Mobile payments and commerce platform Paytm said it has tied up with financial institutions to facilitate collateral-free working capital loans of up to Rs 1 lakh for small merchants and service providers like kirana store owners and auto drivers.

Paytm will pass on the credit profile, which is based on transaction history of the merchants on its platform, to third-party financial institutions, including Capital Float, Aditya Birla Finance and Capital First, for eligibility screening.

“Chances of getting a loan increases as the merchants’ usage of Paytm increases since there is more data available for underwriting,” said Kiran Vasireddy, Senior Vice-President at Paytm. Paytm will, however, not underwrite the loans.

The move will help Paytm achieve its objective of tapping the under-banked and unbanked segments of the population and bringing the small retailers into the fold of organised credit.

The company claims 4-lakh offline merchants already accept Paytm, which will cross 1 million by the end of the year. Gaurav Hinduja, Co-Founder of Capital Float, said Paytm will pass a prepared offer to sellers it considers eligible for loans.

The merchant will then be prompted to download the Capital Float app and apply for a loan. “For us, it opens a new segment of people and we plan to disburse loans sub Rs 50,000 through this tieup,” he said.

Locking in offline merchants and encouraging them to boost sales is critical to Paytm’s growth as it looks to keep its market leadership position in a highly untapped financial tech sector.

The move mirrors that of its investor Alipay, which too offers loans to Chinese customers and sellers within seconds by analysing their transaction patterns on the app. But while Alipay in China gives out loans itself, regulations in India do not allow ecommerce marketplaces or payments bank to disburse loans, which is prompting the company to tie up with institutions.

Paytm said its move goes one level lower and enables a small shop owner to meet his working capital needs, saving him from the clutches of the money lenders. “He now gets access to quick, easy and affordable credit,” said Vasireddy.

Source: The Economic Times