Offline retail BNPL - a market waiting to be disrupted | Episode #30
Paytail is creating a wave in the segment - one of the fastest growing startups
What do you do when you meet a company growing at >70% MoM in the offline retail market?
You take note! And then you start understanding what they do and how do they do it.
This is what I am going to do in this episode – this is a deep-dive of Paytail, India's fastest growing BNPL stack for offline retail. Within few months of raising their seed round, they have onboarded 15,000 merchants, are doing GMV ARRs of >40mn and as per various conversations with sellers, have increased basket size by a whopping >20%!
In fact, there’s this heartening video (click here to watch), where some of the sellers on the platform talk about how Paytail is positively impacting their business.
It pays to be seller first in a BNPL business.
Note – In case you are a fintech founder, looking to raise funds, I might be able to help. Reach out to abhishek@indiafintech.in. In case you are looking to invest in Indian Fintech, reach out. Would be happy to help.
What exactly is the problem in offline retail market?
There’s one basic problem – every seller wants to increase their sales and profitability by 1)selling more to current customers, AKA higher AOV and 2) converting more customers AKA higher conversion.
The current solutions in the market are highly non-inclusive and lack penetration. Think of Bajaj Finserv and how they are present at the likes of Croma or Reliance Digital or Vijay Sales, but are absent at places where you buy tyres for your cars or when you buy furniture at local stores or when you buy battery for your inverters or even when you take that gym membership. There’s no reason why these large ticket purchases can’t be converted into EMI based, zero cost 3-12 month solution. People would love it. I would for sure.
And yet, there’s no one doing these things. One simple look at below infographics and the sheer amount of white spaces in the segment is staggering.
Loads of white spaces where BNPL solutions are currently lacking
There are some real problems with current solutions, as they are , notwithstanding their lack of depth –
1) Paper heavy process (Merchants have to go through multiple, lengthy documentation to avail services)
2) Lack of zero cost EMIs on all products on offer (these are usually driven by brands subventions, limiting their use)
3) Delayed settlements – merchants have to wait for days, sometimes even weeks to receive payments for the sales done, thus impacting their working capital cycles
4) Low transaction success rates – Reported success rates are less than 30% for offline BNPL players
5) Process with every customer takes ~45 mins on average, thus lacking an ability to deliver a good experience and in the process, losing out on high quality customers who don’t need the feature, but will take it if it’s not a pain – effectively losing out on best of customers and
6) MDRs which impact already thin margins
How big is the market here?
There is one big issue – no EMI based player have been able to target the long tail of retail, offline market in India. The likes of Bajaj Finserv focuses on the top, large stores while the likes of Zest Money, Simpl and almost everyone else focuses on a very thin, online market.
Now, Indian retail market is ~USD1 trillion market. 70% of this spend is on small ticket food, groceries and other necessities. Which leaves ~USD300bn market for large ticket, other spending. And ~95% of this spend is done offline.
Of the above ~285bn market, ~17% of the market (As per BCG Payments report) is being targeted by players such as Bajaj FInserv and a good ~83% of the market, worth USD235bn is there for the taking.
That’s a big, untapped market, waiting for someone to disrupt and make a killing.
That’s what Paytail is doing. They are disrupting how offline sellers sell to their customers, completely paperless, within minutes and by offering 0% EMI product on EVERY product, EVERY sellers. Literally everything.
So, how is Paytail solving for these issues?
Paytail is changing all of the issues described earlier.
They are - Empowering “every seller” irrespective of size and geo, with an ability to offer Instant EMIs.
Interestingly, they offer zero cost EMIs on everything that a seller is selling. With or without brands. And they solve for seller experience by being 100% paperless – merchants gets onboarded within minutes, starts selling within minutes and well, receive payments instantly on every sales.
Now, the above while sounds simple, is revolutionary in many aspects! It’s a product differentiation which can and has been changing lives of thousands of sellers in a very small period of time.
The product differentiation is real and tangible
How does Paytail change lives of customers?
While the company is not focussed on customers per se (they target sellers, who bring in the customers), the experience and overall solution provided to customers is a big positive – ability to offer QR based EMIs on any QR code is one of a kind – they are basically bringing every QR code provider under one umbrella and I do feel this is one area where company will do great going forward.
They also provide zero cost EMI on 3 months for everything and it can go upto 9 months for some brand partnerships based EMIs. For interest based EMIs, which is a big segment where people want longer tenures, there are 6, 9 and 12 months options.
Bringing everything together, while delivering an experience worth repeating, is one of it’s USPs.
Their ratings on Play store is a testament to how much love they are getting from both their sellers and end customers – it’s above 4.6 and 4.7 respectively.
Increased basket size and higher conversions - early signs of success?
Multiple channel checks from sellers have indicated that there is an average increases of ~20% in basket sizes after offering Paytail as a solution and there is a definite increase in customer conversions.
Now these two in itself points towards creation a very tangible moat.
The possibilities are endless here – The network effect that can be created with sellers brining more sellers, customers incentivizing sellers to expand, risk based pricing and so on and so forth.
Their tech stack is pretty solid there, with increased focus on credit and risk policies.
In fact, there’s this interesting way of controlling credit and customer quality in offline retail – since there can be hyperlocallized intelligence and merchants are the ones who desire the solution, they themselves can be incentivized in ways which ensures inflow of only high quality customers. I do have a feeling this is what is driving their significantly higher collection rates than the industry (and hence, lower bounce rates).
In terms of unit economics, there have been multiple debates on which BNPL model works the best. I have earlier written about this extensively here and . The evidence is clear – it’s the merchant led, in-store, offline players who command the best of the unit economics. Combined with higher TAM, higher stickiness and significantly better collection efficiency , this is a segment where multiple winners will be created.
And Bajaj Finance is a glaring example of possibilities here, despite being in a niche, smaller market.
Solid founding team, with decades of experience in building businesses
So for writing this episode, I reached out to Vikas, who is a co-founder and this was clearly one of the most candid conversations I had in recent times. The combined leadership team has experience building firms like C2FO, monster.com, Apple, practo, leadsquared, yatra, Axis Bank and so on. It’s a good mix of finance + tech experience which makes it a good combination to back.
The team (check them out on linkedin using the company page) is a fast paced, execution loving group of people. Sample this – They have a base of 15K+ sellers in less than 6 months of serios operations, set to be 20K+ by Feb end and the growth juggernaut just seems to be rolling on.
Compared to Paytail, other older players in the space have penetrated at much lesser pace despite having clear capital advantages. They have been able to create an organic, low cost acquisition channel in terms of word of mouth and that’s an indicator of early, solid PMF.
Overall, it does look like that there’s a strong, fast growing firm is shaping up. They have raised small amount till date and I would be closely watching them.
Competition is sparse currently
Zest Money, in their latest report, talked about how they are shifting their focus to merchants. They are a consumer, internet first company and it’s going to be interesting in terms of how they approach offline sellers.
BharatPe has also talked about something similar, but then, very less visibility on street for the same.
Bajaj Finance doesn’t really operate in this area and they are man/machinery led model. Going deeper into untapped area is difficult. Also, they are not really the flagbearers of either merchant or customer experience. And they have done amazingly well.
There is a definite space for a solution like Paytail. To become large and disrupt the entire offline retail, long tail market.
Hirings in Fintech
Paytail is looking to hire for multiple positions, including growth and B2B marketing. Please reach out to me and will connect with the founders.
Highradius, a SaaS firm for treasury, O2C and record to report is hiring for multiple roles in product, tech and sales. Please reach out to me in case you are interested.
Dice is looking to hire for multiple roles, including growth head, partnerships and more. Please reach out to me in case you are interested.
Xpresslane is looking to hire a Sales and Marketing Head. Super interesting role with good equity on offer. Reach out to me on abhishek@indiafintech.in and will connect with the founders.
Nimbbl is hiring for multiple positions. Reach out to co-founder, Anurag here.
M2P Fintech is hiring for multiple positions, including a product manager. Reach out to Franklin for this role.
Some of the interesting happenings in the Fintech Industry
BharatPe looks be doing better than what Housing did in being bad. The saga continues. This interview of Ashneer Grover is interesting to read, to say the least.
Pillow, a Singapore-based DeFi (decentralized finance) startup that helps generate yields on crypto, raised $3M in Seed funding. The round was led by Elevation Capital.
Daily gold savings app Jar has raised $32 million in a Series A round led by Tiger Global and participated by Rocketship.vc, Third Prime, Stonks, Force Ventures and existing investors including Arkam Ventures and WEH.
Kissht, provider of instant line of credit to small businesses, has raised Rs 100 crore in funding led by Trifecta Capital and Northern Arc. Both have subscribed to Rs 50 crore of non convertible debentures.
Pine Labs is in advanced negotiations to acquire Setu, the Bangalore-based API infrastructure company. The deal size is upwards of $70 million.
Education loan firm Avanse Financial Services Ltd has raised Rs 357 crore via securitisation transaction from an unnamed global financial institution.
PS - Do reach out for any fintech/crypto related discussion. Would be happy to get on a call and discuss.