In a move that could disrupt the consumer lending segment, e-commerce giant Flipkart is set to enter the financial services space, offering credit and insurance products to consumers and sellers on its platform.
The Bengaluru-headquartered firm has begun the process of applying for a non-banking financial company (NBFC) licence, which will allow it to open lines of credit to its 100 million-odd customers and over 100,000 sellers. In time, the company will offer these services beyond its platform, taking on firms like Paytm and Bajaj Finserv.
It is also partnering insurance companies to co-create micro-insurance products that will align with a customer’s e-commerce journey, according to the company. “Our vision for fintech at Flipkart is to create highly differentiated financial solutions for our customers, both consumers and sellers, leveraging data and technology to make it very inclusive, simple and transparent,” said Ravi Garikipati, senior vice-president and head of financial services at Flipkart. “A strong understanding of customers helps us arrive at credit-risk profiles very differently and will play a big role in underwriting.”
Currently, over 60 per cent of the consumers shopping on Flipkart do not have any access to formal credit. This deters them from making large purchases on the platform, which, the company says, hinders its growth. While Flipkart has for some time partnered banks and NBFCs to offer customers EMIs on making big purchases, it says a gap still exists.
On the seller front, Flipkart scrapped its lending programme after it witnessed gaps in the speed at which credit could be delivered to them. Garikipati says the new products will reduce the time taken for sellers to access credit from a few days to a few minutes or even seconds. The company is also looking at lending to sellers from its own balance sheet.
“Be it consumer lending or seller lending, we have a hybrid strategy. We are planning to apply for an NBFC licence on our own and when we have that in place, we would like to drive most of the loans using our own balance sheet. It is not exactly a marketplace, but a curated set of partners who will work with us,” added Garikipati, who in his previous stint served as the CTO and head of engineering at Flipkart.
On the insurance front, Flipkart will at first partner select insurers to offer byte-sized micro insurances pertaining to specific purchases on its platform.
For instance, customers will be able to buy a comprehensive protection plan for their smartphones right on Flipkart and sellers will be able to insure their products against damage in the reverse shipping process.
Garikipati said while micro-insurance built around e-commerce would be a start, Flipkart had plans to quickly enter the general and life insurance space as well. Even when it does this, it will stick to curating a select few policies rather than becoming an aggregator like PolicyBazaar, BankBazaar or CoverFox.
Flipkart will launch its first few products in the financial services space in the next three months and will target all three core areas it has identified - consumer lending, vendor lending and insurance. The company has already identified three partners for powering consumer lending but did not disclose their names.
“Even within the Flipkart ecosystem, we have a phenomenal opportunity. The focus here is to tap this latent captive demand, which is an opportunity worth billions of dollars in terms of consumer financing and the same applies for commercial lending as well. This will remain our focus for the next couple of years,” said Garikipati.
Amazon, the chief rival of Flipkart in India, is also mulling an entry into the financial services space largely to cater to the lack of consumers’ access to credit. In the US, the company has taken big steps to enter the financial services space through partnerships, sending banks and other financial institutions in the country into a tizzy, expecting competition from Amazon.
For India, Amit Agarwal, country head at Amazon, did not divulge the details of how Amazon would solve 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 so much more because you come to us every day.”