Fintech Tracker: FreeCharge Doesn’t Want To Go Where Paytm Does

Like the competitive, evolving payments business it operates in, FreeCharge Payment Technologies has gone through several transformations. What started in 2010 as an online prepaid mobile recharge app has morphed into a mobile wallet now trying to cross-sell financial products.

While Freecharge, now owned by Indian e-commerce company Snapdeal, and rival brand Paytm, that lists Chinese ecommerce giant Alibaba Group as a major investor in its parent company, were founded in the same year, their growth stories have diverged.

Paytm claimed over 17.7 crore users at the end of 2016. In a blog post earlier this year, Paytm said it recorded over 100 crore transactions last year. FreeCharge claims to be India’s number one payment app on its website, but refused to share information on its user base and transactions.

Karthik Rajeshwaran, director of strategy at FreeCharge, said the company does not need to go head-to-head with Paytm in the payments space.

Rajeshwaran pointed out that Paytm, now also a payments bank with a financial inclusion mandate, is trying to expand across rural and urban India to reach out to the unbanked. Freecharge’s goal is different, he said.

FreeCharge’s customer acquisition strategy has two aspects. One, the company believes that individuals already transacting online will be more willing to try out a digital payment option. Two, such consumers are likely to consider buying products and services on the e-commerce platform of its parent Snapdeal, said Rajeshwaran.

The strategy is not unique. The payments business is considered by most as a means to an end as the margin per transaction is wafer thin universally. The objective for most service providers, and wallets in particular, is to get their users to buy products and services on their platform. This helps them earn revenue from distribution charges. In other words, the payment company earns a percentage of sales as commission from the merchant or platform it has tied up with.

“Payments is a pennies business, and how you actually make money is when your existing consumers buy more and when they consume more products across your platform,” said Rajeshwaran. He is quick to point out that FreeCharge does not intend to “drive user monetisation”, but rather to grow the customer base and ensure high levels of user experience.

The other major wallet companies, Paytm and Mobikwik, either have their own marketplace or offer products and services through merchant partnerships.

So what is FreeCharge doing differently?

Trying To Stand Out In A Crowd

FreeCharge believes that it can leverage big data, collected from usage patterns of its customers, to offer financial products. It offers a mutual fund product on its platform through a tie-up with Reliance Mutual Fund.

Users of the mobile wallet can invest in a money market mutual fund scheme with an initial payment of Rs 500, and subsequent installments of as low as Rs 100, according to information on FreeCharge’s website.

The company next plans to launch a Re 1 systematic investment plan, and is working out the necessary approvals with market regulator Securities and Exchange Board of India, said Rajeshwaran.

It intends to bring this product customisation to insurance products as well. FreeCharge sees an opportunity in the extremely low level of penetration of insurance in India and intends to launch general insurance products over the next few months. These products will not just be listed on the FreeCharge platform like certain other portals do, he said.

“We don’t want to be another Paisabazaar or Bankbazaar.com. The idea is that we want to work very closely with insurance companies to tailor specific products to cater to this consumer segment,” said Rajeshwaran.

FreeCharge also plans to launch consumer credit for products that it sells on its platform through tie-ups with non-banking finance companies.

In the competitive payments business, no offering remains unique for long. Mobikwik offers life insurance products through tie-ups, and is reportedly planning to launch mutual fund products and financing options. Paytm, like its payment bank counterparts, is expected to offer several financial products on its platform.

FreeCharge hopes to beat them with customised products and improvements to its primary offering – payments.

“It’s (about) actually working with our merchant partners, be it bookmyshow.com, be it someone in the travel segment like a cleartrip.com, as to how to make a consumer move from a one-click payment to a no-click payment. There is no reason why you should even click on a payment if you are a prior user of Freecharge,” said Rajeshwaran.

The Law of the Jungle

Aditya Puri, the managing director of one of India’s largest bank, HDFC Bank, recently said, “I think wallets have no future... there is no money in the payments business.” Puri was referring to mobile wallet companies, saying their losses suggested that the wallet as a valid economic proposition was doubtful.

Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services LLP, agrees that mobile wallet companies may not survive for long.

Banks have reacted strongly to the challenge by launching their own e-wallets and improving their mobile applications, he said. Introduction of payment infrastructure like the National Payment Corporation of India’s Unified Payment Interface (UPI), and Aadhaar-enabled payments is likely to make wallet companies redundant.

The real winners, Parekh said, will be the telecom companies–Vodafone India Ltd., Bharti Airtel Ltd., Idea Cellular Ltd. and Reliance Jio Infocomm Ltd.–all of whom have a payment bank licence or a tie-up with a company that does. These companies, he said, own the infrastructure on which the payment process is predicated, and will likely take the market by storm.

This report is part of a series profiling fintech firms changing the way financial services operates in the India. The series will play out every weekend on Bloombergquint.com