Freecharge out with monthly credit facility 'Pay Later'; rivals the likes of Amazon, Flipkart, Paytm, in the 'buy now, pay later' space

“It’s not a loan. It’s not that you can take cash and repay the outstanding… It’s a payment instrument backed by a credit line for small ticket transactions,” says Siddharth Mehta, CEO of Freecharge, on his fintech firm’s newest offering - Pay Later.

What is it? Freecharge, under this new product, will offer eligible customers Rs 5,000 every month. They can use it to pay and recharge items on the Freecharge platform, or buy stuff on partner platforms. The customers are required to repay the sum plus interest within 30 days and, post that, there is a late fee of Rs 10 per day.

When I doled out this memorised paragraph to Mehta as a confession of my simplistic understanding of Pay Later, he says that the interest is “given as cashback by Freecharge, only if you make the repayment on time.”

It’s an interesting move from the fintech brand to enter this kind of lending/payment instruments space. People across India use Freecharge primarily for phone recharges and bill payments.

When asked about the reason for this move, Mehta tells us that credit cards and equated monthly installments (EMIs) were part of the Buy Now, Pay Later (BNPL) segment. But both the services “were focused on medium and large ticket transactions.”

“In the small ticket transaction area, where you’re doing Rs 100, Rs 200, and Rs 300 transaction, there was no product in the category, apart from LazyPay or Simpl, until 2-3 years ago.”

As per Mehta, when you use a credit card for small ticket transactions, “you have to enter your card number, expiry date, CVV, and then you get an OTP. It’s a very cumbersome process… the small ticket segment was open, and that is why we decided to get into this product.”

Freecharge has released three ads that introduce Pay Later and talk about the individuals it’s aimed at (look above).

Mehta reveals that this offering is for “22-30-year-old customers, who are salaried, or self-employed.”

But what came as a surprise to us was the fact that Pay Later is an invite-only offering... “We initially want to go to a select set of users, and then slowly open it to the larger ecosystem,” explains Mehta.

Once Freecharge opens, or expands Pay Later in the market, it will establish a risk policy based on parameters, such as revealed income, place of occupation, location and bureau information. All this is to analyse how much credit a potential customer stands to receive. The range is from Rs 1,000 to Rs 5,000.

After seeing the ads, we wondered if Freecharge will market Pay Later as a separate offering, but Mehta refutes this thought.

“We’re giving the customers another way of making payments… you could pay basis your credit card, debit card, UPI, or wallet. Now, you have another payment option in the ecosystem. This is also one of our first steps in the journey of becoming a financial services platform.”

Today, you can not only pay bills and recharge your phone on Freecharge, but also avail a regular loan, open a fixed deposit (FD), invest in mutual loans, and buy gold. “We’ll soon be launching more products under the neo banking framework,” adds Mehta.

A neo bank is a new-age bank that offers financial services to the customers, but doesn’t have a physical presence. Freecharge is one such bank, and has the backing of Axis Bank, that acquired it from e-commerce giant Snapdeal in 2017 for Rs 385 crore.

Pay Later has competition in the space from Paytm Postpaid, Amazon Pay, Simpl, Zest Money, LazyPay, Flipkart Pay Later, to name a few.

Says Mehta, “Yes, it (the competition) is there, but if you look at the credit to GDP ratio, we’re underpenetrated, so the opportunity is large… We already have a large base of customers, who’re engaged with Freecharge. It’s easier for me to upsell to them and I am backed by Axis Bank, which has the learning, knowledge, and has been built for years. For other guys, there is learning on the way, but for us, learning already exists, which I can utilise in the right way.”

At the end, I asked Mehta the most important question, about the defaulters. It’s on our mind, he says, and that’s why “we have started with a focused segment of customers, where we have information on their behaviour.’’

“We have the advantage in Axis Bank, as a parent who has seen many such cycles as an organisation,” he signs off.