Is BharatPe All Set To Be Bharat’s Largest Lending Platform?

BharatPe, a homegrown fintech startup, is reportedly in the advanced stages of talks to secure about 250 million USD in a new funding round led by Tiger Global (1).

The new funding Series E round gives the three-year-old New Delhi-headquartered company a pre-money valuation of 2.5 billion USD. As per sources, the terms may change as the round has not yet been closed.

According to The CapTable (2), which first reported the development between BharatPe and Tiger Global, the round would value the firm at more than two billion USD.

There has been no comment from BharatPe so far on the development.

BharatPe’s Aggressive Aspirations

Founded by Shashvant Nakrani and Ashneer Grover in 2018, BharatPe (3) offers small businesses a single interface for all existing UPI platforms like Google Pay, Paytm, BHIM, MobiKwik, PhonePe, Freecharge, TrueCaller, and other 100+ UPI transaction apps. However, the transaction service does not contribute much to the fintech startup’s revenue because of the MDR, zero merchant discount rate rules.

Reportedly, BharatPe had revenue of 45k INR in FY 2019, its first year of operations. It also reported a loss of 23 crore INR in the same period.

Hence, BharatPe is looking to go heavy on the credit and lending section. The firm has spent its initial two years focusing on customer acquisition, product building, team building, and spreading awareness among merchants about the BharatPe platforms and their offerings.

Notably, until now, BharatPe has secured about 233 million USD in equity and over 350 million USD in debt at a valuation of over 900 million USD in its Series D funding round in February 2021 and about 425 million USD in 2020.

In February, BharatPe took a big whoop towards the unicorn club by securing 108 million USD in a Series D funding round, at a post-money valuation of over 900 million USD. The startup’s existing investor Coatue Management led the funding round, with the participation from its other existing backers, including Insight Partners, Ribbit Capital, Ampolo, Sequoia Capital India, and Beenext.

BharatPe is now eying to scale up its operations and turn profitable by FY 2023. It aims to partner with more institutional debt providers to help empower small Indian businesses by enabling them financial access (4).

Read Also: How BharatPe is revolutionizing the digital payment relation among vendors across India

The soonicorn should now be achieving those goals more effortlessly with its recent acquisition of PAYBACK India and collaboration efforts with Centrum Financial Services. Let’s read on to know more.

Acquisition of PMC Bank

Last Friday, the RBI, Reserve Bank of India granted an in-principle license to Centrum Financial Services, which had bought a struggling bank earlier in 2021, to set up a small finance bank (5, 6).

In September 2019, the RBI had imposed restrictions on PMC, the fraud-hit multi-state urban cooperative bank, including customer withdrawals, following a scam. Consequently, depositors had held multiple protests demanding their investments back.

On 23rd September 2019, the RBI had superseded the PMC board and placed it under several regulatory restrictions after detecting financial hiding, irregularities, and misreporting of loans given to HDIL, a real estate developer.

On 24th September 2019, the RBI had put severe restrictions on the PMC amid the scrutiny into accounting slips.

The RBI, in its in-principle approval notice to Centrum Financial Services, stated that “the RBI would consider granting a license for commencement of banking business under Section 22(1) of the Banking Regulation Act, 1949, on being satisfied with the applicant has complied with the requisite conditions the RBI had laid won as part of its “in-principle” approval.”

According to reports, retail depositors of the PMC Bank will be able to access their deposits as they could before once the deal is closed. However, those with large deposits are likely to face some initial hurdles to avoid running on the entity (7).

At present, depositors can withdraw up to 1 lakh INR, which would cover 84% of the bank’s depositors in full. The present restrictions, the RBI had imposed, are set to expire at the end of the month.

Notably, as of 31st March 2020, PMC Bank had reported total deposits of 10,727.12 crore INR, total advances of 4,472.78 crore INR, and gross NPA of 3,518.89 crore INR. The bank’s share capital is 292.94 crore INR. It registered a net loss of 6,835 crore INR during FY 2019-2020 and has a negative net worth of 5,850.61 crore INR.

The New Age Bank

Commenting on the development, Centrum Group’s Executive Chairman, Jaspal Bindra (8), stated,

“We are delighted that the new banking license would be issued to an NBFC after a gap of more than six years and would like to thank the RBI for the opportunity and their confidence in their venture. We are excited to collaborate with BharatPe to build a new-age bank with a strong team.”

Ashneer Grover, BharatPe’s co-founder and CEO (9), added,

“We are pleased with the opportunity to create a high-performing tech-led Small Finance Bank serving as the payment, credit, and investment requirements of the under-served sections of the society. With the collaboration with Centrum Financial Services, we are confident that we can build a world-class institute that offers an excellent and differentiated experience to small businesses and retail customers.”

The Centrum Group, founded in 1997, has diversified fee businesses and a landing platform for individuals and enterprises. Its institutional services include SME and mid-corporates credit, investment banking, and broking. It also offers MSME credit, wealth management to family offices, microfinance, and affordable housing. Centrum also has an asset management business through which it offers funds across venture capital and private debt.

BharatPe, founded in late 2018, offers financial services to small merchants. It started its journey by offering UPI interoperable QR code, UPI payment-backed merchant cash advance, and zero MDR payment acceptance services.

BharatPe has partnered with Centrum Financial Services for the license. In a statement, the fintech startup called the pair “equal partners.”

Jaspal Bindra, Centrum Group’s Executive Chairman, stated that the two companies would build a “new age bank.”

The collaboration between BharatPe and Centrum Group will collectively pour about 250 to 300 million USD in PMC, Punjab, and Maharashtra Cooperative Bank, over the upcoming two years, as per Ashneer Grover, BharatPe’s co-founder.

Over the upcoming three months, the joint venture is likely to take over the assets of PMC Bank and make it operational while removing the hurdles placed on the lender, including cash withdrawals for depositors.

With the acquisition, BharatPe is now looking to extend its relationship with its over 6 million offline merchants via offering them current and savings accounts and other banking-related services.

During an interaction with the Mint (10), Grover said, “by Q4 2021, we are looking at PMC to be a fully functional and operating bank. However, we will disclose how different depositors will withdraw their investments over the upcoming few weeks. We hope to start offering our merchants account opening and other banking services with PMC Bank on the BharatPe application by 1st January 2022.”

Notably, the acquisition will also enable BharatPe to launch secured loans to its merchants, which otherwise have been largely operating in the unsecured credit space.

“Post the takeover, PMC Bank will expect to provide competitive interest rates to depositors, higher than currently available in the market,” added Grover. “We will provide the best interest rates on deposits to take an aggressive stance to make a difference.”

Grover pointed out that it was among the reasons for the success of several Indian banks in the sector, and we are looking to replicate the same. “We can offer even better than 6% interest rates,” he added.

Moreover, BharatPe’s acquisition of PMC Bank also aligns with its aspiration to create a digital-first bank.

While the fintech startup is looking to launch its existing suite of offerings to the Bank’s existing customers, it will also provide open API, Application Programming Interface to other fintechs and integrate their products for PMC Bank’s customers.

As per Grover’s statement, the firm is looking to build a digital banking product for each depositor segment and build APIs to allow other fintech platforms to create and offer their products for the depositors digitally.

Its acquisition of PMC Bank will not only allow BharPe to provide banking services to its merchants, but it will also improve its ability to lend to its consumer base.

Previously, the fintech startup was lending upwards of 20 million USD monthly to offline merchants before the second wave of coronavirus pandemic hit India.

So far, BharatPe claims to have disbursed more than 225 million USD in credit and has an outstanding loan book of over 100 million USD. Via its QR codes, BharatPe processes transactions worth 10 billion USD annually and expects it to reach 30 billion USD by FY 2023. The company is also planning to secure 500 million USD in debt capital by FY 2023 to fund its credit services.

BharatPe Acquiring PAYBACK India

BharatPe had also acquired PAYBACK India earlier this month from ICICI Investments Strategic Fund and American Express for an undisclosed amount (11).

The takeover is in line BharatPe’s ambition to create a robust and engaged network of more than 20 million small businesses by 2023.

PAYBACK India, launched in 2010, has a network of more than 100 offline and online partners. It offers its consumers to earn and redeem points on every transaction at its partner merchant outlets.

Following the acquisition, all PAYBACK India’s employees are now part of the BharatPe group. Group Presidents Gautam Kaushik and Suhail Sameer, and Sumit Singh, the General Counsel, have joined the PAYBACK India board.

According to the company, the role of PAYBACK India’s senior leadership team will be expanded to also work on the loyalty program for its over six million merchants.

BharatPe will provide “Buy Now Pay Later” credit services, as its first product to PMC depositors, via its recent takeover of loyalty platform PAYBACK India.

Moreover, the takeover will allow BharatPe to create a lucrative set of offerings for end customers, enhancing footfalls at merchants and accelerating their business growth.

At the time, Grover stated (12), “With the take over of PAYBACK India, we can add a different scale to our merchant value proposition. Apart from offering a range of payment and credit products to help merchants scale their business, we can also drive more end-users to their stores.”

He further stated that the startup is committed to building India’s most extensive and engaged consumer network, and this takeover will be a “game-changer” in that view.

Chief Financial Officer of PAYBACK India, Markus Knorr (13), stated, “our users can collect points while shopping online and offline and avail exclusive offers in the usual way, now at even more consumers with BharatPe. We are assured that the great Payback value for users is ensured sustainably and in the long run with BharatPe as the new operator.”

Battle with PhonePe

Walmart-owned PhonePe had filed a lawsuit against BharatPe about two years ago, claiming trademark rights over the suffix.

Reportedly (14), both digital payments companies are finally heading over for a full trial after seemingly lengthy court proceedings.

PhonePe had filed an injunction plea before Delhi High Court’s division bench after a single judge bench denied it last month.

According to a court order, the company has told the court that it does not wish to press the current appeal on injunction but wished an “expeditious disposal of the suit.”

The division bench order stated, “considering the aforesaid limited prayer, we dispose of the current appeal by directing the single learned judge to expedite the hearing and suit disposal. We further direct that no parties shall unnecessarily take an adjournment in the proceedings before the single learned judge.”

The court said, while clarifying the matter, it “has not examined the current appeal on merits and controversy that may surge in the future between the appellant, PhonePe, and third parties shall be decided following the facts of the case and law.”

Commenting on the order, Grover claimed that PhonePe’s suit was “never a case on merit.”

Grover said, in a statement, “I had hoped that after last month’s well-reasoned judgment by Delhi High Court, Sameer Nigam, PhonePe’s co-founder, would have seen the wall’s writing and not proceed with the futile litigation. However, he still chose to file an appeal which the division bench rightfully did not entertain. They were forced to withdraw the appeal petition, bringing down curtains to the injunction proceedings once and for all. I again urge Sameer Nigam, with utmost humility, to create as against fighting.”

According to PhonePe’s spokesperson, the court has “simply directed an expedient trial hearing of the lawsuit wherein the main issue will finally be resolved.”

“We had filed for an injunction over two years ago to get a reprieve until the preliminary trial started. Considering that the injunction ruling took almost two years to come, it had partially lost its meaning because BharatPe continues to plagiarise our mark “Pe” actively. Our main recourse was always to be decided in trial. To that end, we are happy that the court has directed that the matter requires hearing on merit at a legal proceeding that is to be initiated expeditiously.”

On the other hand, in his statement, Grover said they are extending a hand of friendship to PhonePe to withdraw the file; however, PhonePe said there is “no question of settlement” as it is confident “it will win the trial.”

Notably, PhonePe has claimed trademark rights over “Pe” BharatPe using its name in English and Hindi, both in graphic description and text. It had previously sent legal notices to BharatPe, which later changed its logo even as the matter landed in Delhi High Court.

The trials are likely to start in July.

Even though PhonePe is a consumer-focused payments platform, it competes with BharatPe for merchant payments on UPI.

In September 2020, BharatPe took a swipe at Paytm and PhonePe. It disbursed pamphlets and flyers to merchants showing Paytm with the Chinese flag, referring to Alibaba’s investment in the company, PhonePe with the US flag, and BharatPe with the Indian flag. It also distributed similar messaging around Google Pay and Amazon Pay, as they are both US-based companies (15).

In the meantime, PhonePe is also in the middle of an intense battle over its proposed take over of domestic mobile platform Indus OS.

Read Also: PhonePe’s Battle With Ventureast and Affle Over Indus OS Deal

Wrapping Up

BharatPe and Centrum Financial Services are looking to establish an SFB, a small finance bank, in collaboration with a core focus on digital-first banking.

The fintech company has been securing funds since the turn of the year in preparation for its banking play and has been speculated to be taking over PMC Bank since December last year.

Notably, even though India has emerged as the second-largest internet market with over 600 million users, much of it remains offline. The fintech company offers an eponymous service to offline merchants and helps them accept digital payments and secure working capital. It includes merchants running small businesses like neighborhood stores and roadside stalls.

According to a recent report by Global Data and ACI Worldwide (16), India has outpaced the United States and China to become the globe’s most prominent real-time digital payments space, driven by P2P and merchant payments.

BharatPe utilizes QR codes and point of sale machines that support the Indian government-backed UPI payment system to make them comfortable accepting digital transactions.

The company has claimed to serve over 6 million merchants, deploy over 50k PoS machines by November 2020, and allow monthly transactions worth over 123 million USD. Even though it does not charge merchants for universal QR code access, BharatPe is looking to monetize via lending (17).

Additionally, BharatPe is also working to roll out two new applications, one of which is named PostPe, which enables credit on QR UPI, and another B2C app that would facilitate peer-to-peer lending at up to 12% interest. Notably, there would not be any collateral, but the startup will serve as an intermediator (18).

According to the reports, these new products will roll out by the end of this month.