Freecharge is pivoting to become a digital financial services platform offering credit to consumers and merchants which will sit on parent Axis Bank’s book, MD & CEO Siddharth Mehta tells Shritama Bose. The company plans to expand its merchant network to 10 million over the next three years from 300,000 at present, he added.
Being owned by a bank, what will Freecharge do that Axis doesn’t already do?
With us being owned by a bank, the natural progression was always to become a digital financial services platform. We’ve already had a credit card partnership with Axis. We have launched a BNPL (buy now, pay later) product this financial year, and a merchant lending product in November-December. So the idea is that we want to give horizontal financial services to all our customers — existing as well as new ones. Our focus is the digitally native 18-32-year-old. Typically, the bank focuses on the 30-plus. So we’re complementing the bank in terms of the segment. If you look at Freecharge two quarters from now, we will be a completely horizontal digital financial services platform. So we will have a neobanking solution, BNPL, checkout finance and a personal loan product. We already have a credit card. Obviously neobanking is banking plus investments plus lending – everything on one platform, and that’s what we’ll evolve to.
Where do you see Freecharge fitting in this crowded fintech space?
The market is pretty big. In India, the lending space is largely underpenetrated. We see a large opportunity in two spaces — one is the BNPL/checkout finance because credit card penetration is around 3.5-4% and there’s a large base of people who don’t have a credit card. The other side is the merchant side with the actual micro and small businesses who want small-ticket, short-duration loans. They are not getting served by any of the large banks and we see that as a large open space today in the market. These are the two segments that we are aggressively going after.
Freecharge started life as a payments and wallet player. What happens to that original payments DNA?
Payments is still going to be our source of acquisition, to some extent. Freecharge actually started as a recharges platform, morphed into a wallet business to now become a financial services platform. But, payments goes nowhere. It is still going to be there. You are still going to be able to do a UPI transaction, recharge your phone, pay your bills, do all that on Freecharge and we will layer the financial services over and above that for our consumers. It will be more like upsell to those consumers. Today the market is such that consumers can come to you for different products. So some people might come to us just for the BNPL. What we are saying is, even if you take the BNPL, you can still use it to recharge your phone, pay your utility bills. So payments is still going to be core to us on the consumer side as well as the merchant side. Our lending product for the merchant is based on payments. Once we give the loan, we collect the EMI out of the daily settlement that the merchant does with us.
How big is your merchant network?
Our current merchant network is around 300,000 merchants. We were actually waiting for our lending products to come live. Now with lending live, we have started scaling it up and you will see a large scale-up on the merchant side over the next 12-24 months. We would like to go to almost 10 million merchants in three years.
Are you looking at synergies with the bank?
Definitely, there are synergies overall. Obviously, the product today in terms of the technology stack is co-created between the bank and Freecharge. So it’s not like there was a product in the bank that Freecharge is reselling into the market. If you look at BNPL and the banking industry, Axis Bank is one of the top banks which are actually doing BNPL for NTB (new-to-bank) customers, people who are not Axis customers. The synergies are co-creation and the support of the bank’s balance sheet. The loans we originate will sit on the bank’s book. No other ecosystem player has that kind of support from a balance sheet perspective. Third is process, compliance and regulation. Whatever we are doing is right within the purview of regulations. There is already a working group report on digital lending. We might be one of the few BNPL players who are fully compliant.