

Credit on UPI opportunity 

Recently, the central bank allowed users to do UPI transactions via credit cards that are on the RuPay network. Alongside, it has also permitted banks to transfer pre-sanctioned credit lines through UPI. 

While a clearer picture is awaited on how this service will pan out for fintech firms, credit on UPI is certainly part of Freecharge’s future plan of action. It is closely mapping the space and use cases that can be built around the service. 

The company currently offers a UPI-powered co-branded digital card in partnership with Axis Bank, which it plans to scale up with new features, especially with the RuPay network.

“Being an existing bank subsidiary, it gives us a leg-up to offer RuPay credit cards to existing customers. With some external developments and internal improvements, we should be able to scale this up in the next two to three years,” says Jain. 

The company says its UPI growth rate on the app across transactions in the last two to three years has been 70-80%. 

Building a moat in a crowded space

Players such as Paytm and PhonePe have been closing in on almost every segment–payments, loans, merchant services, gateways, devices, and even wealth management. 

Industry observers say that, in a space that’s crowded, it will be hard for Freecharge to keep pace, especially with respect to merchant loans—a segment where BharatPe and Paytm have achieved massive scale, leveraging QR codes. 

Walmart-backed PhonePe, the latest entrant in the merchant loan space, is also a big name to reckon with. 

The personal loans space is also being eyed by several fintech firms that are backed by large VC houses. 

“Other players have created an ecosystem play, which Freecharge may not be able to create unless it goes aggressive on scale and funds. The market is large, but it will have to find a niche,” says a fintech consultant. 

Jain agrees that Freecharge is late to the party, but he differs on the notion that it cannot catch up with its peers. He brims with optimism, especially with respect to Freecharge’s prospects in lending. 

“You will find a unicorn in personal loans, payments, cards, merchant business, gateways. Other than payments, which is already a consolidated industry, none of the sectors are a winner-takes-it-all market,” he says, adding a cautionary note on “burning cash” for scale. 

He describes lending and cards as recent success stories, with large headroom for Freecharge to succeed.

“We have stabilised our ship, created capabilities, and will now leverage our bank’s capacity to roll out products. It’s just a matter of creating scale for us now,” signs off Jain. 

(The story was updated with the correct designation of Mohit Jain and the company's clarification on discontinuing the Pay Later service and gold loans.)