Flipkart, India’s biggest e-commerce company, is often compared to Amazon or Alibaba. But unlike those companies, which in their early days could piggyback off existing bank and credit-card accounts, Flipkart had to build digital finance along with its ecommerce business: most of its customers had no bank account, let alone a credit card.
Although India’s digital payments landscape has changed beyond recognition since Flipkart launched in 2007 – notably with the advent of United Payments Interface (UPI) and other features of India’s public digital infrastructure – the e-commerce company is still pushing the frontiers of financial access.
Sonal Kapoor, senior director in Bangalore who spearheads the company’s finance businesses, says the company has about 8 million users of its credit servces, and another 8 million using its insurance offerings. Given the company has about 400 million consumers on its platform, she has a huge customer base to grow into.
“We aim to serve at least 100 million people with credit and insurance,” she said, not putting a timeframe on that number. “If we can do that, that’s massive – let alone if we can eventually serve 400 million people.”
These are mostly people who are new to borrowing and insurance, many of whom lack even a bank account. But Flipkart is not new to creating new business segments.
Flipkart’s first fintech need was how to be an e-commerce platform in a cash-based economy. Its founders spent their earliest years physically bicycling books sold on the platform to the up-and-coming technology workers in Bangalore, who had internet connections (usually at work) and enough money to indulge a reading habit.
The company went on to create an online system to make cash-on-delivery efficient, first in cities and then in more rural areas. From there it added prepaid (debit) accounts and online payments, building its infrastructure so that it could eventually handle massive volumes: its first “Big Billions Day”, in 2014, an Alibaba-like consumption binge timed around the Divali holiday, sold $100 million worth of goods in 10 hours.
For the past three years, it has chipped away at growing its credit-card users, providing credit loans (including its own buy-now, pay-later scheme), and selling micro insurance.
The PhonePe era
Its approach to digital payments has gone through two big changes. First was the arrival of UPI. The second was its acquisition and then sale of PhonePe, a mobile payments fintech. The trends are related.
Flipkart acquired PhonePe in 2016. The fit seemed natural: combine the payments with the commerce business. Two years later, Walmart acquired a 77 percent stake in the combined business – a landmark deal for India, marking the first big global M&A into a venture-backed startup.
One of the first decisions under the new management was to spin PhonePe out as an independent company, with the recognition that the two businesses were more likely to grow if allowed to follow their own paths. (Kapoor declined to discuss the PhonePe sale.)
The separation was amicable, although inevitably the two companies are now competing in some areas. PhonePe now has securities brokering and insurance brokering businesses, along with mobile payments, and it has moved its domicile from Singapore to India. Its meant to focus on consumers, while Flipkart’s credit initiatives were meant to serve merchants (such as with its BNPL offer). Walmart remains the biggest shareholder in both.
UPI changes the game
One reason for the sale was that UPI changed the landscape. PhonePe was initially the biggest wallet dedicated to facilitating UPI-processed payments. The government launched UPI only in 2016, as a real-time payment system for peer-to-peer transactions (initially for people with a bank account) and for peer-to-merchant purchases.
Flipkart integrated PhonePe into its checkout process as its UPI payment option, enabling cashless transactions. “We wanted to control the experience and make sure consumers were comfortable,” Kapoor said. “We didn’t want to lose them at the payout stage.”
As UPI’s offerings expanded and its popularity grew, Flipkart used this to improve its customer experience, and work with numerous fintechs and other partners behind the scenes to make the payment seamless and reliable.
UPI is a hit: by 2020, India became the world’s biggest real-time payment market. PhonePe, launched to serve payments using UPI infrastructure, wanted to move its domicile from Singapore to India, to be closer to its userbase. This precipitated the corporate decision to separate it from Flipkart. (PhonePe was most recently valued at $12 billion, compared to Flipkart’s $33 billion.)
Leveraging the India Stack
Once that separation was announced, in 2019, Flipkart pivoted its back end to support other UPI-based payments, and use these to scale commerce. Kapoor notes that there remain around 150 million Indians who shop online but who do not have UPI accounts. (There are about 350 million unique UPI accounts, according to the government, and 550 million online shoppers, according to Flipkart).
UPI has since rolled out new features, including autopay, subscription payments, and payment using a credit card. For companies like Flipkart, these just expand the ways for its users to pay for things on the platform.
“These present new opportunities for us,” Kapoor said. “Someone could set up a grocery subscription through UPI and we can deliver your order to your door.”
Flipkart launched features of its own, including Flipkart Pay Later. “The buy-now, pay-later wave has been amazing,” Kapoor said.
She says the company designed its BNPL offering in line with ongoing regulatory changes issued by the Reserve Bank of India, which has been concerned about some fintechs offering credit. Flipkart relies on banks or fintechs to provide balance sheet for its BNPL offering.
RBI measures have forced some fintechs to stop offering these services, but Kapoor says Flipkart has been able to select players that comply with the RBI’s directives. “Some fintechs can’t extend new loans, so their expansion took a hit, but these are just a small percentage of our business,” she said.
Even before PhonePe’s separation was announced in 2019, Flipkart had embarked on its own moves into credit and insurance, both for consumers and for its merchants. “We can bring bite-sized products, giving them a better experience,” Kapoor said.
For credit, Flipkart works with IDFC First Bank, a privately owned commercial bank. IDFC provides its balance sheet for all of Flipkart’s credit activities, including BNPL and consumer loans. Flipkart handles onboarding and credit scoring, using behavioral data from its e-commerce site.
“Seventy percent of our credit consumers are first-time borrowers, so the only way to understand them is by measuring their behavior on Flipkart,” Kapoor said.
But user behavior isn’t the only bulwark in Flipkart’s lending programs. It also relies on Aadhaar, the identity database that, along with UPI, is part of the government’s digital infrastructure. This makes know-your-customer and onboarding much easier.
The same goes for Flipkart’s emerging focus on credit-card users, particularly now that UPI accommodates payment by card. The company also offers credit cards with cashback rewards via IDFC and Axis Bank, and another for merchants via HDFC.
The site works to accept payments processed by most major international providers – Visa, Mastercard, Diners Club, American Express – as well as RuPay, the indigenous player. RuPay is for now the processor for UPI-enabled card payments, but Flipkart is looking to broaden this to international providers.
“Cards are a great opportunity because penetration is so low,” Kapoor said, saying only 50 million Indians have credit cards. UPI’s acceptance of cards will provide a pathway to growth, in part because it supports larger-sized transactions.
“Credit cards they change the consumer’s thought process,” Kapoor said. “UPI brings trust, and that should help activate more cards in general.”
Cards also feed into BNPL. First-time customers using cards can get a credit line up to $100 equivalent. Users exhibiting responsible behavior can get credit up to $1,000, which they can pay in instalments.
Kapoor declined to quantify loan volumes among its 8 million borrowers, other than to say that consumers that use credit become more frequent shoppers. It’s in this context that she expressed the desire to grow Flipkart’s credit userbase to 100 million people.
Insurance is another growth opportunity but it moves more slowly. “It’s a tougher market to crack,” Kapoor said.
Three years ago Flipkart began to sell warranties on electronic products sold over its platform. Then it added micro-sized health products in specific categories, such as heart attacks.
“It’s too complicated to try to sell comprehensive health insurance. People don’t understand what it covers or how to claim. We create very specific, bite-sized policies. It’s about volumes, not value [amounts].” For example, Flipkart customers can buy accident insurance policies for as little as $1.5, and a merchant can buy cybercrime insurance for as little as $1.
For example, Flipkart might suggest someone purchasing a mattress might want fire insurance for their home, or someone buying a bicycle helmet could be nudged to buy accident insurance.
Whereas IDFC is the tech company’s partner for credit, Flipkart uses multiple insurtechs and traditional carriers for insurance. “Credit is one product; insurance is many products,” Kapoor said, noting the need for niche providers. She says the company has sold about 1 million policies so far across its various insurance products.
Credit and insurance remain Kapoor’s focus for growth, while ongoing upgrades to digital payments always hum in the background. Last year, Flipkart experimented with NFTs and other “metaverse” type offerings. The focus for cutting-edge tech has shifted, however, to RBI’s pilot for a digital rupee.
“CBDCs are exciting, but how will it scale?” Kapoor wondered. Right now, a central-bank digital currency is just in experimental mode, and a long way from impacting sales on Flipkart.
“India’s still a cash economy, with a digital economy that’s been driven by credit cards and UPI. So a CBDC could be the third layer,” Kapoor said, noting Flipkart is studying how to integrate it into its other payment capabilities. “The eRupee is a journey, just like UPI was, so we want to be engaged from the beginning.”