ICICI Bank and Paytm have partnered to offer short-term credit to users. The credit given to customers will be interest-free for 45 days and the bank says that it will give loans up to Rs 20,000. Initially, this will be allowed for select ICICI Bank customers who are on Paytm and will be extended to other bank customers as well who use Paytm. Note that in September, the bank said that it would be introducing a product similar to a payday loan and it looks like it has finally introduced the same with Paytm.

Once the credit limit is set up for a customer, a consolidated bill is generated on the first day of the next month, which has to be paid by the 15th day of the same month. Customers can use their Paytm Wallet, debit card or internet banking of any bank for an easy repayment of their dues.

The bank says that the credit will be available to customers 24/7 and the credit assessment is based on a big data algorithm developed by ICICI Bank and will be available on a real-time basis. The credit assessment will be done based on the financial and digital behaviour of the customer which includes a credit bureau check, purchase patterns, frequency of purchase.

ICICI Bank virtualizing credit cards

Note that ICICI Bank has been trying to grow its personal loans and credit card business over the last few months. In August, the bank launched product called Instant Credit Card where certain pre-approved customers of the bank will be able to get a virtual credit card much before the physical card is delivered to them. A physical card will be sent to the customer’s address in 5-7 days.

Meanwhile, the bank’s rival, HDFC Bank said that it would start offering a virtual credit card for customers through its PayZapp wallet, as indicated by this Financial Express report. HDFC Bank has the maximum number of credit cards in circulation with 9.03 million. Meanwhile, ICICI Bank has 4.34 million credit cards.

Other payment players offering credit

In a statement, the companies said that this was the first instance of a commercial bank and a payments platform to offer digital credit in India. However, digital credit as an idea has been picking up in India.

  • Paytm’s rival in the wallet space, MobiKwik has partnered with Bajaj Finance to to bring in credit facilities to a wallet business. Bajaj Finance would extend credit facilities to Mobikwik users, allowing instant purchases and payment option.
  • In April this year, PayU India will be investing $50 million in its product LazyPay over the next few years. Essentially, LazyPay will allow the company to become an underwriter of transactions and charge consumers on a fortnightly basis. The product is aimed at people who transact digitally in the range between Rs 500 and Rs 2,500. The credit facility could extend for amounts from Rs 3,000 and even up to Rs 10,000, depending upon customer behaviour.
  • For the recently concluded festival season, e-commerce player Flipkart started to offer EMIs on debit cards on high-value purchases.

MediaNama’s take

This partnership could be the beginning of how payments banks in the country will start offering loans to customers. Remember, that Paytm has a payments bank licence but they are not allowed to give out loans from their own books, but are allowed to partner with other financial institutions to source loans for them. As such, products on Paytm’s e-commerce arm Paytm Mall could be easily be offered on credit to customers.

Note that Fino Payments Bank said that it would partner with ICICI Bank as well for loan products and has already tied up IndusInd Bank and Reliance Capital.

Expect more such deals to happen now. But building a credit profile will be crucial for offering such unsecured short-term loans. Payday loan companies such as EarlySalary assess a customer with over 800 data points and also takes into account customer’s Facebook friends while building a profile. EarlySalary also indexes a company’s employees on social media and takes into account whether the company is paying salary on time.

Meanwhile, the Reserve bank of India (RBI) looking to open a public credit registry incorporating unique identifiers for borrowers: Aadhaar for individuals, and Corporate Identification Number for companies. The RBI was also mooting for cash flow-based lending for borrowers who don’t have formal credit histories in agencies. In cash-flow based lending, transparency of credit information would serve as a “reputational collateral” for such borrowers.