A recent entrant into the unicorn club, BharatPe is a company that everyone is eyeing -- be it investors, merchants or consumers. In just three years of its existence, it has managed to capture 7.5 million merchants, and it now plans to launch customer-facing products, too.
Early this year, the company received an in-principle approval from the Reserve Bank of India (RBI) to set up a small finance bank (SFB), along with Centrum Financial Services Ltd, paving the way for the entity to take over the crisis-ridden Punjab and Maharashtra Co-operative Bank (PMC Bank).
Fintech, bank or lending company? What is your vision of BharatPe?
Grover: We will always be a fintech. So far, people used to think that fintech was only for payments. However, in payments, you can't make money in India. It is a friction product. You are charging the merchants and passing on the benefit to customers. Why would the merchant pay and till when?
He has no appreciation for this service. He thinks if he keeps the customers waiting for 10 seconds by saying that the card machine is not working, they will end up paying in cash. This way, he will also end up saving 1-2 percent of his income. You can use payment as a mode for customer acquisition or offer as a service for free, but, eventually, you will have to earn money through lending. All fintechs in India will eventually have to be lenders.
But all fintechs do not have a small finance bank (SFB) licence, like BharatPe…
Grover: You don't need this to be a lender. You just need the ability to take risks. You should know how to underwrite. In India, there are thousands of NBFCs. Most of them have no business. Getting an NBFC to work with you is not a problem. I don't think licence or regulation is stopping any fintech from getting into lending.
Lending is an inherently risk-taking business. Most businesses which have made money, historically, through payments, are used to risk-free business. They are used to tolling ... ‘I have constructed the road, whichever vehicle will pass will pay us the toll.’ That business is now fast disappearing.
If 80 percent payments are happening through UPI in India, and it will grow to 90-99 percent in the next couple of years, how will anyone make money through UPI, given that it is free? Mastercard and Amex can't issue cards. HDFC Bank could not issue incremental cards till yesterday. So cards are not growing at all.
UPI is the only thing that’s growing. On UPI, with a base of billions of transactions, 10-15 percent growth month-on-month is a given. So India payments are only going to be UPI. Those who will accept this fact will have a course correction. Those still doing the cards business will have trouble after three years.
Either you lend the merchants or consumers. Core monetisation will happen there only.
But having a small finance bank (SFB) has its own advantage…
Grover: Having our own SFB, actually, will only help us lend more and more. Right now, our QR code or card machine is set up. Customers pay the merchant, we settle it. We lend on the basis of the payments being done. We know how much business this merchant is doing through our system. But tomorrow, if behind every QR, what if we start offering him a bank account as well?
We will be able to witness more flows into the bank account and not just the flows on the QR. For instance, there is a restaurant. We would get to know how much payment it is accepting from Zomato or Swiggy. Then we can underwrite all these flows.
So for us, getting into the SFB business is just a step-up to what we are already doing. Also, the bank allows you basically the lowest cost of capital and large deposit base on which you can get the capital. So you end up having a captive deposit-taking machinery, which you can deploy.
My vision is that I want to power credit and small credit in India. Where the ticket size grows, conventional banks start competing with you. But where the ticket size is small, banks cannot cater to those markets.What's the average ticket size you are talking about?
Grover: Our loan starts around Rs 25,000 and goes up to Rs 7.5 lakh. A lot of banks won't offer loans below Rs 2.5 lakh. They think the cost they will invest in originating, servicing and collecting is more than the interest they can earn. But because we are a technology company, we do the collection automatically. So we can do even Rs 25,000 profitably.
We need to dominate the small-ticket loan space and instant-loan space where the only way you can do business is through technology, which the conventional bank, at least today, lacks.
We will deepen the merchant base, but, in addition to merchants, if there would be an opportunity to do consumer lending, we will do that.
My vision is to be a small-ticket lender, with 90 percent business coming from merchants and 10 percent from consumers.Will the ticket size remain the same for consumers?
Grover: For consumers, it will come down further. We can credit each of their transactions. We are working on our new product called PostPe. This is essentially our ‘buy now, pay later’ product. The advantage is that we have a huge network of merchants, where this product will work automatically on their QRs.
We are launching PostPe in September. Essentially, we are saying that we will underwrite one customer, he can pay on a BharatPe QR. We will also give him a card through which he can pay anywhere online.
Will it be a digital credit card?
Grover: It will be a pre-paid card, with a line of credit on it. It will be through the PostPe app, with a card already in it.
Why this consumer interest? BharatPe was always focused on merchants.
Grover: Yes, we were always merchant-focused. But we were so, with a lending focus. Over time, we have understood how lending happens. As we do more and more lending to merchants, we are getting confident.How many consumers are you targeting by March?
Grover: The soft launch of the app (PostPe) will happen around September 1. Then, we will refine it. Closer to the World Cup is when we would go full- fledged.
We just create products which are needed in the market. I will not set a target on this. We will first do it in a small group, because it is risky. Once it works well in that small group, we will take it to the masses.
Who are these people you are targeting? College-goers, millennials?
Grover: Anyone who is using UPI offline deserves credit on QR.And this will also work at merchant outlets?
Grover: Yes, merchant outlets as well. But most of the ‘buy now, pay later’ players in India are only restricted to online. They don't have much offline presence.So, this line of credit will be drawn from the NBFCs you have partnered with till the time your bank is opened?
Grover: I don't want to talk about the bank at all because I cannot disclose its timeline. But all of this is within our length. Even right now, we do lending in partnership with NBFCs.Any plans to venture into e-commerce as well?
Not at all, we will only focus on financial products. Everyone cannot and should not do everything. You should understand your core business where you can offer value-add to customers. I have no wherewithal to compete with Amazon or Flipkart today. I would rather ask my customers to buy from Amazon and take money from me.
What is the average interest you charge on these small-ticket loans?
Grover: 2.5 percent.
With a repayment duration of…?
Grover: On the lower side, it’s three months. On the upper side, it’s 12 months.
Going forward, is there a plan to launch a separate debit card?
Grover: We don't believe in debit or credit. That's a very fuzzy concept. A single card should act like both. If I have underwritten someone, he should enjoy credit first and debit later, but it has to be the same card. It's a very archaic US version that something is called a debit card, something is called a prepaid card, something is called a credit card.So you think PostPe will be the desi version?
Grover: Yeah, we are saying there should be one card and an app. Then, you decide whether you want to use your own money or the credit limit you have.
What are some of the big fintech shifts in India that you are excited to follow right now?
Grover: The biggest shift is UPI. The pace at which it is growing is overwhelming.
I think the other thing is that the number of ATMs and branches are coming down in India. In a country where finance is still growing and it’s a profitable business, people are moving away from physical touch points, which is great. So now, a guy can give someone the best banking opportunity without being within 5 km of where they stay. This is a very important shift in India.
Not only youngsters, but even people who actually have real money in the age bracket of 35-65 are getting comfortable, just interacting through the app. In the last two years, because of the pandemic, people have understood the value of faceless banking and that is levelling the playing field for fintechs.Last we heard, the company had 7 million merchants. Where do you see that expanding?
We keep adding 4-5 lakh merchants every month. So, in terms of the number of cities, the plan is to go from 130-200 by this year-end. The reason for that is UPI is going deeper and deeper, and we want any market where UPI reaches, our QR code should be added first.
My long-term vision is that BharatPe's app should become an income-generating app for the merchants. Eventually, we should be able to sell financial products to consumers as well by using the shopkeeper as the touch point. In return, he will also end up making money.
So I want it to become an integral part of his livelihood.
In general, why should we acquire customers through Facebook or Google? You can do so through a shopkeeper as well. My vision is that I do not pay Google or Facebook at all. Instead, I would want to pay that money to our shopkeepers to acquire customers, and that is more value for my shopkeeper merchant base as well.Out of the 7-7.5 million merchants, how much of that is retail, restaurants, grocery?
Grover: When we started, our bias was towards restaurants. About 40-50 percent of them were restaurants. But once COVID broke out, people stopped going to restaurants. Then we balanced it out. Currently 25 percent is restaurants, another 25 percent grocery, another 20 percent pharmacies, and then, there are the general merchandise shops. So, it’s very well spread out and the product is universal.Read the second part of the interview here.