How payments and credit will become contextual and invisible: Raj Kamal interview

Raj Kamal is the Global Head of Strategy and Credit at PayU, the fintech arm of technology powerhouse Naspers. Kamal is responsible for leading business acquisitions and evaluating investments across the payments, digital banking and blockchain sectors.

bobsguide sat down with Raj to discuss why building strategic partnerships is key to future success in financial services.

What is your growth strategy for PayU?

Firstly, we’re targeting key players that are entering emerging markets, such as the Ubers of the world. Part of the strategy is to understand how we can serve these big merchants because they are coming to the same growth markets in volume.

Secondly, we look at consolidation. In many of these markets there are small players who need to come together, and consolidation will happen because this is a business of efficiency. Our strategy is to scale up our payments business.

We will analyse how we move from the payments space to providing credit, because a payments platform provides a fantastic network of consumers and merchants who are transacting with each other.

We process around $20bn of transactions every year. About one and a half million transactions are happening daily. That lends itself to offering credit for many customers, both consumers and merchants. Another driver for us is to analyse how we can use the entire payments processing infrastructure to begin offering credit, especially because credit is not widely available in our markets. Credit cards aren’t available to everyone. Take India for example – there are 25 million credit cards, but there are 270m smartphones. You could argue that everyone who has a smartphone technically should have the ability to get a small loan or credit.  

And the third part of our strategy is to be a fintech investor, given our Naspers pedigree. We love to back entrepreneurs who have the hunger and tech talent to create with new innovative businesses that can make a difference in our markets.

PayU has invested heavily in fintechs, with the largest equity investment to date in Kreditech. What was the motivation behind the investment?

We invested €110 million in Kreditech. Kreditech has a great technology platform that we love. Most of their markets were already overlapping with ours, the motivation is to work with Kreditech to offer credit for consumers who are transacting on our platforms. Kreditech have a model based around cutting-edge technology, and we felt that the team had the hunger and desire to work with us in our growth markets to make a difference in offering credit.

Will we see more investments or collaborations from PayU before the end of the year?

We are committed to backing entrepreneurs and fintech companies in the markets that we are present in. For us, it’s very important that whoever we back or invest in, we also have the ability to help them in terms of actual business.

In today’s society many investors will tell you that the days of only providing capital are gone. You have to provide capital, but also provide other aspects to really help the company be successful.  

We believe that the payments business creates a distribution franchise where you can offer products and services to retail customers or merchants. We would be keen to collaborate with any fintech company in our geography where entrepreneurs have the hunger and passion to create a new business. Wherever we feel that we can help them with access to our customers or distribution, we would be keen to collaborate.

Are you expecting to see your competitors make similar-scale investments in fintech companies?

I don’t think that it’s an outlier. If you would’ve asked me where the world is heading, I would say that payments is becoming more contextual. Payments will happen in the flow of what you’re doing. Credit and payments are not different, you use credit to make a purchase.

Many competitors will be thinking around similar lines. The move towards payments and credit becoming contextual will be something that might be more commonplace than what we see today.

Are there trends that you believe will come to the fore in 2017?

Payments will become more contextual and invisible. The concept of friction when consumers have to pay including remembering account numbers will disappear. We will see innovation happening globally, and in fintech and payments, many of the growth markets will leapfrog on what’s happening.

The best example is China, where WeChat is an amazing piece of innovation, the Chinese platform has gone beyond being just a social app to allow seamless payments. Innovations will expand out of growth markets, and the western world will learn from and pick up these innovations. Whether it’s India or Brazil, we will see advanced ways of thinking and new innovation angles in the market that will allow faster payments.

There will also be more policy and regulatory support to promote access, especially in the growth markets. Nearly half of the global population still doesn’t have access to basic financial services. The infusion of data and technology will make this possible. You will see a lot more policy enablement, both in terms of infrastructure which was been made available, or policy and regulatory support which will drive some of this.

In terms of payments becoming contextual, do you think we’ll see some consolidation in the market? Is that the main battle ground for PayU, and do you think we’ll see a company like PayU looking to improve in those areas?

Is there a part of this business where consolidation will happen? Yes. Payments processing is a scale game, where smaller players come together for efficiency, and then consolidation will happen. Last September we acquired a company called Citrus payments, which was then merged with our business in India to create a bigger and stronger company. This kind of consolidation will for sure happen.

There’s another part which is around fintech and consolidation, and I think the best course would be for companies like PayU to collaborate with these fintech companies and let them retain their entrepreneurial instinct. Too much acquisition can kill creativity. There are ways to create seamless collaborations with businesses, make it stronger through investments, and get the two entities to work together by providing the right connections so that the customer experience becomes frictionless.

What are the major obstacles of moving to a business model that focuses on credit?

I wouldn’t call anything an obstacle, but there are new capabilities which will need to be learned and brought into gear, or certain capabilities will need to be strengthened. In the payments business, the primary customer is the merchant. When you’re offering credit, the primary customer is the retail or individual. They think differently. The appetite for friction is very different between those two.

One of the things that businesses need to scale up on is better understanding of customers and customer experience, because this really gives customers what they want.

The second is that the power of all of this is in the data. If you don’t use newer data sources, you will be limited to doing what banks are doing today. Credit has existed for as long as human existence. The issue is that credit has not been available beyond a particular segment of customers. We believe that with so much data available, and with so much processing power available, there is the ability to understand customers much better. They are in so many transactions, pay certain bills, are on social media, If they are comfortable sharing all of this information with a business because they want credit, then credit should be offered.

Building and strengthening the capability to analyse data and make access happen is key.

The third is for us to learn to partner with banks and financial institutions. In the structure of the financial world, the balance sheet is with banks, and we will need to strengthen our relationship to make this relationship a win-win, where we offer the ability to underwrite or score customers and to give a better experience to customers.

The financial services industry has never had the “I will do it” mentality. The most successful players are those who have built the right ecosystems and find the right partners to be successful with. 

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