Inception
BharatPe took off its first steps in 2018. The duo complemented each other – Ashneer Grover, an experienced veteran for over a decade and Shashvat, just a college student.
Ashneer, an alum of IIT Delhi and IIM Ahmedabad, previously had done multiple stints. After working as a VP at Kotak Investment banking, he moved on to become the director of Corporate Development at AMEX. Here, he worked on Payments and Fintech for AMEX in India and also led Series B investment in MobiKwik.
Raising funds for Grofers, an online grocery delivery startup as a CFO, allowed him to network with a lot of investors.
Ashneer’s relationship with payments continued as he joined PC Jewellers where he led the digital transformation for the company. He added new payment options such as PhonePe, Paytm and PineLabs to grow PC Jewellers’ business.
Meanwhile, Shashvat who was still in the third year of engineering in IIT Delhi was working on an idea that could revolutionize payments for merchants in India. 5 boys in a college dorm, who had never built a platform, leave alone payment API, had built an MVP(Minimum Viable product), a UPI payment processing module operating, within a month.
Ashneer met Shashvat since he was looking for a good angel investment deal. He joined Shashvat. And that’s how BharatPe was born.
Dream within a Dream
Though BharatPe was entering a competitive space with the likes of Paytm and PhonePe, the company had a clear differentiation. At the time when BharatPe was trying to raise seed money in 2018, PayTM and PhonePe were already at a valuation of $15Bn and $10Bn, respectively.
BharatPe simplified the process of accepting payments from customers for merchants running small and medium businesses.
The company rolled out one of a kind interoperable offline UPI QR.
It grabbed the opportunity created by the government’s initiative for improving payment acceptance infrastructure and the launch of BHIM-App. BharatPe reached 50% market share in offline UPI transactions, surpassing the Government’s BHIM.
But what exactly did BharatPe do and how was it different?
Consumer-focused payments companies like Walmart-owned PhonePe, Amazon Pay and Paytm were focused on payments to happen on their closed network. For example, PhonePe users can only use apps with customers and merchants who also use PhonePe.
If you visit a grocery store near you, the chances are that you’ll see at least 5 different QR codes to cater to different user preferences or you’ll see just one QR code made by BharatPe. For the shopkeeper, it’s cumbersome to keep 5 different accounts with different companies to accept payments online.
What BharatPe did is that it made a single QR code sticker through which merchants can accept payment from 150+ UPI apps, directly and immediately in their bank accounts, without a delay.
And that too for zero fees.
Bull’s eye on niche
Though India has emerged as the second-largest internet market, having more than 700 million users, much of the country still remains offline.
Among those individuals who can’t access the web are merchants running small and medium businesses, for example, roadside tea stalls and the ‘kirana’ stores.
This untapped space is being targeted by a large number of startups.
PhonePe and Google Pay dominate the customer-facing side with around 80% market share, followed by Paytm.
When these players were busy focusing on the P2P side, BharatPe’s razor share focus on the offline P2M(Person to Merchant) space, unilaterally paved its way into the big boys club. It introduced interoperable QR code stickers and point of sale (POS) machines to overcome merchant’s challenges with payments technology.
While P2P UPI drove up the customer adoption volumes, P2M has spearheaded the digital revolution for merchants in India.
100% of BharatPe’s volume is through P2M that is a smaller ticket size. The average ticket size of P2M is Rs. 650 vs Rs. 2700 for P2P (because many purchasers use UPI for business payments replacing IMPS).
BharatPe competes with Pine Labs and Mswipe, as they also followed BharatPe’s steps by rolling out interoperability.
Guardian Angel
Hugging the monumental embrace of their QR codes by merchants, BharatPe raised its seed round of $2M from VC- Sequoia Capital and Beenext on 1 October 2018.
These VC’s trend prediction hit the bull’s eye when UPI transactions in India overtook credit and debit card payments in October 2018.
QR Code Street Fight
All payment companies were trying to plaster their QR codes on the kirana store’s doors.
Challenged by BharatPe – PhonePe launched interoperable QR codes in January 2019 and was signing up merchants fast. Paytm was also testing interoperable QR code for merchants.
At that time, BharatPe did 0.1M transactions/day as against 0.2M transactions per day by PhonePe.
The power of compounding
Scale brings funding, bringing more scale.
BharatPe has raised $268M in equity and debt so far—across six rounds in just three years, each raise compounded to its scale.
Series A round of $15.5M from Sequoia Capital and Bee Next(Apr 2019) was followed by the presence in 11 cities, transforming payments for over 600K merchants.
Soon after it raised Series B funding of $50M led by Ribbit Capital at a valuation of $225M (Aug 2019), BharatPe saw a massive adoption by 1.5M merchants on its platform and processed 18M transactions per month.
To expand the army and to raise funds for its lending portfolio, BharatPe raised $75 M in Series C, at a valuation of over $400 M (Feb 2020) led by New York-based hedge fund Coatue Management and the existing investor Ribbit Capital. BharatPe democratized payments for over 3M merchants in 30 cities.
BharatPe’s foot army of 3000 sales personnel played the key role in the master plan of acquiring merchants, which was only the beginning. Looking at massive growth, paying the sales staff Rs. 20,000 – Rs. 40,000 per month clearly paid off.
They also roped in the Bollywood star Salman Khan as a brand ambassador to reach his fan following in small towns.
Speed and simplicity was the game-changer. The merchant onboarding process takes just a few minutes using only 4 data points.
Pandemic brought down the transaction volumes of BharatPe. But at the same time, the average transaction value increased from Rs 300 to Rs 660.
Unlike other sectors, pandemic accelerated the UPI payment’s sector ahead by many years, since people wanted to avoid dealing in physical currency.
UPI transactions in India crossed a historic feat of 2Bn transactions in October 2020, validating that BharatPe was in the right place at the right time.
Late mover advantage
P2M crossed 40% of overall transaction volume in Nov 2020, of which BharatPe has captured an all-time high of 5% market share by transaction and 7% market share by transaction value.
With this, BharatPe claims to have taken over Google Pay to become the third-largest player in the merchant UPI payments.
Growing at a rocket pace, has processed 60M transactions/ month in November 2020.
Further, the company claims that the volume of transactions processed by BharatPe last month was greater than the combined UPI P2M transaction volume of Jio, Zomato, Swiggy, CRED, Flipkart, Cashfree, IRCTC and MPL.
BharatPe perhaps has the late mover advantage in the space. It was one of the first companies to be a universal consolidator of QR codes on UPI (eventually others followed). Unlike its peers, BharatPe did not need to educate the merchants since it was merely following its larger peers who had already educated the merchants.
Raining money
BharatPe recently raised $100m, led by Coatue, valuing the 3-year old startup at $900m.
And also raised $35 million through venture debt from Alteria Capital, InnoVen Capital, Trifecta Capital, and ICICI Bank.
BharatPe gave 80x ROI to 18 angel investors. Startups usually take 8 years to gain the unicorn status that BharatPe is close to achieving in just 3 years.
Interestingly, BharatPe could have achieved unicorn status but the company didn’t want the same. They felt that they are still just around two years old and getting a unicorn status changes a lot of things internally and externally.
Yet no money in payments
Usually, payment platforms charge a cut (around 2.5%) of the transaction amount from the merchant. For eg. If you pay Rs 100 to your grocer through payment platforms, the grocer will receive Rs 97.5 after the cut. This charge is called Merchant Discount Rate (MDR).
BharatPe not only made the process easy for business owners but also kept the MDR as 0, meaning they don’t charge anything from the merchants. This brave move was even before the government revoked MDR charges from January 2020.
BharatPe showed revenue of only Rs. 40k in the first year FY19.
By design payment companies are utility companies which means no or low margins. There is no way to make money in payments.
So how does this company earn?
Enabling payments free of cost was just a vehicle. It hustled on the streets of India to build trust and strong relationships with small business owners – hooked them to their QR Code to upsell their POS/card swipe machines for card payment acceptance and lending product line.
Secret weapon: Lending
Sitting on a mountain of transaction data history, BharatPe had a strong foundation to introduce financial products like loans to small businesses, credit cards, bill discounting insurance, and digital gold.
BharatPe’s lending business started in Mar 2019, in a partnership with Apollo Finvest to start pilots in merchant loans.
It is in the process of applying for an NBFC license. It also filed a joint bid with Centrum to acquire the troubled PMC bank – if accepted, BharatPe will be the first fintech with a banking license in India.
Though lending is the focus for many upstarts, BharatPe gives small-ticket loans to the most underserved, untapped and underpenetrated segment by way of unsecured working capital loans.
Loan of ticket size ranging from Rs. 20k to Rs.700k is given for up to 12 months at 18-24% interest. Borrowers can apply for the loan on the app and BharatPe deducts a small part of regular transactions as a form of repayment, again reducing hassles for the merchant.
As of Feb 2021, the company has lent money to over 100k merchants across 75 cities across India. Segments leading the credit demand are groceries, food and beverages, fashion and retail.
Having visibility of the merchant’s transaction history strongly positions BharatPe to gauge the borrower’s ‘ability to pay’ and ‘intention to pay’ – reducing the risk of bad debts. Its collection rates dropped to 20 % for two months during Covid-19, however, has stabilized to 97.7% thereafter.
Even though BharatPe had a late mover advantage in the QR code ecosystem, it is not immune to the competition in the lending business. It competes with Paytm, Capital Float, Indifi, Lendingkart, FlexiLoans, ZipLoan, Paisabazaar, and more.
Despite the competition, it has eaten a considerable piece of 50M underpenetrated merchants pie in India, as its loan book crossed $140M. Currently, half of the loan book is funded through equity and half through debt.
With their balance sheet well capitalised (more than US$ 200M in the bank), they plan to deliver $30B TPV(Total Payments Volume) and grow its loan book to $ 700M by March 2023, by lending to 1M customers.
To reach this loan book size, they will need to raise more debt funds. Usually, Banks/ NBFCs can raise 3-5 times, against the value of loan assets ($140M), by churning the loan book a couple of times. Hence, the target of a loan book of $ 700M looks achievable.
Net interest margin (NIM), the difference between interest income earned by BharatPe and the interest expense out to their debt investors, is what BharatPe will make. Usually, NIM earned by fintech’s is 4-5%.
Bharat Pays
Hooking merchants to its app, BharatPe hoped that Bharat paid for its range of lending products. And it did.
BharatPe expected to break even from its current cash burn of $1M per month by March 2021.
With 5x growth in the payments business and 10x growth of the lending business in the last year, 3 year old is soon to be a unicorn in the field of global horses.
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