Buy Now Pay Later (BNPL) fintech Simpl has announced a $40 million Series B fundraise led by Valar Ventures & IA Ventures - four years after its Series A round in 2017. With the latest funding, the company is now eying 10x growth in user base in the coming 18 months.
However, the startup is mired in a lawsuit filed by co-founder Chaitra Chidanand against the company’s co-founder Nityanand Sharma and Simpl Inc. According to a report by The Morning Context, Chidanand has moved the National Company Law Tribunal (NCLT) alleging that her shareholding was diluted deliberately and she was kept in the dark about the restructuring of the company.
Chidanand moved on from Simpl in 2020 and co-founded SALT. The restructuring led to worries for employees on what would happen to their employee stock options, as per the report.
In an interview with Moneycontrol, Sharma refused to talk further on the court case since the matter is sub judice, but he added, “I think there is definitely a bit of a media uproar about it. But internally, we've been always working very deeply about making sure that our employees are taken care of. So, we don't see any problems there.”
Simpl which has a user base of over seven million currently works as a khata or a tab for customers, keeping a track of how much credit they have sought and how they have used it across various online bill and e-commerce payments.
The company approaches BNPL as one of the checkout options with an idea to give its partner merchants the option to extend a pay later mode to customers. Additionally, the company introduced a product that allows customers to pay their bills in three tranches, called Bill Box.
Sharma said that the $40 million fundraise announced on December 1 will be used to grow the user base, add more products and increase hiring.
“We are working on a product that will allow customers to pay after delivery. We are working on loyalty rewards so that merchants can build loyalty with their customers.”
With these products, Simpl is now competing with players like Uni and Slice which allow customers to pay their bills or repay credit in three tranches, besides other BNPL fintechs like ZestMoney, PayU’s LazyPay, KrazyBee.
As per a report by Macquarie, Simpl’s user base is the highest among its direct competitors. The company also said it witnessed 10x growth over the past 18 months in monthly active merchants and users, and a 6x growth in business.
According to regulatory filings accessed through Tofler, Simpl reported a loss of 49.67 crore in FY20, up from Rs 34 crore in FY19. The company’s revenues for FY20 stood at Rs 10.52 crore and expenses much higher at Rs 60.20 crore.
Where Simpl fits in RBI’s digital lending norms
A report by a working group under the Reserve Bank of India (RBI) released recommendations on regulating companies involved in online lending through partnerships with banks and NBFCs or by themselves.
Throughout the report there is a clear distinction made between regulated and unregulated online lenders and what each of those can be allowed to do.
For example, the working group suggested that lending should happen only through the books of regulated and recognised entities. It also says that banks and NBFCs should enter into agreements only with RBI-registered entities.
In the case of known online credit players like Capital Float, ZestMoney, Slice, etc., most fall under the category of regulated entities as they possess a non-banking financial company (NBFC) licence from the RBI. However, Simpl does not have an NBFC license. The company can face multiple hurdles if these recommendations turn into norms.
Sharma said that Simpl’s business proposition of allowing pay later as a check out option to make online transactions faster, rather than a direct lending BNPL proposition like other fintechs makes it ineligible for an NBFC license.
Sharma said, “We are working with the regulators on that and it is work in progress. What we do does not fit in with RBI’s NBFC guidelines. But the regulators and the government are working towards finding the right set of rules for this business, which we are very appreciative of.”
So will the company have to wait for clarity on the proposed digital lending license or registry of recognized fintechs to come under RBI’s purview and continue operations?
“Yes, I think that's what probably will end up happening,” Sharma said.Simpl, founded in 2016, has over 7,000 merchants on its platform including Zomato, Makemytrip, Big Basket, 1MG and Crocs. India’s low credit card penetration of only three percent and huge appetite and need for credit has provided BNPL fintech players with a huge market that is expected to grow to a $26 billion opportunity by 2025, according to a report by Bernstein.