Reimagining Credit for Digital Economy, Deepak Mendiratta, CEO, PayU Finance

By Puja Sharma

Embedded, ethical, and data-led credit is transforming how SMBs access and repay loans in the digital economy, replacing outdated models with real-time intelligence, flexible repayments, and inclusion at scale

What are some common challenges SMBs face while accessing credit, and how does PayU address them?

I see SMBs trapped by systemic barriers that have persisted for decades: irregular cash flows that don’t fit traditional EMI structures, a lack of formal documentation and banks finding small-ticket loans economically unviable. This creates a vicious cycle where millions of businesses are forced into expensive informal lending. Traditional lenders rely heavily on collateral and structured financial statements, assets that most SMBs simply don’t possess despite running viable, profitable operations.

We have fundamentally reimagined credit for the digital economy. PayU Finance has developed an alternative credit evaluation model that leverages Credit Bureau, behavioural insights and collaborations with ecosystem partners to assess creditworthiness more accurately than traditional methods. Our proprietary algorithms analyse UPI transaction patterns, GST compliance records and payment behaviours to create comprehensive creditworthiness profiles that conventional scoring simply cannot capture.

Our breakthrough EDI (equated daily instalment) model represents a paradigm shift in repayment structures. By aligning daily repayments with actual cash flows, we reduce the interest burden by 7.15% compared to EMIs while eliminating the psychological and financial stress of large monthly obligations. For a `100,000 loan at 21.46% p.a., this translates to savings of `858 annually, significant for cash strapped SMBs.

Through strategic partnerships with platforms like PhonePe, BharatPe, Swiggy, Meesho, PayTM and others, we embed credit directly into merchants’ workflows, eliminating separate applications, reducing paperwork to near-zero and enabling instant decisions based on real business performance rather than historical documentation.

This comprehensive approach has delivered remarkable results: we disbursed $1.1 billion in loans during FY25, with our AUM reaching $560 million. Our merchant lending business now represents one third of total credit originations, demonstrating the massive impact of embedded credit solutions.

How does PayU leverage its ecosystem to deliver embedded credit solutions?

Our ecosystem approach centers on strategic partnerships with digital platforms where SMBs already operate daily. We collaborate with payment providers, e-commerce platforms and QR code
networks to access real-time transaction data that reveals authentic business performance patterns across diverse sectors.

This deep integration allows merchants to access credit without leaving their familiar platforms, a revolutionary approach that eliminates friction while ensuring decisions are based on current
business realities. We analyse order volumes, seasonal revenue trends, customer payment behaviours and platform-specific metrics to make instant lending decisions.

We have already empowered 3.5 lakh merchants with tailored credit solutions and are ambitiously targeting 25 lakh merchants over the next three years. Our merchant lending portfolio is scaling toward `10,000 crore, demonstrating that embedded credit isn’t just convenient, it’s transformational for business growth.

What measures do you take to manage risk or reduce defaults?

Our EDI model is fundamentally a risk management innovation that provides daily visibility into repayment patterns. Missing a single daily instalment triggers immediate intervention mechanisms, payment rescheduling, targeted support or modified terms, unlike monthly EMIs, where problems surface too late for effective intervention.

We employ advanced algorithms analysing diverse data sources: UPI transaction patterns, GST compliance histories, trade receivables, seasonal business cycles and customer concentration metrics. Machine learning models continuously refine these risk assessments based on behavioral insights derived from real-time digital transaction data across our platform ecosystem.

Future integration with Credit Guarantee Schemes and TReDS will further enhance our risk management capabilities while expanding coverage to more underserved businesses, potentially unlocking additional market segments currently excluded from formal credit. Our FIDC-aligned practices prove that responsible design improves borrower outcomes and reduces defaults simultaneously.

Our disciplined approach has yielded tangible results and maintains short-tenure loans, not going beyond 12 months to limit risk exposure. Our proprietary risk models integrate KYC, bureau scores and partnership-derived data, ensuring better underwriting standards while serving underbanked segments.

What’s your take on ethical lending and responsible credit in the digital era?

We believe ethical lending is not just a regulatory necessity but a fundamental responsibility. In the digital era, where access to credit is easier than ever, it becomes even more important to ensure that lending is done responsibly, with transparency, empathy, and a focus on long-term customer well-being.

We prioritise clear communication by providing understandable loan terms, including interest rates, fees, and repayment schedules. Our commitment to fairness means we set justifiable interest rates based on market conditions and the borrower’s creditworthiness, ensuring no discrimination based on personal characteristics.

We emphasise responsible lending by thoroughly assessing a borrower’s ability to repay, avoiding overburdening them financially. Additionally, we educate our customers about loan implications
and provide support systems for those facing financial difficulties. Protecting customer data is paramount, with robust security measures in place to prevent unauthorised access.

Our collection practices are ethical and respectful, complying with all relevant laws and regulations to avoid harassment or coercion. We also ensure full regulatory compliance, conducting regular audits to maintain adherence to internal policies and external standards. By following these practices, we build trust with our customers and uphold a positive reputation.

This demonstrates that ethical lending practices drive sustainable profitability when built on strong fundamentals.

What is your approach to ensuring both speedy and robust credit assessment in your lending framework?

By embedding credit decisioning directly into business workflows, we have reduced approval times to under 24 hours while maintaining thorough risk assessment.

Our platform partnerships with QR code providers and digital marketplaces to eliminate documentation delays by providing instant access to verified transaction data. Advanced algorithms analyse multiple data points simultaneously – payment histories, order volumes, GST compliance – creating comprehensive risk profiles.

This digital-first approach allows us to maintain robust underwriting standards while delivering the rapid capital SMBs need for growth opportunities. The result is a scalable system that can serve millions of merchants with both speed and security.

Our focus on building a regulation-aligned, scalable credit ecosystem ensures we can maintain both speed and institutional-grade standards as we work toward our target of EBIT profitability by FY27.