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Some 200 households in the residential societies along the Baner-Pashan link road in Pune, near Mumbai, have been spared the pain of the sudden cash famine in India.

Demonetization has left all of India gasping. Hundreds of millions of people have been standing for hours at ATMs to withdraw small amounts of cash. They have been struggling with payments for everyday things like grocery which mostly depend on petty cash.

But for the 200 households in a quiet corner of Pune, a solution was already in the making. They signed up back in June for a pilot project with Paylatr, a fintech startup enabling recurring offline grocery payments at neighborhood stores without cash or cards.

Here’s how it works: Paylatr extends a monthly credit of INR 5,000-8,000 (US$74-118) to those who sign up with it. When they go shopping in neighborhood stores that are also on Paylatr, the customers literally pay later for the things they buy.

As CEO, he took one company to an IPO on NASDAQ and another one to an M&A.

The merchant’s invoice goes to Paylatr and it sends a mail to the customer for confirmation. On confirmation, Paylatr releases the payment to the merchant. As for the customers, the credit balance keeps getting deducted with each transaction. At month-end, they can top up the credit with a payment to Paylatr through net banking.

This is a useful mode for digitizing the recurrent grocery shopping scene in India, where credit card usage is scarce and most mom-and-pop stores don’t have card-swiping machines. It has become even more useful since November 8 when India withdrew high denomination notes and imposed a low cap on the withdrawal of cash.

Digital wallet use has risen as a result of the cash crunch, but it requires both customers and merchants to have the app. Also, it involves a transaction with every purchase, unlike the monthly payment on Paylatr.

CEO and co-founder Rohit Bhatia likens Paylatr to Kenya’s Mpesa which started by digitizing money transfer to family members in villages, which was one of the most common transactions that happened periodically. “Paylatr is digitizing transactions between users and kirana stores (India’s version of mom-and-pop stores) which happens multiple times a month; so we’re going after a fundamental need.”

The fulfilment of that need, according to him, can be simpler and safer than with multiple transactions through wallets, QR codes, or cards. Interactions with users have also revealed unforeseen effects, such as financial prudence because of the immediate update on the credit balance after each purchase.

See: India takes a leaf out of China’s book: QR codes everywhere for mobile payments

The milkman growth hack

After a successful pilot in the Baner-Pashan area, Paylatr is expanding to Koregaon Park in Pune, famous for its Osho ashram. But Rohit is cautious about onboarding users. He doesn’t want the headache of having to deal with defaulters who don’t do the monthly top-up.

His initial due diligence process was simple. He went to housing societies and offered Paylatr to family members of home-owners.

Now, he has found another mode to reach users: the neighborhood milkman.

Paylatr has no transaction fee for consumers. It charges merchants a 2 percent fee.

Most households in the middle to lower-middle income groups – Paylatr’s target base – have milk delivered at home in the morning. Rohit discovered that it takes 10-12 days typically for a milkman to collect his payments. Delays happen for various reasons – people may not be at home, they may want to cross-check the records on how much milk was delivered, and so on.

So the milkman has an incentive to persuade households to use Paylatr. They get a line of credit to make the monthly payments as well as a tally of all the milk delivered.

Paylatr has no transaction fee for consumers. It charges merchants a 2 percent fee, which they’re happy to pay because of the ease of payments as well as for enabling customers to go cashless. The milkman pays no fee, however, in exchange for evangelizing Paylatr.

Another startup in India offering a “buy now, pay later” convenience to shoppers is Simpl, but it’s an online play. It plugs into ecommerce sites and provides bi-monthly consolidated bills to users who’re spared the hassle of going through the payment procedure for each transaction. Where Paylatr is unique is that it brings this to the offline world of mom-and-pop stores where it’s needed the most.

There is a Paylater in Lagos, Nigeria, and a PayItLater in Sydney, Australia, which provide short-term loans and credit. Various consumer goods companies offer credit for online purchases. But Paylatr addresses the widespread Indian phenomenon of offline shopping in neighborhood kirana shops.

See: India’s drive against cash opens door for a new bitcoin app

Village Capital incubation

The bootstrapped startup, founded in April, has a conservative target of reaching 25,000 households in a year’s time. This is minuscule in a population of 1.3 billion, a quarter of whom take home a monthly income of INR 40,000 – 100,000 (US$590-1474) – Paylatr’s target market.

“It’s not a business model that scales to millions overnight,” says Rohit. “Growth has to be cautious. Neither do I have the cash for mass marketing, nor do I want to take on the pain of users who’re not paying.”

Paylatr is among 12 startups chosen by Village Capital for its fintech incubation program backed by BlackRock and PayPal.

He sees the startup continuing to grow from one neighborhood to the next, carefully onboarding the right kind of users and merchants. For such a model, community engagement matters more than an ad blitz.

At the same time, Rohit is looking for funding, mainly to expand the line of credit. Because he extends credit upfront to every new user, he needs to have that amount in the bank. Paylatr starts getting paid only at the end of the first month. So a back-of-the-envelope calculation shows a capital requirement of US$500,000 to onboard 5,000 new users, each getting US$100 in credit.

The business model and its social impact have started attracting VC interest. Paylatr is among 12 startups chosen by Village Capital for its fintech incubation program backed by BlackRock and PayPal.

See: 3 trends to watch in payments, loans, and mobility

Slow and steady

The emphasis from the outset on diligence and sustainability is not surprising when you see the Paylatr founder’s background.

Rohit is an electronics engineer who headed value-added services for Bharti Airtel and was an evangelist for the mobile internet at Ericsson. Then he became the CEO of Swedish mobile payments company Seamless, which expanded across Europe, Africa, and the Middle East, and got listed on the NASDAQ OMX.

He returned to India as CEO of music streaming startup Dhingana and led its M&A with Rdio of the US.

It was the five years he spent in Sweden and experience with mobile payments that led him to start Paylatr. It is in fact loosely modeled on a Swedish company, Klarna, which has a pay-later system for shopping on ecommerce sites.

Rohit indigenized the concept for the Indian market where he saw inefficiency in offline grocery payments. The government move to digitize the economy has suddenly made it all the more useful.

He sees new possibilities emerging from digitizing monthly grocery payments. Once a digital payment track record is established, it can be used for loans and other forms of credit as well. But for now, Rohit’s approach is that of the proverbial tortoise that wins the race in the end. Slow and steady.

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