The CMO Survey - Highlights and Insights Report - Spring 2024
ARAAMPay Customizable Product Suite to Meet Consumer, Merchant and Partner Needs
1. Core requirements Why does it matter
1 Embedded in the purchase flow Financing must be embedded early in the purchase journey to capture core benefits
2
Proven ability to provide a simple and
compelling user experience
Critical to optimize conversion and reduce cart abandonment
Efforts to provide multiple products less likely to succeed
3 Flexible underwriting models
Need to provide a credit decision in real-time
Support broad range of credit profiles (e.g., thin/ no-file)
4 Low friction to implement
Ensure product can be rapidly implemented and scale across merchant sizes with
low effort, high standardization
5 Compete on price
Commoditized product (in short term) will require solution providers to offer low
cost to ensure acceptance
6 Fund merchant incentives
Solution providers are increasingly competing on incentives (e.g., payments to
merchants) in order differentiate
Requirements for BNPL
2. ARAAMPay Customizable Product Suite to Meet Consumer,
Merchant and Partner Needs
For Consumers
Broad product offerings provide flexibility that
fit individual needs. Transparent APRs prior to
checkout.
For Merchants
Products offered without redirecting the
consumer from your site. Transparent MDR.
For Partners
Ability to tailor decisioning and adjust payment
product offerings, including own products
(Rs 1000- Rs
10,000)
EDUCATIONAL WEBINAR SERIES
Rs 25,000 ++
3. Araam Pay Financial offering What It means
Pay in 4
Buy today and pay in 3 equal installments
every 2 weeks at no interest
Pay in 30 days
Buy today , pay after 30 days at no
interest
0% financing needs
Pay in equal installments for 3-12 months
with no interest
>0% financing needs
Pay in equal months for 6-48 months
with an interest rate.
4. Ideal unit economics of AARAMPay for becoming successful in parallel of GMV
% of GMV
Revenue
Merchant Fee 2 - 8% p.a
Late Fee 1 - 2% p.a
Expenses
Net Transaction Losses 1 - 5% p.a
Cost of Capital 15 – 18% p.a
Servicing Costs <1% p.a
Marketing Costs <1% p.a
5. Digital Channels
ARAAMPay Interface
Container-LOS
BRE based
Credit Model
Core Banking Platform of Lender
API’s for
disbursement
post confirmation
Bureau
Check
Geo
Tagging
Other
De-Dupe
Behavio
ral data
Alternat
e Data
Bank
Stat.
Limits set in aap
L M S which
includes
Management,
repayments,
Analytics etc
Default Collections
Default Intimations for collection
Collections
and Escrow
6. Unstructured data,
Natural language Progression,
Social data mining- Processing
• Age
• Location
• Marital Status
• Background-Working/Non Working
Segmentation algorithms
Advanced sampling and
Machine learning
Based credit scoring
Salary
WORKING-CONDITION
EXTREME HOURS
SCHEDULE
EXCEPTIONAL
LOCATION
PEOPLE
FOCUS
Bureau Check
R
WORK
Amount of Loan
Credit and Other
social checks
Age and Marital
Status
Children
Region
Gender Occupation
Predict default Fraud detection Credit scoring Risk management
Credit Model Snapshot
7. • A machine learning model returns a
PROBABILITY of default.
• We have to decide on a threshold value,
above which the loan will be declined.
Clients with a probability of default higher than the
threshold are denied credit.
2% 40% 80%
Threshold:
50%
The decision boundary.
They key revenue drivers for BNPL businesses are –
Merchant Fee – (2 to 5% of GMV) – BNPL as a product is designed in a way where the bulk of the revenues will come from the merchant and brand integrations - often called as subvention in India. This subvention model is one of the key revenue drivers for the incumbent - Bajaj Finance as well where it monetizes via brands or retailers. Now, in online retail most of the consumer brands operate at high gross margins, about 40%+ in industries like consumer electronics, Cosmetics, personal care, and home goods sectors and we predict that this is where the bulk of the revenues can be made. The value proposition of increase in revenues is clear for the merchants and with the increase in digital first brands one can expect merchant fee to be upwards of 2%+.
Late Fee – (1 to 1.5% of GMV) - Late fee is penalizing the customer for missing a payment. This form of revenue channel cannot be very high because it then translates into high net transaction losses.
The four key cost line items that BNPL apps – Net Transaction Losses, Cost of Capital, servicing (collections, disbursals) and marketing
Net transaction losses - (1-5% of GMV) – Net transaction losses is defined as the amount that hasn’t been paid back in 60 days (as per business model) by the consumer. In India, one of the leading costs for lending apps is the default rate. As a benchmark, the BNPL players need to keep the net transaction losses lower than 5% of GMV because above 5% the margins turn sour
Cost of Capital – (0.5 - 1% of GMV) - Today, most fintech’s cost of capital range from18-24% per annum. The way to make this work for no interest BNPL companies is to ensure that the customers are increasing the frequency of the purchase. If the user that has access to a Rs.10,000 credit line for 45/90 days and utilizes over 70% of it on a regular basis, the cost of capital significantly comes down.
Servicing costs (<1% of GMV) – This includes costs like repayment, reminders, disbursals and MDR on the transaction and can range from 1 – 5% per transaction. If most of the repayments takes place via credit cards where the MDR is 2% then the chances for the company to make money on every transaction are slim. If the repayments, are primarily done by debit cards and UPI the costs is lower than 1%. Other costs like SMS reminders, servicing and call centre costs will decrease as BNPL reaches scale.
Marketing (<1% of GMV) – In the initial days, marketing is important to attract both the merchants as well as the consumers. Without the consumers, merchants will leave the platform and without the merchants, consumers will leave the platform. This makes it super important to ensure that enough consumers and merchants are available to keep transactions going.
