As three fintech majors get ready for an IPO later this year, Harshil Mathur-led Razorpay is betting on its product capabilities to stay competitive. Last week, this Bengaluru-based unicorn acquired an AI start-up, TERA Finlabs, to boost its SME lending vertical — Razorpay Capital.
With this acquisition, Razorpay expects to double its monthly loan disbursals from the current ₹300-400 crore to ₹800-1000 crore by the end of this financial year, co-founder Mathur told BusinessLine.
Razorpay gives out loans to small businesses that are already using Razorpay payments and banking services. The company does not have a lending license in India and it basically acts as a bridge between small businesses and banks, enabling loans for small business owners who might not be creditworthy under the traditional bank underwriting process.
This makes loan underwriting the core proposition of Razorpay Capital. A good underwriting process would mean more earnings for the company with each successful loan disbursal and repayment. And so, the primary reason behind TERA Finlabs’ acquisition was to make Razorpay’s loan underwriting faster and better.
Network
Razorpay claims to have 5 million small businesses using Razorpay’s payment services in various forms. This existing network gives them access to interesting data points on SMEs, such as what kind of customers they have, does the business have customers across the country or just one city, the repeat rate of these customers, and whether the customers use iPhone or Android devices, among other things.
“Some of these data points will be useful for lending, some of them will not. But it takes a lot of effort to arrive at that conclusion. You need to have a team of data scientists and analysts, who will look at all that data, give out certain loans, look at the repayments, NPAs and then create this model again. That is the traditional way of doing it,” said Mathur.
With the acquisition of TERA Finlabs, Razorpay will be able to input all this data into TERA Finlabs’ AI model, and the algorithm will churn out a credit score for each SME. The AI model will then keep iterating based on the success or failure of each loan disbursal. As the company disburses more loans, the AI model keeps getting better.
“To ensure that our risk model becomes stronger over time is a very strong addition to us. If we were to do it ourselves, we would have to spend a lot of time and energy to create that whole team and come up with this AI model. But with the acquisition, we get both the team and product, right on day one,” he added.
Funding history
Founded in 2014 by Mathur and Shashank Kumar, Razorpay has raised a total of $366.5 million from marquee investors like Tiger Global, Sequoia Capital India, Ribbit Capital, Matrix Partners, and Y Combinator. About 10,000 businesses are said to have benefited from the company’s lending vertical till now.
Commenting on the upcoming start-up IPOs and their impact on Razorpay, Mathur said that the entire startup ecosystem is excited about the upcoming IPOs, including Razorpay. He added that if the IPOs are successful, it would eventually boost the valuations and fundraising activity for the private start-ups as well. “But I don’t worry about them (Paytm, MobiKwik) as competition, because we are business first company (B2B), unlike a lot of the other players. I don’t think anyone understands businesses as well as we do,” he added.