Due to limited access to financial institutions, clients in Tier II and smaller cities received more than 80% of the loans disbursed via Google Pay, according to a senior company executive. Currently, the company's connections with lenders cover over 13,500 pin codes, allowing it to dispense unsecured and secured credit.

"If we consider it qualitatively, a user in these places has fewer bank branches and non-banking financial businesses (NBFCs) to choose from. In an interview with Business Standard, Sharath Bulusu, Director, Product Management, Google Pay, stated that digital access is more valuable to them than it is to individuals residing in tier one cities such as Delhi or Bangalore.

At the tenth edition of Google for India, the financial giant announced credit relationships with two lenders. Aditya Birla Finance Limited offers unsecured loans, whereas Muthoot Finance provides gold-backed secured credit. The collaboration with Muthoot would allow Google Pay to offer collateral-based loans for the first time on its platform.

"It allows customers with no credit history to receive loans in a safe and formal manner. Users with some credit history can get better conditions if they choose a collateralized loan. "This is because the lender's risk is lower," he explained.

As part of the agreement with Muthoot, Google Pay would originate loans and facilitate the application process, while the lender would handle underwriting and collection. Following the Reserve Bank of India's (RBI) increase in risk weights on unsecured lending last year, fintechs are more interested in providing secured loans to their consumers. 

"Independent of it, the market has a place for both secured and unsecured loans. For a group of customers with the same credit criteria and requirements, if someone is ready to present collateral, a lender will offer a cheaper interest rate since they have something to fall back on other than a credit history," Bulusu remarked.

Google Pay's credit partnership portfolio currently has five lenders in total. They include DMI Finance, Indifi Technologies, ICICI Bank, Aditya Birla Finance, and Muthoot Finance.

The company will also expand a text and audio-based credit product assistance agent built on Google's flagship Gemini AI (artificial intelligence) algorithms. It intends to expand the agent's regional language support beyond English.  

"Google Pay's AI-powered support guide can now answer users' questions about repayment cycles, eligibility criteria, EMIs and much more, while providing a link to the relevant, detailed terms and conditions," the firm wrote in a post to its blog on Thursday.