Behind Flipkart’s Big Billion Dreams For Fintech With Super.Money

Flipkart is changing. In July last year, the ecommerce giant took a bigger stride into fintech and was said to be adding to its buy-now-pay-later product. And now, six months later, the company’s plans are solidifying around a new platform called Super.Money. 

Over the past ten months, Flipkart has diligently spent time and resources crafting Super.Money, a credit marketplace, and has earmarked a $20 Mn investment for this fintech product. 

Steering this ambitious project is Prakash Sikaria, senior vice-president at Flipkart, who has led key projects for Flipkart, including its ads business, mini apps, and the Supercoins loyalty programme. Sikaria is leading a nine-member leadership team at Super.Money, as per details available on the fintech platform’s website. 

The maiden offering, personal loans, has already been introduced on the Flipkart app, serving as an initial testbed to gauge consumer interest and traction alongside the existing BNPL products, sources told Inc42, as we looked to dive into the rationale behind Super.Money and its business model.

“Launched in July this year, the initial response in terms of queries has been overwhelmingly positive. The convergence, too, is satisfactory,” one source at Flipkart told us.

Other sources told Inc42 that in early 2021, discussions surrounding PhonePe’s spinoff and Flipkart’s IPO plans hit a snag. According to a former senior executive at Flipkart, this forced the company to restructure its board. 

“The overwhelming sentiment was that Flipkart needed to fortify itself and broaden its service offerings to increase engagement and generate new revenue streams,” the former exec told us. 

The challenge could also be understood by the fact that ecommerce penetration in India stands at a modest 8%, projected to nearly double to 15% by 2027 based on current growth trends. 

Even back in 2021, Flipkart could see the need to plug gaps in its profitability. “The strategy was to address minor gaps first, such as offering insurance across its costly products, expediting the logistics speed while lowering the cost, introducing a proprietary payment solution for end-to-end transactions, and developing additional products in the credit domain besides the existing BNPL,” the former executive explained.

While the bullishness around lending tech is natural given the huge consumer base that Flipkart can target, multiple considerations could derail best-laid plans. 

• There’s the PhonePe connection. The fintech decacorn separated from Flipkart in 2022 and is looking to forge an independent path. Incidentally, both companies are eyeing an IPO in the near future. And as they look to unlock profits, both are stepping on each other’s toes. Will Flipkart’s fintech plans clash with PhonePe, which veered into ecommerce last year with Pincode app?  
• Secondly, Flipkart is entering an altogether new industry — one governed by stringent regulations — and here it would need to bring in experts with experience in the financial services space to lead operations.
  Lending alone will not help Flipkart establish a foothold in the fintech space and it is also eyeing insurance to add to its bouquet. 
• Lastly, but certainly not the least of Flipkart’s potential hurdles, there is the growing competition in the lending space, where banks, NBFCs and hundreds of digital lending platforms would be vying for a piece of the market. The likes of Paytm, CRED, BharatPe, Navi and even PhonePe have made bigger plays for lending in the past couple of years. 

These are some major challenges, but if Flipkart plays its cards right, there is a huge upside.

The ecommerce giant has struggled for years with losses in its marketplace business, despite billions infused by majority owner Walmart. So the lending play and other fintech products will be key to unlocking profitability and could very well define the future of Flipkart.

Let’s look at each of these aspects individually to see how Flipkart plans to navigate the fintech ocean, but first, it’s pertinent to understand Flipkart’s fintech product matrix. 

Behind Flipkart’s Super.Money Plans

As we wrote last July, Flipkart is looking to take its marketplace model to digital loans besides physical products. The ecommerce giant will look to leverage Flipkart and Myntra’s combined user base of close to 300 Mn for the lending play, besides acquiring new users. This plan has culminated in Super.Money. 

But Flipkart is entering a super crowded space. So what exactly will Super.Money be doing differently? 

Sources told us that Super.Money has brought together several resources from Flipkart’s various arms, engaging in the design, development, and rollout phases. Super.Money’s website teases its product with the line “Reimagining Money for the UPI world”. 

Given the UPI mention, the company is likely to roll out a credit-on-UPI product, something which has caught the fancy and attention of many fintech players since it was announced last August. 

For the capital needed to enable personal loans, Flipkart Advanz, Flipkart Group’s financial services subsidiary, has partnered with Axis Bank. At the same time, the user consent and KYC mechanism are being facilitated by another subsidiary, Scapic Innovations, an AR/VR company which was acquired by Flipkart in 2020.

Interestingly, Super.Money’s website indicates that Scapic Innovations will operate the front-end of the lending operations as well. 

Super.Money is poised to expand Flipkart’s financial offerings with an array of personal loan products, cobranded credit cards, insurance and more. Reports suggest that Flipkart has plans to acquire a non-banking financial company (NBFC) licence to enable the lending play. It is also eyeing an insurance broker licence to roll out an insurance marketplace. 

Lending is not exactly new territory for Flipkart, which has had a BNPL product called Flipkart Pay Later since 2017. This was introduced in collaboration with IDFC Bank and Kotak Mahindra Bank. The marketplace also has a cobranded Flipkart Axis Bank credit card, which was introduced in 2019. 

Bank partnerships are critical to lending operations, even if the lending tech platform has an NBFC arm. In this regard, Flipkart has a positive track record. 

Many experts have told us in the past that partnership with multiple banks is key to scaling up the lending play rapidly. This allows digital lending marketplaces to have the right mix of lenders that are targeting customers across segments. 

This is particularly true for Flipkart, which has millions of consumers spread across metros, Tier 1/2 cities and smaller towns, as well as segmentation on the lines of their spending capacity. 

And that’s just the consumer side of the marketplace. In addition, millions of small sellers (merchants) are also familiar with Flipkart’s platform and know that having access to credit lines would plug working capital gaps, which is key to competing with larger brands and sellers on the platform. 

The Flipkart-PhonePe Overlap

Flipkart’s fintech plans are in sync with PhonePe’s plans. If PhonePe wants a piece of what Flipkart does, then the latter is also looking to overlap with the fintech giant.  

PhonePe, once part of the Flipkart Group, separated from Flipkart in 2022 and redomiciled to India ahead of a potential public listing. The fintech giant even entered the ecommerce segment with the Pincode app built on the Open Network for Digital Commerce (ONDC). 

This move has the potential to challenge Flipkart’s core ecommerce business, especially as ONDC allows players to scale up the seller side of the operations without investing heavily. 

Last year, PhonePe also claimed to have reached 500 Mn lifetime users, on the back of which it expanded into ecommerce, insurance, tax payments, investment tech and fleshed out its app store business. It also helped the fintech giant that it raised more than $850 Mn from key investors to build this super app. 

PhonePe is the clear market leader in the UPI space. It processed 4,989.91 Cr UPI transactions worth INR 81.96 Lakh Cr in 2023 (as of November), compared to 3,114 Cr transactions worth INR 55.71 Lakh Cr in 2022. 

While the NPCI has not released the app-wise numbers for December 2023, PhonePe is very likely to continue leading the charts. It accounted for nearly 48% of all UPI transactions in 2023, till November. 

Interestingly, PhonePe is mandated to reduce its market share to 30% by December 31, 2024, in line with NPCI guidelines. Other players would be looking to cash in on the vacuum left by PhonePe reducing its market share, and Flipkart could be one of them.

Besides Super.Money, which is focussed on lending, Flipkart has already secured a corporate agent licence from the insurance regulator IRDA and offers general insurance for a range of its electronic products. 

Flipkart is also seeking greater control and flexibility in the payment space as this allows the company to unlock higher engagement from users and leverage the vast data at its disposal, according to a source familiar with the matter.

A source told Inc42 that Flipkart is planning to acquire a UPI licence, intending to establish a comprehensive payments tech ecosystem comparable to Amazon Pay and others in the space. 

This would encompass bill payments, peer-to-peer transactions, and would ultimately contribute to the development of the Super.Money credit marketplace. The company envisions users utilising its in-house UPI handle for ecommerce transactions, which could potentially reduce cart abandonment and improve checkout conversions. 

ONDC is aiming to expedite ecommerce penetration and take it to 25% of the total retail market. Having ONDC on its side gives PhonePe a major crutch to grow its ecommerce business. So far, Flipkart has not announced any plans to join the ONDC. 

Lending Tech’s Regulatory Friction

Even the most scaled up fintech players have to bear the brunt of regulations. Paytm found out the hard way in late 2023 which derailed the listed giant’s path to profitability built on the back of lending and BNPL. 

Paytm said it would be recalibrating the portfolio origination for loans under INR 50,000. RBI directives to banks and NBFCs to increase risk weights — the amount of cash banks need to reserve to service risky loans — forced the banks and NBFCs to reassess their partnerships and exposure to low ticket size loans. 

As a result, agreements with the likes of Paytm which offer small ticket loans are being reassessed. Flipkart’s track record of tying up with banks for BNPL and cobranded credit cards is healthy, but regulatory challenges can weaken these ties. 

Banks and NBFCs, which were more than happy to disburse capital to lenders during the zero interest rate policy (ZIRP) regime between 2020 and 2021. But since then they are under pressure to show improved profitability and small loans do not contribute to their bottom line significantly, many founders in the lending space told Inc42 earlier. 

Speaking to Inc42, Kissht/RING founder Ranvir Singh added that lending by itself is too big and too ingrained into the economy to slow down. Singh added that the digital lending space is likely to see better governance standards in operations and risk models.

For new entrants such as Flipkart and incumbents rejigging their portfolio, these changes are likely to increase customer acquisition costs. Flipkart’s scale in terms of users would ease the pain to some extent, but the competition is heavy in this space and everyone would be looking to burn money to acquire borrowers. 

Looking For A Competitive Edge

This finally brings us to the final challenge in front of Flipkart — how will the ecommerce giant contend with the host of players in the digital lending space. This includes standalone loan apps, super apps offering personal and merchant loans, NBFCs lending from their books as well as banks that are stepping on the personal loan accelerator. 

One also cannot ignore competition from the likes of Jio Financial Services or Tata Neu, two relatively new players in digital lending. 

The launch of Jio Financial Services remains a threat to the entire fintech ecosystem, while Tata Neu super app is also heavily promoting its loans marketplace, with Tata Capital being the lending partner in this case.

As per Inc42’s State Of Indian Fintech Report, the lending tech opportunity is estimated to grow to $270 Bn by 2030. Consumer lending is the most sought-after segment by Indian startup investors due to the larger addressable market and growing demand for credit-led consumption in India.

Interestingly, ONDC is looking to add financial services to its repertoire in the near future, which is expected to bring in a new wave of fintech apps. How will this change things for Flipkart, which would already be eyeing the hefty competition in the fintech super app space?

At the moment, it’s not clear exactly how Flipkart would differentiate itself from the host of players in this space on the personal and merchant loans side. 

Shopping data and behaviour from both consumers and sellers is likely to be a key data differentiator for Flipkart in competing against the likes of PhonePe Navi, CRED, Groww, BharatPe, Paytm and others. But it’s not clear whether these transactions will be accounted for in the risk assessment and underwriting models. 

Another former Flipkart executive emphasised that Flipkart’s financial products and risk models will undoubtedly benefit from the wealth of customer information available. Das also hinted at possibilities like merchant financing for stock-in-trade, presenting these as plausible directions for Flipkart’s financial services biz.

Further, the company would also have data around which goods and products are seeing the most traction, which would help it finetune the risk models for consumer durable loans and product insurance. 

How Will Fintech Change Flipkart?

Flipkart has to compete with a host of players and acquiring customers for its fintech plays will not come cheap. 

In this regard, the ecommerce marketplace can act as an existing top funnel for Flipkart, But losses on the ecommerce side prove that Flipkart also needs to curb its customer acquisition costs and other expenses on the marketplace front. It would need to do so while bringing in cost efficiencies on the lending side in the near future. 

For instance, in FY23, Flipkart India’s B2B segment saw its standalone net loss surge by over 42% to INR 4,845.7 Cr against a revenue of INR 55,923.9 Cr. This surge in losses was attributed to subdued income growth and increased expenses. 

Lending by itself would not help the Flipkart group back into the black. On a unit economics level, breaking even in the lending space would require at least a couple of years of operations and minimal defaults. 

Given Flipkart’s IPO plans, additional revenue streams are key. Does the company have the resources to break even on both fronts in the short term before a potential IPO?

A former head of KPMG India points out that Flipkart’s existing consumer base may not readily embrace new verticals such as personal loans, given that Flipkart does not have the track record for financial services. 

There’s also the fact that ecommerce-centric super app plays have not exactly panned out in India. This is particularly true when there are two diverse but equally large propositions such as ecommerce and fintech. One of them will need to take a back seat. Which one will it be in Flipkart’s case? 

The biggest super apps in India — the likes of Paytm, CRED, Groww and others — are still centred around a financial services core, with ecommerce and digital services featuring on the periphery to drive engagement and repeat usage. Flipkart cannot afford to think of lending as an ancillary service. Essentially, lending has to become the focal point of the company rather than ecommerce, from a revenue and unit economics perspective. 

An example is Paytm, which is primarily seen as a payments company and has an ecommerce vertical but heavily relies on lending for profitability. At the end of FY23, Paytm cut its net loss by 25% largely thanks to lending growth, which outpaced the payments vertical. 

This is also a challenge that Flipkart would likely face in the long term as it scales up its lending play and ecommerce play. Throw in a potential IPO and the dichotomy between ecommerce and fintech is likely to confuse retail investors even further. Would Flipkart be compared against retail stocks or listed BFSI players such as Paytm? 

Like we said at the top, Flipkart is changing. What we don’t know is to what extent it will give up its ecommerce-first DNA as it pursues its new fintech ambitions.

[Edited by Nikhil Subramaniam]