Can Freecharge’s strategy for recovery enable it to close the gap with its fintech competitors?

Can Freecharge’s strategy for recovery enable it to close the gap with its fintech competitors?

Freecharge, one of the pioneers in digital payments, has faced challenges over time due to changing ownership and regulatory hurdles, resulting in a loss of its distinct identity. However, with its neobank aspirations temporarily on hold, Freecharge has devised a fresh strategy focused on lending, cards, and UPI use cases to reclaim its position in

Freecharge, one of the pioneers in digital payments, has faced challenges over time due to changing ownership and regulatory hurdles, resulting in a loss of its distinct identity. However, with its neobank aspirations temporarily on hold, Freecharge has devised a fresh strategy focused on lending, cards, and UPI use cases to reclaim its position in the market and regain its former vibrancy.

When Freecharge was acquired by Axis Bank from Snapdeal in 2017, it expressed its determination to operate as an independent entity. Despite being part of the Axis Bank umbrella, Freecharge enjoyed the freedom to function as a separate business. This presented a golden opportunity for Freecharge to build a robust digital platform, regain its brand identity, and compete with leading fintech players like Paytm, BharatPe, PhonePe, and MobiKwik.

However, despite being a profitable firm, Freecharge faced intense competition, declining valuation, and operational challenges, which hindered its growth. As a result, Freecharge transitioned into a technology service provider (TSP) for Axis Bank and had to shelve its ambitious neobanking plans due to regulatory uncertainties.

What lies ahead for Freecharge, backed by Peak XV Partners (formerly Sequoia Capital India and Southeast Asia)? The company has undergone realignments and focused on building capabilities in lending, cards, UPI use cases, and merchant business over the past year.

Although some of its initiatives were impacted by regulations and internal responsibilities, Freecharge is now unveiling a new strategy. This includes the relaunch of products like a co-lending platform for personal and merchant loans, a buy-now-pay-later (BNPL) service, and a payments gateway.

Additionally, Freecharge plans to enhance its digital credit cards and UPI use cases. Mohit Jain, the newly appointed MD and CEO, acknowledges that the company could have pivoted more swiftly and there were challenges to address. Nevertheless, Freecharge is determined to overcome these obstacles and chart a path towards success under Jain’s leadership, following his appointment in April.

Scaling back on neobanking aspirations

Freecharge had ambitious plans to enter the neobanking space, offering its existing customers a range of financial services including fixed deposits, lending, buy-now-pay-later (BNPL) options, digital credit cards, and investment opportunities such as mutual funds and digital gold. The company conducted closed user group testing for its neobanking product in late 2021, with thousands of users signing up.

However, due to regulatory uncertainty surrounding neobanks in India, the launch of the product has been put on hold indefinitely. Freecharge’s new MD and CEO, Mohit Jain, explains that the framework for neobanking is undefined for fintech companies, making it challenging to create personalized products without the ability to store customer data.

Additionally, Jain emphasizes that Axis Bank, under which Freecharge operates, already has a robust banking app, making the creation of a neobank redundant. While the neobanking ambition held the potential to strengthen both Freecharge and Axis Bank, it will have to be deferred for the time being.

Breathing new life into past concepts with fresh strategies

Embracing a fresh start and reimagining its operations, Freecharge has undertaken a significant overhaul in the past year. This began with the separation of its consumer and merchant businesses, paving the way for a more focused approach. The company is now poised to double down on lending and closely monitor emerging segments such as credit on UPI.

In addition to these changes, Freecharge is also planning a revamp of its app under the leadership of CEO Mohit Jain. With a specific focus on addressing the financial service needs of salaried individuals earning between Rs 1.5 lakh and 10 lakh annually, Freecharge has launched various initiatives. This includes a co-lending platform for personal and gold loans, as well as Freecharge Pay Later+, a small-ticket lending product designed to cater to short-term capital requirements.

Recognizing the potential of small and micro business owners, Freecharge introduced the Merchant Cash Advance product, leveraging QR codes. Although the co-lending platform and Pay Later product experienced a temporary pause to align with digital lending guidelines, they are set to be relaunched in the current quarter after refinements and enhancements.

Notably, Freecharge has witnessed traction in transactions from its merchant business, contributing to over 7 million unified payment transactions in FY22. While Axis Bank currently serves as Freecharge’s proprietary lending partner, the company may explore collaborations with other lenders in the future based on the traction and scalability achieved.

CEO Mohit Jain expresses confidence in the company’s lending prospects, outlining the goal of reaching the milestone of disbursing the first Rs 200 crore. Subsequently, Jain anticipates rapid growth, aiming to surpass Rs 500 crore to Rs 1000 crore within a year. With a cautious approach to risk outcomes and an eye on sustainable credit-cost behavior, Freecharge is poised to navigate the lending landscape with resilience and strategic partnerships.

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