Life Insurance Corporation: India's largest insurer company offering bids from its payment aggregator

India's largest insurer company LIC is offering bids from its payment aggregators to enable digital payment of premiums for its over 250 million customers

The Life Insurance Corporation of India (LIC), the country’s largest and over half a century old insurer, has a golden egg for India’s payment gateway operators. LIC is currently inviting bids from payment aggregator companies to enable digital payment of premiums for its over 250 million customers – an opportunity for the likes of Razorpay, Paytm, PayU to pounce upon and gain LIC’s millions of users overnight. 

On February 5, 2021, LIC floated the “request for proposal (RFP)” for a contract which will be valid for five years. The RFP, seen by Business Insider, states that “LIC wishes to avail a comprehensive, fully automated end to end solution for all types of collections of LIC, not limited to just premiums, by integrating LIC’s website with an integrated Internet Payment Aggregator”. 

LIC had earlier floated a similar bid in 2017, but the bid had not seen the light of the day. But now, there are big things lined up for LIC. The 65-year old insurer is headed for a market debut too this year, as announced by Finance Minister Nirmala Sitharaman in her Budget 2020 speech. One of India’s payment gateway operators Razorpay has confirmed to Business Insider that it has been invited to bid for LIC, and will be submitting its proposal in March. However, the billion dollar startup did not share any further details. 

This could be a huge opportunity for companies and payments startups providing access to LIC's over 250 million customers. On February 5, 2021, LIC floated the “request for proposal (RFP)” for a contract which will be valid for five years. The Life Insurance Corporation of India (LIC), the country’s largest and over half a century old insurer, has a golden egg for India’s payment gateway operators. 

LIC is currently inviting bids from payment aggregator companies to enable digital payment of premiums for its over 250 million customers – an opportunity for the likes of Razorpay, Paytm, PayU to pounce upon and gain LIC’s millions of users overnight. LIC had earlier floated a similar bid in 2017, but the bid had not seen the light of the day. But now, there are big things lined up for LIC. The 65-year old insurer is headed for a market debut too this year, as announced by Finance Minister Nirmala Sitharaman in her Budget 2020 speech. 

One of India’s payment gateway operators Razorpay has confirmed to Business Insider that it has been invited to bid for LIC, and will be submitting its proposal in March. However, the billion dollar startup did not share any further details. For technology enthusiasts like Rajeev Suri, the managing director at Orios Venture Partners, the bigger benefit lies for LIC in this partnership. Suri takes a leaf out of China’s playbook to cite the example of Alipay and its success. Alipay, the payments app from Jack Ma’s Ant Financial, used data from the payments vertical to sell more products to users, which eventually led to Ant Financial becoming a mammoth financial company with a valuation of over $300 billion. 

The data that these payment aggregators have, would give LIC the opportunity to direct policies to the right user, making way for a deeper penetration of insurance in India. And it is this disruption of data that is driving the story for LIC. “Today, insurance is mainly used as a tax saving alternative. But with data from these startups will help LIC. That is the data driven magic that happened in China that built the most powerful IPO the world has ever seen. And it could happen with LIC too,” said Suri. 

According to a Goldman Sachs report, the online individual insurance market (life and health) could be worth $1.25bn by FY25, more than tripling from $365mn in FY20. And without a doubt, LIC holds the mammoth share of the market. 

For India’s payment startups, this will be a big chance to gain more users and transactions. In 2019-20 alone, LIC processed premiums worth ₹3.79 lakh crore ($51.7 billion). And this, while India continues to remain a poorly insured country with barely 4% market penetration, leaving a wide opportunity for LIC to grow further. 
India’s digital payment market is projected to grow to be worth $300 billion by FY25, according to a report by Bank of America from January 2021. And at the heart of it are homegrown players like Paytm, Razorpay who will be riding the wave of digital payments. 

For startups, which are still heavily concentrated in India’s bigger cities, working with LIC will open up direct access to users across Tier 2, 3 cities. Suri believes that the startups would become a ‘trustworthy’ company across India as the recognition value of LIC is high. 

So who can bid for the LIC tender? Partnering with India’s biggest life insurer, which is also headed for the public markets in what is called as the ‘biggest IPO of the decade’, won’t be an easy task. LIC in its RFP has already issued an eligibility criteria with multiple factors that each amount to a set number of points. The points will be decided on factors such as the total value of digital transactions done by the company in 2019-20, with over ₹50 crore taking the highest points, number of years of experience in the industry, among others. For a company to win the bid, it will need a minimum of 75 points. 

But that’s not the only hiccup. To bid for LIC means the company would have to first give an Earnest Money Deposit OF ₹10 lakh and the final winner would have to submit a Performance Bank Guarantee (PBG) of ₹10 crore. And all of this makes it a little complicated. "Technically, because of bidding these end up being low revenue opportunities," a source at one of the top payment aggregators told Business Insider on the condition of anonymity. 

Interestingly, there are many more players entering the payments industry with full force. From Mukesh Ambani’s Reliance to the Jeff Bezos-led Amazon have partnered with banks and other organisations, to apply for a new umbrella entity (NUE) licence, which will have powers similar to the apex body National Payments Corporation of India (NPCI), published by - The Beyond News (Business)