As payments services companies in India turn into full-fledged financial services in search of a viable revenue model, they are exploring to partner with niche wealth management and credit startups.
The Times Internet-backed ETMoney is already in discussions with a few of them.
“People (payment companies) are looking to partner with us as we have expertise in the industry. We are already having those kinds of discussions,” ETMoney founder and CEO Mukesh Kalra told The Passage.
Kalra did not reveal the name of the payment companies that are interested in partnering with ETMoney.
“These are active conversations. But it’s like a handoff, not a very deep relation. We are also exploring whether it makes sense for us or not,” he said.
Over the past year, companies including Paytm, PhonePe, Mobikwik, Google and Truecaller have transitioned into wealth management services. They are taking a shot at cross-selling financial products such as mutual funds, insurance and credit to users. Even Shareit, which launched payments on its platform late last year, is exploring an opportunity to get into lending.
According to Kalra, starting from scratch and building expertise in financial services is going to be difficult.
“While the intent is there, for payments services to cross-sell financial services is not going to be straightforward. A different skill set and DNA is required for that,” Kalra said.
He explains that a consumer who is doing a Rs 10 transaction on Google Pay or PhonePe may not end up buying insurance worth Rs 1 crore from them. “Because the kind of context payment services have is very transaction-oriented, very casual in nature.”
“Financial services is a very relationship-driven kind of business based on trust and advice. It is not a one-off transaction that you get done with. There is the whole post-purchase customer relationship management that financial services companies have to do,” he said.
Kalra also said that payments companies can only cross-sell financial products to someone who is loyal to them.
“If there was a loyalty towards one platform, others would not have mushroomed so fast,” he said. “That is probably why they are reaching out to us.”
Even after launching financial services, it remains to be seen what kind of traction payment services are getting for their financial services on the platform.
According to Nithin Kamath, founder of Zerodha, selling mutual funds and term policies are low-hanging fruits for payments firms.
“Tomorrow if they want to start selling single stocks, etc., maybe then they will reach out to companies with that kind of expertise,” he said.
Although new entrants have made the wealth management segment very competitive, these businesses are far from making money.
“That’s the nature of the beast today. The problem with competition nowadays is that no one is able to earn any money. So it all becomes about acquiring customers,” Kamath said.
“As long as there is VC funding happening, this will sustain, and people will eventually consolidate and merge, because I don’t think it is possible to keep running a company at zero-earning for a long period of time.”
“The only way everyone can make money is through lending,” he said.
Zerodha currently doesn’t charge any brokerage on investment. It makes money from intraday trading, and futures and options trading. Kamath said the company is set to launch a loan against securities product which will enable people with stocks to borrow money by using securities as collateral.
“To enter into credit and lending space, they (payment services) may have to partner with NBFCs that have the expertise,” Kamath said.
For instance, Paytm and Mobikwik are working with a set of NBFCs including Bajaj Finance and Aditya Birla Capital to offer loans. However, their Flipkart-owned rival, PhonePe, is yet to introduce lending and credit on its app.
“We could have done insurance and wealth management two years back but we are jumping all around and doing everything. We are consciously taking it slow,” Hemant Gala, head of payments, banking and financial services at PhonePe, told The Passage in an earlier interview.
“We want to get contextual in what we are offering customers. Everyone’s needs are different. We would be coming out with products at the right time, for the right segment.”
Darshit Bora, principal at Kalaari Capital, said expanding into financial services, would require payments firms to have the right mix of developing in-house capabilities and partnering with other companies.
“For services like credit, it all comes down to the data that you have, to determine who you can offer credit to. So most of them are building the capability in-house,” he said, adding that for services like stocks, mutual funds and insurance, payment firms may partner with niche platforms that have the capabilities.
“There are probably some 10 million traders in the country. But in order to offer them trading services, payments firms will either have to create an additional layer of advisory service or partner with someone who has that expertise.”
Vora also believes that high-margin financial products can help payment services earn money.
“Payment firms ultimately want to become a one-stop shop for everything. Right now, their aim is to acquire as many customers as possible. Eventually, they will make money on high-margin businesses like lending and insurance,” he said.