Thread by @jainmayank_943

1/ Thread on our investment thesis in "Payment reward infra".

Thesis in 1-line: There is an opportunity to build pipes (and later on intelligence) between issuers and merchants to enable payment linked rewards at point of sale (PoS).

@Stellaris_VP #fintech #india #infra #BaaS

2/ Definitions first.

Issuer is broadly referred to as any entity like a bank, NBFC or fintech which has issued payments instruments like credit cards, debit cards, pre paid cards, wallets, EMI cards etc.

Merchants could be online or offline, large, mid-sized or small.

3/ Work on this thesis got triggered because of a few reasons:

(A) I enjoy rewards on my HDFC credit /debit cards on large online /offline merchants like Swiggy, Amazon, Croma, Shoppers Stop etc.

However, no such rewards exist at small /mid sized merchants. Likely, manual "partnership /alliances" team approach will not work for long tail

(B) I know of a large credit card issuer which reserves 25 bps of overall portfolio spends on credit cards as budget for giving our rewards to meet tactical goals.

These are the ones you see at OnePlus, Big Billion Day Sale etc.

Spends on credit cards is nearing $200B a year. Extrapolating to the market, this pegs the tactical reward budget at $500M. And this is just credit card.

(C) I got to know recently that 35% of new customers acquired by a leading bank for credit cards last quarter came at PoS.

And I suspect this trend to increase with time, as bank's CASA cross-sell is reaching a ceiling.

(D) One of the other key goals of the credit card issuers is to drive spends on card, as this is directly related to their profitability.

And one of the key ploys used is attractive rewards at PoS for large ticket items like durables, mobile phones, Diwali sale etc.

(E) I find the rewards to have NO personalisation, and I think there is an opportunity to add an intelligence layer which can take the budget and goal from the issuer, and work it's magic.

Eg. To acquire XX new customers with YY profile OR resurrect ZZ customers who are inactive

4/ As we want through the thesis work, we came out VERY positive on the NEED for such an infra from all the 3 sides i.e. issuers, merchants and consumers.

And several of our primary conversation reflected the need.

5/ Following came across as top problems of issuers:

(1) Can only reach the top merchants via Partnerships & Alliances team
(2) Manual reconciliation and processes is a pain
(3) Performance tracking is not easy

6/ Following came across as top problems of merchants:

(1) Reward structuring and form factor (discount, cash back, transaction level etc)
(2) Consumer targeting is poor presently and done manually
(3) Work with top issuers mostly as sourcing rewards is manual

10/ We also go to know that building this infra is indeed in the roadmap of more than 1 payment acquirers who today have a pre-existing merchant network, as well as partnerships with issuers.

They indeed are legitimate contenders to build this.

11/ However, we think that building this infra is not trivial, and such innovations often come from small nimble teams 🙂

We look forward to meeting teams who're planning to build this infra or around adjacencies, and would love to chat and brainstorm. My DM is open.

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