Paytm’s latest foray into insurance is a sign of the emerging model

During the week, Paytm announced plans to acquire 100% stake in Raheja QBE Insurance for Rs.568 crore. This is the first case of a digital platform buying into an insurance originator. Here is what the deal is all about and why it is a significant deal for the future.

How the deal will work

Raheja QBE Insurance is a joint venture between Prism Johnson (owned by the Raheja Group) and QBE of Australia. While Prism owns 51% in the insurance JV, QBE owns the balance 49%. QBE is a general insurer that originates and sells non-life policies to customers. The insurer is registered with IRDA and is authorized to originate all kinds of non-life policies for sale in India. For FY20, Raheja QBE Insurance had gross written premium of Rs.158 crore and reported a net loss of Rs.62 crore. What is actually interesting is the 36% growth evinced by the company, albeit on a small base.

The 100% acquisition will be done by QORQL Private Limited, which is jointly owned by Paytm and its promoter, Vijay Sharma. Post the deal, both Paytm and Vijay Sharma in his individual capacity will have a stake in the business. Paytm sees this as an opportunity to marry insurance origination with its already existing digital front end. This will give Paytm a much larger wallet share of each customer, enhancing the overall ROI in the process. But, this is also a signal of how the model is changing.

Backward integrating Paytm

The typical challenge for any insurance company in India is how to create, penetrate and service new markets. As a result, the marketing and distribution plan becomes extremely critical. Paytm is starting the process the other way. Thanks to digitization, it has created a formidable digital front end that covers millions of individual customers as well as merchants. The bigger challenge for Paytm now is to integrate backward and also become an originator of financial products. That is where inorganic acquisitions like Raheja QBE are coming in handy. Indian financial services are increasingly veering towards digital front end sales and that is a natural edge that Paytm already brings to the table. It can use its massive war chest of funds to buy out originators of products like insurance, mutual funds and pension products to give a full suite of financial products and solutions to its customers.

Now for Finance 3.0

From products and process, the Indian financial services industry is making its next major jump. Markets are leading product development and that is the right way. When products and solutions are market driven, there is great degree of sensitivity in the way products and solutions are designed and delivered. Paytm may have just triggered the next big trend in financial services. It will be for the larger good of customers!