Three weeks later, the arrogance gave technique to sudden panic. On 20 June, a Reserve Financial institution of India (RBI) round barred corporations from loading PPIs similar to pay as you go playing cards or cell wallets utilizing credit score strains issued by non-banking monetary companies (NBFCs) and banks. The central financial institution mentioned any such follow, if adopted, ought to be stopped instantly, and non-compliance could entice penal motion below the Fee and Settlement Programs Act, 2007.
In a single day, the round killed the enterprise mannequin of Uni—which tied up with NBFCs to supply BNPL merchandise that successfully labored as ‘shadow’ bank cards.
The RBI laid down a transparent crimson line—a funds instrument can’t be used as a credit score instrument. It was frightened by the growing threat within the system from fintechs aggressively extending unsecured strains of credit score in numerous types.
That despatched fintechs scurrying for canopy. Enterprise operations at Uni stopped. The main target of the corporate shifted from development and revenues to compliance, mentioned a former product govt. “The very first thing we did was change the language on the Uni app, the place phrases like credit score and credit score line have been changed with ‘estimated spend restrict’,” he mentioned.
The corporate, which employs round 300-400 individuals (on-roll and contractual) and operates out of two workplaces in Bengaluru, is at the moment “busy at maintaining its current consumer base engaged”. “The gross sales workforce has been consistently calling prospects to see if they’re going through any points in an try and maintain the shopper base intact,” an worker from the gross sales workforce mentioned.
Even earlier than its launch in Might 2021, Uni was the discuss of the investor ecosystem.
It raised $18.7 million in one of many largest seed funding rounds months earlier than it was up and working. Gupta began the card-based firm when the BNPL area was heating up, with many gamers similar to Slice, Zest Cash and Simpl. He shortly turned the VC (enterprise capitalists’) darling. A couple of months later, in December 2021, Uni raised $70 million in Sequence A at about $350 million valuation; and greater than $6 million in debt just lately. “We need to turn into like HDFC Financial institution and State Financial institution of India,” Gupta would typically inform staff throughout Thursday firm townhalls.
That ambition is now on maintain. The corporate is in a limbo, making an attempt to chart its new journey. The gross sales workforce is present process coaching because it prepares to launch a brand new product, a number of staff knowledgeable Mint. So, what lies forward for the corporate? Its technique within the final 12 months may provide some clues. Mint despatched detailed queries to Gupta on Uni’s buyer base, buyer acquisition value, spends on buyer curiosity, the quantity spent on acquisition of the PPI firm cited above, and future plans, however he declined to remark.
Inside Uni
The primary product Uni launched was referred to as Pay 1/third , which allowed prospects to pay for items in three EMIs over three months, with no additional expenses. If the shopper paid early, she would get ‘1% cashback’. However not everybody may join the cardboard. Solely these with a credit score bureau rating of 750 and above have been eligible for Uni Pay 1/third playing cards. “This was to create a hype and exclusivity round Uni playing cards— one thing on the strains of how Kunal Shah’s Cred began,” a Uni worker, who give up just lately, informed Mint.
However the firm shortly scaled up. “From prospects in a couple of metro cities, we expanded to cities throughout India in three-four months. That’s when the workforce went from 25 to 250,” a former gross sales govt added.
In three months, it was issuing 5,000 playing cards a month; it at the moment has issued 400,000 playing cards until now. The minimal credit score line was ₹20,000; these with good credit score scores even getting round ₹3-4 lakh. The typical credit score line was about ₹1-1.3 lakh.
The corporate additionally launched Uni Pay 1/2 earlier this 12 months. “The primary allowed customers to pay inside two months at zero cost,” one other gross sales govt knowledgeable. Geared toward increasing its consumer base, Uni Pay 1/2 focused prospects with credit score rating within the 680-740 vary. The cashback was 1.2% if a buyer paid inside a month. In Might, the corporate launched Uni Money, the place customers can switch a credit score line straight onto their checking account or to load their Amazon pockets.
Bank card or pockets?
Most customers of Uni playing cards believed they’re utilizing bank cards—not surprisingly, since they’ll pay for purchases later. However these are literally pay as you go playing cards. It’s helpful to think about them as card variations of cell wallets, the place customers load cash from their financial institution accounts or bank cards. The distinction: As a substitute of customers, the fintech pre-loads the credit score line onto the playing cards whereas issuing it to the shoppers.
However what enabled Uni to supply credit score? A fintech must have two to a few partnerships in place to supply such merchandise. First, it wants a tie-up with a financial institution, which can allow it to problem pay as you go playing cards. Second, it wants an NBFC that can provide the credit score line, which is used to load the shopper’s card.
In Uni’s case, it partnered with RBL Financial institution and SBM Financial institution India for pay as you go card partnerships. It extensively rolled out playing cards by way of RBL Financial institution’s PPI. As of now, the corporate has about four-five NBFC partnerships, which embody Liquiloans, DMI Finance, Lendbox and Northern Arc. Someday in April-Might this 12 months, it was “within the strategy of tying up with Aditya Birla Capital,” an individual conscious of the event mentioned.
In keeping with this particular person quoted above, the fintech gave a credit score line of over ₹500 crore because it began operations. Of this, about 60-70% was on Liquiloans, a peer-to-peer (P2P) NBFC that can be favoured by fintechs similar to BharatPe and Cred, the particular person mentioned. A Liquiloans spokesperson declined to touch upon this.
Liquiloans can be on the cap-table (capitalization desk) of Uni. NBFCs in search of a seat on the cap-tables of fintech lending platforms in return of supporting their bold e-book measurement has been a pattern in India for fairly a while now.
As is the case with each different lending fintech within the nation, the partnerships between Uni and its lending companions had FLDG (first loss default assure) preparations in place. That’s to say, in case a borrower defaults, the fintech would compensate the NBFCs. “Some 9-15% of the e-book measurement, ₹500 crore, was spent on FLDG,” the particular person added.
The sport plan
The corporate had two strains of revenues— one was interchange revenues or a reduce on MDR (service provider low cost charge, which is one thing a service provider pays on each transaction) and the opposite was non-interchange revenues, which included late charges and carry-forward charges.
If a Uni Pay 1/third consumer spent ₹10,000, and if he couldn’t repay that quantity inside three EMIs or on the due date, then a flat late charge of about 4% of the transaction value was charged. And, if the consumer didn’t pay the minimal billed quantity, then a carry-forward charge of 4-5% was charged and the credit score rating was affected. Out of the entire 400,000 Uni customers, 60% have been lively customers, the particular person cited above mentioned. Those that availed Uni Money and transferred their credit score line onto their checking account have been charged a comfort charge of 4-7%, relying on the consumer.
The interchange income was about 75-80% of the corporate’s earnings. “Nitin’s focus was at all times to extend the non-interchange revenues as these charges weren’t shared with the lending companions. The goal was to double this income each month,” the particular person quoted above mentioned.
About 90% customers paid three installments on time—which additionally means the ‘curiosity’ was coming from Uni’s pocket. Uni, in keeping with the particular person, was burning near ₹2-3 crore on curiosity each month.
The shopper acquisition value (CAC) was someplace about ₹1,800-2,000 per buyer. On common, a consumer spent ₹13,000-14,000 per thirty days. The corporate’s annual recurring income was roughly ₹3 crore.
Uni’s gameplan was to continue to grow the non-interchange income, carry down the CAC from ₹2,000 to ₹500 and turn into contribution margin optimistic by FY2024.
And so, as a way to carry down prices, Uni made its first wager within the type of buying a PPI.
It acquired PPI-licence holder Weizmann Impex Service Enterprise Ltd in June. In March, Uni co-founders Nitin Gupta, Prateek Jindal and Laxmikant Vyas have been inducted as administrators of Weizmann. A RoC (Registrar of Corporations) doc, dated 1 June, exhibits that Gupta took over as its CEO.
Whereas the acquisition quantity isn’t clear from the RoC paperwork, the deal is anticipated to be within the vary of ₹30-40 crore, in keeping with two individuals conscious of the event. Uni would have used this PPI entity to problem pay as you go playing cards to its customers—slicing value and its dependence on RBL Financial institution and SBM Financial institution India. Uni funded this acquisition from the debt it raised from Stride Ventures, in keeping with individuals conscious of the matter.
The deal was closed simply three weeks earlier than the RBI’s round. The acquisition is of no use to Uni now.
Plan 2.0
So, what lies forward for Uni? A number of individuals within the know say that Uni is planning to give you bank card and private mortgage (below Uni Money model, the place the mortgage might be straight transferred to the shopper’s checking account) merchandise —once more an area catered by the likes of Cred, Paytm, BharatPe and plenty of others.
In keeping with individuals conscious of the matter, Uni was supposed to supply loans at zero curiosity payable at 3 months/6 months/ 9 months. “Uni gained’t sacrifice the USP of interest-free EMIs. Slice began charging curiosity put up RBI’s round and it created a little bit of chaos. So, Uni gained’t change until one thing actually dangerous occurs on the regulatory entrance,” the product govt mentioned.
“The imaginative and prescient of Uni is to turn into an enormous lending and fintech firm, the place it is going to have a number of merchandise catering to a number of buyer classes. They have been even planning to give you a steel card, which can get them a verified buyer base, with advantages like journey, luxurious and way of life,” one other former worker claimed.
Parijat Garg, former vice-president of Crif Excessive Mark credit score bureau, defined that the credit score market is underpenetrated. Regardless of many gamers, digitally there’s big unmet demand. “Uni is now acknowledged as a playing cards firm. Customers don’t have a nuanced understanding of what’s a pay as you go card or a bank card. But when tomorrow Uni comes up with a bank card, then customers will relate with it. With that thought, it’s a proper technique to go after.”
Whereas the non-public mortgage enterprise is a pure plan of action for Uni, the bank card phase entails a a lot increased burn and a nine-month internet detrimental enterprise for anybody, Garg added. “Because of lots of compliance value and better CAC concerned, this may delay the breakeven goal as you must consistently spend on advertising in order that prospects maintain utilizing your card and give you gives to maintain them intact. Uni has created a place for itself as a BNPL and what they’ve to take a look at is cracking the bank card area in a cheap method,” Garg mentioned.
As well as, with the RBI’s bank card co-branding pointers (issued in February this 12 months) in place, unregulated fintechs won’t be able to entry buyer transaction knowledge—which implies fintechs’ USP of customizing options and gives for purchasers will go away. With a view to maintain the info entry intact, most of those corporations will search for NBFC licences which can assist them work within the regulated atmosphere. Uni, in keeping with a number of individuals conscious of the matter, utilized for a recent NBFC licence in December final 12 months, because it wished to carry down its value of capital under the present 12-15%.
Solely time will inform if companies that entice prospects by burning money might be sustainable or not.
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Supply: Live Mint