In a move that could disrupt the consumer lending segment, e-commerce giant Flipkart is poised to enter the financial services space, offering credit and insurance products to consumers and sellers on its platform.
The Bengaluru-based company has started the application process for a Non-Banking Financial Company (NBFC) license, which will enable it to open lines of credit to its approximately 100 million customers and over 100,000 vendors. Over time, the company will take these services beyond its platform, taking on companies like Paytm and Bajaj Finserv.
It also partners with insurance companies to co-create microinsurance products that will align with a customer’s e-commerce journey, according to the company. “Our fintech vision at Flipkart is to create highly differentiated financial solutions for our customers, consumers and sellers, leveraging data and technology to make them highly inclusive, simple and transparent,” said Ravi Garikipati, vice -Senior President and Head of Finance. services at Flipkart. “A good understanding of customers helps us arrive at very different credit risk profiles and will play an important role in underwriting.”
Currently, over 60% of consumers who shop on Flipkart have no access to formal credit. This deters them from making large purchases on the platform, which the company says is stunting its growth. Although Flipkart has partnered with banks and NBFCs for some time to offer customers EMIs on large purchases, it says a gap still exists.
On the seller side, Flipkart scrapped its lending program after seeing gaps in the speed at which credit could be extended to them. Garikipati says the new products will reduce the time it takes for sellers to access credit from days to minutes or even seconds. The company also plans to lend to sellers from its own balance sheet.
“Whether it’s consumer lending or vendor lending, we have a hybrid strategy. We plan to apply for an NBFC license ourselves and when we have it in place we would like to service most loans using our own balance sheet. It’s not exactly a marketplace, but an organized set of partners who will work with us,” added Garikipati, who in his previous stint served as CTO and Head of Engineering at Flipkart.
On the insurance front, Flipkart will first partner with select insurers to offer byte-sized micro-insurance for specific purchases on its platform.
For example, customers will be able to purchase a comprehensive protection plan for their smartphones directly from Flipkart, and sellers will be able to insure their products against damage during the reverse shipping process.
Garikipati said that while microinsurance built around e-commerce would be a start, Flipkart also plans to quickly enter the general insurance and life insurance arena. Even then, it will stick to curating a few select fonts rather than becoming an aggregator like PolicyBazaar, BankBazaar, or CoverFox.
Flipkart will launch its first products in the area of financial services over the next three months and will target the three main areas it has identified: consumer loans, supplier loans and insurance. The company has already identified three partners to power consumer loans, but did not disclose their names.
“Even within the Flipkart ecosystem, we have a phenomenal opportunity. The goal here is to tap into this latent captive demand, which is a billion-dollar opportunity in terms of consumer finance and so is even for commercial loans. This will remain our goal for the next two years,” Garikipati said.
Amazon, Flipkart’s main rival in India, is also considering an entry into the financial services space largely to address consumers’ lack of access to credit. In the United States, the company has made great strides to enter the financial services space through partnerships, sending the country’s banks and other financial institutions into a state of intoxication, expecting competition from ‘Amazon.
For India, Amit Agarwal, Country Head at Amazon, did not disclose details of how Amazon would address the issue of lack of access to credit. In a recent interview with Business Standard, he said: “If you don’t really have a financial institution that can give you credit, then we will give you credit, because we know you a lot more because you come to us. everyday. ”