The HDFC bank has now made a significant play into growth rate by targeting its merchant segment aiming at a ten-times increase in the figure of small merchants to 20 million in the coming three years, said sources at the largest private sector lender.
The bank resorted to the strategic move 18 months ago in an attempt to accomplish the target by providing solutions on accepting payment, providing improved services by creating informative websites, taking care of their inventory, and lending based on the cash flow by one app.
The merchant relationships arise in fees as the services are charged, in interest income for the lending and also in low-cost current and saving account (CASA) deposits.
Approaching growth strategically
The bank is aiming at acquiring a “strategic pillar” with the help of merchant business acquisition, referring to this methodology as a building base for the envisioned target.
“We are serving two million merchants at present and aim to take it to 20 million in three years by the end of FY23,” said a bank source.
The bank formulated the whole framework to expand its reach among the merchant sector, and the addition of value-added services gave a threshold to optimistic plans.
The base of the plan of action is to address its audience with the most straightforward blueprint.
The bank is merging payment solutions, that include the acceptance infrastructure for customers to pay the merchant and also for a merchant to pay the supplier, including the basics of banking, i.e. lending, and having an account at the back-end. It will be an effective way of approaching customers. The customers can handle their loan accounts and make other payments without any hassle.
According to sources the primary emphasis on the merchant sector evoked since the digitization initiated at the merchants’ end and the government supporting the cause of the merchant community by pushing banks to make them a part of formal financial channels.
Interestingly, the interest about what happens in the merchants’ space has been very high, especially after the recent deals struck by the Mukesh Ambani led Reliance Retail and Jio Platforms.
According to data, HDFC’s online application is used by merchants for essential purposes that include buying, selling, and promotional campaigns. Overall the HDFC bank holds 48 percent of the gross spend through cards and one fourth through UPI from the merchants’ end. “We possess the brand recall and a physical network of branches which is helping us get to the merchants as per a locality,” the source said.
It was clearly stated that the bank aspires ecosystem play and is fluidly partnering with the innovators in the existing market. The bank marks this move to be a remarkable one and said to have embarked on their journey to a broader approach.
One of the sources states that the bank has already approved loans to 5 lakh merchants out of a bunch of 20 lakh whom it is currently serving. Strong consumer sentiment has been traced in light of the current framework, which includes the merchant sector that serves a significant chunk to the bank.