PhonePe to add muscles to consumer loan distribution from Jan'24

Seven years and five months after PhonePe service went live in August 2015, the start-up is poised to offer consumer lending on its platform, the Economic Times has reported. The first consumer loans from the Walmart-backed company are set to commence in January 2024.
PhonePe will initially serve as a distributor for personal loans. According to the report, it has entered the final stages of integration with five lenders, which include banks and NBFCs.
PhonePe is a giant in the UPI market commanding about 47% market share (data of October 2023). Its revenue in FY23 jumped 77% to reach Rs 2,914 crore.
“PhonePe is expected to have multiple consumer (credit) products over the next six to seven months. It has been working towards building on underwriting to figure out which customers will fit the lender’s criteria and will open up the offering slowly to consumers,” said one of the two officials the newspaper spoke to.
The development comes against the backdrop of the banking regulator taking a disapproving view of the explosive growth in unsecured loans in the country. To control the galloping pace of growth in the sector, the RBI has even raised the risk weightage of these loans which it hopes to result in a rise in interest rates and dissuade high consumption.
PhonePe’s entry into this segment is significant since it has about 50 crore registered users and 3.7 crore merchants. It was recently reported that the company was negotiating with private sector lender Axis Bank to distribute the bank’s credit card offerings.
“The push internally now is to monetise its user base and leverage its distribution heft. With credit, it is trying to replicate its success it has had on the insurance distribution side,” said another official.
It is pertinent to note that the final underwriting is done by the regulated entity. However, offering a robust customer base is crucial for fintechs in distribution. It determines the quality of the partnership for lenders.
One of the officials quoted in the report told the newspaper that PhonePe might look at a credit line offering, but it is not on the immediate agenda. It could be done perhaps over the course of the next years.
As regular business, PhonePe now distributes life, health, motor and car insurance with partners such as Acko. PhonePe allows users to pay in monthly installments through UPI. Cumulatively, it has so far sold 56 lakh policies till July 2023.