Credit-on-UPI fintech Kiwi rooted in upheavals in economy, co-founder says

Demonetisation and the pandemic drove India's digital transformation in financial services. Companies built unique use cases around UPI

Fintech firm Kiwi’s co-founder Mohit Bedi recalls how spending eight years at a private sector bank starting 2015, through demonetisation in 2016, and eventually the pandemic in 2020 set the tone to venture into building a company from scratch. Today, it offers credit via Unified Payments Interface (UPI) by issuing RuPay cards in association with banks, the first fintech app to offer this service. 

Bedi founded Kiwi in 2022 at a time when debit UPI transactions were reaching new highs and companies used the real-time payments system as a funnel to acquire new customers. 

But there was a catch. Processing UPI transactions do not add to a fintech firm’s topline. Companies along with banks are tasked with taking care of the processing costs of such transactions. This is because of the zero merchant discount rate (MDR) on UPI transactions. MDR refers to the fees charged to merchants for processing a digital payment transaction. 

Bedi, along with former Freecharge chief executive officer (CEO) Siddharth Mehta, and former business head at PayU's Lazypay unit Anup Agrawal took a leap of faith to carve a niche within the larger fintech space by rolling out a product focused on credit being made available via UPI. 

Bedi had earlier worked with Axis Bank as a senior vice-president (SVP) and Business Head - Acquiring and Commercial Cards. 

“At Axis Bank, I was managing all cards including credit, debit, and prepaid. I was managing the P&L, and earned significant experience as a pure-play cards professional. This was also the time when the National Payments Corporation of India (NPCI) was working to create credit layers on UPI,” he said in an interaction with Business Standard. 

To counter the profitability challenge, fintechs had already begun cross-selling other financial services such as lending and insurance to its accumulated user base. Teams at NPCI were working to introduce new cases to enable new age firms earn from digital payments. 

Credit cards on UPI and credit line on UPI were among the ideas that were brainstormed, Bedi recalls. 

“I was trying to help create the RuPay card product. This included what features should be there on it, the interchange or MDR from a bank perspective, brainstorming on the acquiring side, among other things,” he recalled. 

During this time, there was another theme to be worked around. During one of the brainstorming sessions, it was being discussed as to how an application can connect with the bank, the NPCI and the customer. 

“We were trying to understand the gaps, if there was a way to increase the adoption of credit on UPI. You need bank support, a third party application provider (TPAP) support, a tech stack, among a host of other things. But to bring all these three, there wasn’t a right fit in the market since other players were already too big,” he added. 

This was in 2021-22. In 2022, the NPCI rolled out credit cards on UPI products for users. In the following year in 2023, credit line on UPI was introduced. 

Bedi explained that given his experience in cards and an understanding about payments, he thought of starting Kiwi. The company enables UPI transactions and also provides customers use cases around credit on UPI.  It has partnered with Axis Bank and Yes Bank acting as their distribution partners for these banks. 

“We only act as outsourced service providers. When we issue a card with the help of a bank, we basically only manage the relationship,” he said. 

He claims that out of 100 people who download their app, about six to seven customers get a credit card. He explains that this number needs to reach at about 15 to 20 users. 

“Some customer cannot get it for reasons like incomplete know-your-customer (KYC) norms, delinquency, and some are not in the pin codes that the banks service in. But there is an opportunity to expand the number to 20 out of 100 with the help of a secured card,” he explains. 

At present, Kiwi has a base of 1.5 million customers, adding close to 3-4 lakh customers every month, and about 10,000-15,000 credit cards a month. It records about Rs 300 crore in monthly spends, of which about 60 per cent are credit transactions, the rest being debit transactions.