BharatPe

'AB SE DUKANDAR IS KING’

By : Hrushank R Hede

What is BharatPe ?

• BharatPe is an Indian fintech company that caters to small merchants and kirana store owners in India.

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• The tagline of the company is 'Ab se Dukandar is king'. It also says 'Apne Parivar Aur Shop Ko Rakhe Insured’.

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• BharatPe was co-founded by Ashneer Grover and Shashvat Nakrani in 2018 with the vision to make financial inclusion a reality for Indian merchants.

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• BharatPe is a B2B startup and its core offering is the QR Code for merchants to accept UPI payments which make up 80% of its $16 billion annual total payment volumes (TPV). In person-to-merchant (P2M) payments, BharatPe closed FY21 with a monthly market share of 8%.

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• The company also has PoS machines for merchants to accept card payments. However, payments earn thin margins for the company. The company’s revenues come from its merchant and consumer-lending products.

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• The BharatPe app powered by efficient QR code payments helps its users to sign in immediately, and instantly start receiving the funds in their bank account. BharatPe started with a mission to make payments free for all its users. Its intention is to help all.

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• Most companies were following a closed ecosystem at that time, so merchants had to install different QR codes for receiving payments through different payment gateways. But BharatPe leveraged on key feature of UPI – interoperability. This helped merchants as they now needed only one QR code to receive payments from all Government backed payment gateways and that too without any transaction fee.

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Business model

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Two major issues in existing digital payment system were:

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• While most of us very easily became the adopters of this digital payment system on the other side each payment app needed a different qr code when you went to a kirana store at the time of making the payment it would turn out that the shopkeeper only had paytm while we had migrated to google pay or phone pay so obviously the shopkeeper would then insist that we make the payment in cash and this defeated the entire purpose of going cashless.

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• While payment apps charged zero percent fee on transactions for customers like you and me for merchants there was not a single wallet that was taking less than 1.5 in commissions

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How does BharatPe solve these issues

• BharatPe provided the merchants with interoperable QR codes. This eliminated the requirement of unique QR code for each payment app by acting as a universal QR. This ensured that the vision of cashless payment functioned smoothly.

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• Bharatpe would charge as low as 0% commission fee for each transaction from the merchants. This ensured an increase in at least 1.5% profit which would be lost as commission charges of other companies.

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• Major problem with indian banking is that no private bank wants to lend them money due to either lack of documents or collateral.

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• In spite of all these merchants having healthy balance sheets in spite of they having an incremental increase in their growth these merchants would refuse to go to banks due to the long and draining paperwork and consequences of missing installments of loan repayment.

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• Even for the banks, loan recovery would always be a hassle if the borrower was from some remote location in India.

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Issues related to loan

BharatPe’s solution to the loan problems

• BharatPe tapped on the golden opportunity to start a merchant lending system and they entered the lending space by partnering with non-banking financial companies this target segment included close to 80 million people.

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• The BharaPe algorithm takes note of the cash inflow at the merchant's end similarly when a merchant pays his supplies through bharatpay the algorithm keeps note of her monthly inventory value and it also notes a spending pattern and several other parameters to estimate the projected savings income consistency of income and so on and so forth.

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• The algorithm of BharatPe uses this data to calculate the risk of lending to a particular merchant. This way without paperwork the bharatpay algorithm can decide the credit worthiness of a merchant. Thus it would offer an unsecured loan to its merchant.

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• BharatPe achieved an astonishing 96% loan recovery rate, which is the highest and by a huge margin. bharathi achieve this incredible benchmark well this is where their leverage with QR code comes in instead of requiring the merchant to pay monthly installments it deducts the amount from the transactions before the bank settlement for each day.

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• BharatPe achieve this incredible benchmark well this is where their leverage with QR code comes in instead of requiring the merchant to pay monthly installments it deducts the amount from the transactions before the bank settlement for each day.

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• BharatPe loans are available in more than 11 000 pin codes in 24 states and has a sales force of 4000 agents to educate merchants on various financial products. On top of that they have an insane retention rate with 45 of its merchants taking repeat loans and all of this is being done digitally in a hassle-free manner with no application fee and most importantly without a collateral therefore more merchants means more data more data processing means better risk assessment which would lead to less bad debt thus increasing profitability.

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What do they offer

BharatPe provides multiple financial products/services . The following are the products and services offered by BharatPe:

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• BharatPe Swipe - This is a QR based machine which allows direct transfer of money from the buyer into the bank account of the merchant.The main feature of BharatPe QR is interoperability.

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• BharatPe Loans - BharatPe offers unsecured loans to its merchants. The loan amount ranges between INR 20,000 to 7 lakhs.

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• BharatPe Credit - This card can be used by merchants to draw credit worth INR 25,000. The credit card offers 30 day interest free benefit to the merchants along with 1% cash back on every transaction. BharatPe card can be used as either a debit or a credit card.

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• Gold loans for merchant partners - BharatPe announced provision for gold loans in March, 2022. This would offer gold loans for the merchants at mere 0.39%.

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• 12% Club - BharatPe has partnered with the NBFCs, which are approved by the RBI, to launch the 12% Club, the first of its kind P2P investment, consumer lending, and borrowing app.

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The features of 12% club are :

• Consumers can invest and earn up to 12% of annual interest without any lock-in period.

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• They can borrow at a competitive interest rate of 12%.

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• Customers can borrow up to Rs 10 lacs through this app.

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• They can also avail loans up to Rs 10 lacs without any collaterals for a tenure of up to 3 months.

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Revenue model

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• The whole purpose of BharatPe was to provide its merchants better profits while generating revenue without axing their pockets. This meant that the revenue generated from commission would be almost nothing.

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• Hence the main sources of revenue for BharatPe are the financial services that it provides for its merchants.

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• For the loans offered the tenure is up to 12 months with an interest rate of 2% per month. Till date, BharatPe processes loans worth INR 3 Crore each month. BharatPe allows merchants to pay back loan in easy daily installments. Instead of requiring merchants to make daily payments, BharatPe deducts the installment amount from QR transactions amount before bank settlement each day. Owing to this method BharatPe has a repayment rate of 96%.

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• With respect to the 12% club BharatPe is left with a margin of 5-6% after all the borrowers and lenders are settled.

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• BharatPe also generates revenue from the BharatPe-card which charges 3% fees on ATM withdrawal as well as a 36% annual fees on overdue payments.

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• The company seems has been witnessing a surge in revenue. BharatPe's revenue from operations surged by 20X to become Rs 119.1 crore during FY21, which was last recorded at Rs 5.96 crore in FY20.

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• With $400 million parked in the bank and a monthly cash burn rate of $4 million, fintech unicorn BharatPe said on Thursday that it does not have any immediate plans of raising capital. The company said that it recorded revenue growth of 4x in FY22 to $100 million and has set itself the goal of crossing $300 million in revenue by FY23 end.

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Challenges and Controversies of BharatPe

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• Pending Employee Salaries.
• Reports of generation of fake invoices of non-existent vendors.
• Ongoing controversy surrounding co-founder Ashneer Grover and his wife.

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Conclusion

• Considering all the competitors and controversies happening in around Bharatpe, irrespective of the outcome of these events it is important to look at the growth potential of the sector that BharatPe has tapped into.

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• Keeping in mind the power of BharatPe’s payment gateway, and their ability to leverage the enormous data about merchants at their disposal, BharatPe are well on their way to become lending giant as well as a profitable fintech giant.

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QR and UPI �

QR - technology and application

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• "Quick Response" code is a 2D matrix code that is designed by keeping two points under consideration, i.e. it must store large amount of data as compared to 1D barcodes and it must be decoded at high speed using any handheld device like phones.

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• QR code provides high data storage capacity, fast scanning, omnidirectional readability, and many other advantages including, error-correction (so that damaged code can also be read successfully) and different type of versions.

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• One major difference between QR codes and barcodes is that the QR codes can be scanned from both paper and screen.

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• On the other hand, linear barcodes can be scanned only from the paper. That’s precisely the reason why you see QR codes both on apps as well as at the online stores.

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• The popularity of QR code grows rapidly with the growth of smartphone users and thus the QR code is rapidly arriving at high levels of acceptance worldwide.
• Application of QR codes :
1. Website login
2. Restaurant ordering
3. Joining a Wi‑Fi network
4. Electronic authentication
5. Video games
6. Payment

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UPI and role of QR in payments

• The unified payments interface or the UPI is an interface via which you can transfer money between bank accounts across a single window.

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• This means you can send or receive money or scan a quick response (QR) code to pay an individual, a merchant or a service provider to shop, pay bills or authorise payments.

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• The Virtual Payment Address (VPA) looks like an email address and is unique to you, for example, xyz@123bank. Your VPA unlocks the immense potential of payments and transfers through UPI. The VPA is the gateway that allows you to pay with your phone, from your bank account. It is also possible to link more than one bank account to the same virtual payment address.

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There are two kinds of QR codes: static and dynamic.

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• Static QR codes are the ones we see pasted at a shop counter, an advertisement on the TV or at an event. By scanning them, you’re able to make the payment directly to the merchant’s bank.
• Static QR codes have data already encoded in them. It is unique for a merchant and has their bank account linked to it.
• The only thing a customer has to enter is the amount needed to be paid, after scanning the code. This is ideal in situations like small shops, restaurants and pharmacies, where the amount can vary from one transaction to another.

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• A dynamic code is generated every time a payment has to be made by the merchant. This code contains the amount to be paid, in addition to the merchant’s name and bank details.
• This is becoming increasingly popular in cases such as home delivery of groceries, online shopping or delivery of food. Dynamic code enables easy, cashless payments, as it instantly closes the payment loop, which can empower more customers and retailers.

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• It is not uncommon to see consumers at kirana shops being requested by merchants to show their own phone screen for proof of payment. This makes the small retailer dependent on his customer for payment proof.

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• Some retailers, bigger shops maybe, even have a note pasted at their counter asking the customer to “please wait for payment confirmation”, and spend precious minutes waiting for confirmation on the payment. Some retailers even have an extra screen to just track the payment closure. The dynamic QR code eliminates all of this and closes the payment loop instantly.

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Payment verification.

Conclusion

• Considering the convenience of customers as well as the merchants due to the likes of companies like BharatPe UPI will likely continue to dominate the digital payments space in the country even as newer methods such as digital currency are expected to define the future of payment.

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• Since UPI payments have formed a habit especially during pandemic period, with the advent of expanding networks of digital payment companies, QR codes can been found in smallest of the shops and even street vendors of even the villages of India. This exhibits the reliability and dependency on UPI.

Thank you.�