Paytm, a major player in QR and mobile payments, and Shriram Finance, a leading retail NBFC, have entered into a partnership, under which the former’s users will be offered a range of financial services, including small business loans, by the latter.

The core objective is to target small merchants who don’t have assets or documents to avail loans from the formal sector.

Vijay Shekhar Sharma, Founder & CEO, Paytm, said Shriram Finance’s expertise in the space is the key feature in the partnership, which seeks to combine Paytm’s large payment user base and its digital loan distribution technology and Shriram Finance’s deep risk understanding capabilities and strong expertise in collections to extend loans to small units.

Explaining the rationale behind the partnership, Umesh Revankar, Executive Vice Chairman, Shriram Finance, said: “Paytm probably provides the biggest digital platform and has created a strong network. We, at Shriram, have an ambition to reach out to all small merchants across the country. When we wanted to lend to small business people, they don’t have the financial track record or balance sheets. But Paytm’s digital transactions establish some kind of financial record and that helps us to assess the small merchants, he said.

With this tie-up, Shriram Finance will be able to service new kinds of customers including its existing customers such as taxi operators, who are all on the Paytm platform.

A range of products such as FASTag, fuel credits, insurance, etc can be offered to Paytm users and both companies are engaged in discussions for the same. But they are likely to start with small business loans to merchants.

Bhavesh Gupta, President & COO, Paytm said payment information is richer and can be leveraged to assess and provide credit to small businesses. So far it was not possible because of poor payment penetration. Paytm was able to bring the information to understand merchants’ payment behaviour.

The partnership will initially focus on Paytm’s soundbox (a device that helps get instant audio confirmation on every payment received via QR code) merchants. These soundbox customers offered greater potential than others for loans and other products due to better quality in their payment transactions. Paytm has about 3.4 crore merchants, of which about 75 lakh merchants are having soundboxes.

Unlike traditional loans where repayments are done every month, the merchant has to pay every day through various options in this. Typically the loan ticket size for small merchants will vary between Rs.25,000 to Rs.2 lakh.