THE STORY BEHIND BharatPe
The story of BharatPe dates back to 2016 when the payment renaissance of INDIA began due to Demonetization and as we all saw 86 percent of India’s cash was declared invalid overnight but all thanks to INTERNET and SMARTPHONE.
1. Penetration such as PAYTM came as a saviour and helped us transfer money even to the smallest vendor through a qr code and, as usual with such a huge untapped market.
2. Several other payment gateways like PHONEPE, GOOGLEPAY etc started offering cashback to onboard as many merchants and customers as possible but while most of us easily became the adopters of this digital payment system.
Behind, an IIT delhi Student named SHASHVAT NAKRANI noticed 2 Critical Problems in the system as such :-
1. Since each payment app needed a different QR Code when you went to a Grocery store while doing the PAYMENT it would turn out that the shopkeeper would only had PAYTM while we had migrated to GOOGLE PAY or PHONE PAY in order to get more CASHBACKS and OFFERS So obviously the shopkeeper would then insist that we either make the payment through the available partner or through the hard cash. This situation defeated the entire purpose of going cashless.
2. While Payment apps charged 0% on transactions for customers like you and me, this was not same for the merchants, there was not a single wallet that was taking less than 1.5% in commisions.
For Example :- If you bought
:- Groceries worth 100 rupees.
:- The Profit of the vendor would be just 10 to 15 Rupees and in that also
:- 1.5 % of the purchase value which is 1.5 rupees used to go to the payment gateways as commissions
:- In this way the Merchant Would have a profit of just 9 to 13 rupees that too on a Single Transaction.
And if you speak to your local grocery stores they’ll tell you how terrible their condition was back then and the and that’s when it struck him that there has to be some way of leveraging UPI to remove all charges on payments as that time the awareness for UPI was not so high among people.
On 20th of march 2018 Mr Shashvat Nakrani and his Co-founder Mr Ashnir Grover launched BHARATPE with a vision to revolutionize the payment systems in INDIA:-
1. The First thing that they did was that they leveraged the UPI star feature which was INTER-OPERABILITY, by that a Single QR Code was enough to transfer funds from your Bank account to Merchants Bank Account without any hurdles of a closed ecosystem and the best part of this entire transaction was that it was free for both the merchants and users like us
2. For merchants, while most wallets and payment gateways had a minimum 3 day Settlement window, through BharatPe they got their money credited on the very same day itself as a result thousands of merchants adopted BharatPe in No time.
HOW BHARATPE EARNS MONEY?
If the entire transaction was being done free of cost then how could BharatPe make money out of it. You asked the right question and here how is it:-
This is where the expertise of Mr Ashnir Grover came in, he spent years in AMERICAN EXPRESS Wherein he met more than 100 founders who were into the payment business this helped him understand the fintech space properly.
Since he was the CFO of GROFERS he understood the problems of the merchants more than anyone else and this experience gave him 2 critical insights:-
1. The margins and retail were too low to burn a hole in the pockets of the merchants with commissions, so the right way to make money was definitely not commissions
2. He understood that although shopkeepers won’t pay for the service they would be more than happy to pay interest on loans, why?
Answer is, One major problem with INDIAN Banking is that despite micro small and medium enterprises being such an indispensable pillar to our economic growth no private bank wants to lend them money due to either lack of documents or collateral and it’s quite understandable because lending wouldn’t make sense if there is no instrument to measure the risk of actually lending money to an individual
So in spite of all these merchants having healthy Balance Sheets in spite of they having an incremental increase in their growth unfortunately very few or no banks wanted to lend them money
And this Unmet credit gap of micro small and medium enterprises is 1$ trillion in INDIA this is a reason why BharatPe tabbed on this golden opportunity to start a merchant lending system and they entered the lending space by partnering with non-banking financial companies keeping in target 65 million msmes in india that employ
close to 80 million people.
Unique Selling Proposition
If banks couldn’t lend to small merchants what was so special about bharatpe that they could tap onto this golden opportunity and more importantly how do they intend to become profitable
This is where bharatpay’s Artificial Intelligence algorithm comes in and here’s an oversimplified explanation to understand how it works:-
1. Just like our credit card companies note out spending pattern every time we make a payment at a store through the QR Code the BharatPe algorithm takes note of the
A. Cash inflow at the merchant’s end
B. Similarly when a merchant pays his supplies through BharatPe the algorithm keeps note of the 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 and
C. Just like credit card companies look at your spending pattern to decide how credit worthy you are the algorithm of bharatpe uses this data to calculate the risk of lending to a particular merchant
2. This way without paperwork the BharatPe algorithm can decide the credit worthiness of a merchant even if he/she is
in the remote test corner of the country so this way all the progress that our stores makes is officially documented by the BharatPe’s algorithm and once enough data is collected
3. Example:- If the algorithm sees that Mr Deepak has a healthy net inflow of 5 lakh rupees per month and if he requests a loan of for e.g 50 000 rupees Bharat pay will immediately process the loan without any paper or collateral
Similarly if Mr Subham has an inflow of 5 lakh rupees and request a loan of 5 lakh rupees since the risk is high
BharatPe might charge a higher rate of interest as compared to Mr Deepak and
Once this lending procedure starts the algorithm gets smarter and smarter at risk assessment based on the merchant’s loan history and credit score this is how BharatPe currently provides unsecured loans in the range of 10 000 rupees to 7 lakh rupees for up to 12 months and charges an interest of about 2 percent per month now one of the biggest problems with lending is the collection challenges and defaults so even if a company wants to scale its lending business through the lengths and breadths of the country they need a tremendous amount of workforce for recovery,
But guess what according to BharatPe’s repayment rate is 96(*as claimed by the company) which is among the best in the market.
HOW IT ACHEIVED THIS INCREDIBLE BENCHMARK?
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 for example if the merchant has to pay back 50 000 rupees installment per month and he has an inflow of 15 lakh rupees per month that means he has an average inflow of 50 000 rupees per day so instead of asking for the payment at the end of the month, Before the app pays the merchant 50 000 at the end of the day it by default subtracts 1667 rupees as daily installment and then pays the rest amount to the merchant at the end of the day. This creates a win-win situation wherein
the merchants are not burdened they don’t need to be reminded about payments and at the same time BharatPe can ensure that its repayments happen without any problems this is how merchants pay back their loans in easy daily installments as small as 450 rupees per day average this is the reason why BharatPe has an astonishing repayment rate of 96%
As of october 2021 BHARATPE had already facilitated loans to over 3 lakh merchants and disbursed over 2 800 crores in loans as of october 2021 according to Economic Times BharatPe was processing loans worth 300 crores each month and today BharatPe loans are available in more than 11 000 Pin Codes in 25 States and has a sales force of 3700 agents to educate merchants on various financial products,
ALSO 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, better risk assessment means less bad debt which means insane profitability and this is a reason why BharatPe spending 2.7 million dollars a month to onboard as many merchants as possible and is solving a major problem for the MSMEs of India using its insane artificial intelligence algorithm as a result they have witnessed an exponential growth of 10x in the last fiscal and now it aims to disburse loans worth 1$ billion among merchants.
THANK YOU FOR BEING SUCH A VALUABLE READER AND INVESTING YOUR TIME IN HERE, WISHING YOU A GREAT DAY, YOU ARE AWESOME AND A STEP CLOSER TO YOUR GOAL.
With Love, Author 🙂