27 highlights
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The company, which has in just a couple of years of operations built a name for itself by getting small businesses across India to accept payments using QR codes and UPI, has for some time now been pushing hard on building out its lending business.
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But for Ashneer Grover, co-founder and CEO of the Delhi-based startup, this was never going to be enough—the path to building a large loan book for him lay in lowering the cost of funds as much as possible, which ultimately means a bank on the back-end.
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In fact, at one point, Grover was even eyeing a stake in Yes Bank. “BharatPe even reached out to Yes Bank when the bank was looking to raise funds last year,” says a senior banker aware of the matter, speaking on condition of anonymity. Yes Bank had nearly collapsed after the revelation of potential fraud, and was rescued eventually by a consortium including State Bank of India.
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The Reserve Bank of India had been looking for someone to take over Punjab and Maharashtra Co-operative Bank for at least six months before the Yes Bank crisis.
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This made PMC Bank a ripe target for an ambitious fintech challenger. BharatPe just needed a more mature partner to put together a credible bid.
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It found that in former veteran banker Jaspal Bindra, who has long wanted a banking licence, something that is well known in the banking industry. BharatPe and Bindra’s three-decade-old financial services group Centrum also had an existing relationship.
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The two partners still need to complete the process of setting up a small finance bank, but this still puts BharatPe’s Grover in the enviable position of being the first fintech entrepreneur in India to get a banking licence beyond just payments. Paytm, the old star of Indian fintech, has only a payments bank licence, which means it can’t issue loans, only take deposits.
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“Sachin Bansal’s Navi was the only one to apply for a universal banking licence and people were expecting him to be the first one to get it with the kind of army of people he has activated. But you really need to give it to Ashneer for what he has achieved,” says a partner at a venture capital firm, asking not to be named.
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Behind the scenes, the startup has seen significant employee attrition and a slew of executive exits—balanced out by a stream of fresh leaders brought in. The hard-charging work culture and a “one-man show” are blamed by several former employees who spoke with The Morning Context.
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Even then, Koladiya was the biggest shareholder in the company, and the whole business had been his idea to begin with. He was at the front of BharatPe’s pitches to investors and so on.
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But in December 2018, when Sequoia Capital came on-board as an investor, Koladiya’s name went missing from the list of founders. And ever since then, Grover became the face of the company.
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“There’s hardly any role of either Shashvat or Bhavik in decision making. Everything needs to run past [Grover], nothing goes through without his approval,” says a former BharatPe executive, who spent a little over seven months in the company.
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Paytm launched a consumer-focused app and then focused on merchants also and tried focusing on too many things, but Ashneer has a noticeably clear vision for BharatPe, that I will only serve the merchant and that I am a B2B company.
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“Now you call it control freak or visionary, I really don’t know but there’s a very thin line between the two.”
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Despite employee churn, BharatPe has shown no sign of slowing down in terms of the business’s growth and funding ambitions.
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Interestingly, Grover a few months ago became a limited partner (VC speak for investor in a fund) in Ribbit Capital, which is a prominent fintech-focused fund, and one of BharatPe’s biggest investors
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Centrum says that it proposes to transfer the operations of its MSME (micro, small and medium enterprise) business to the small finance bank, while BharatPe will bring its digital lending and payments capabilities and India-wide reach.
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Several bankers and industry leaders we spoke with are of the opinion that the licence has been given mainly because of Centrum’s Jaspal Bindra and not BharatPe’s Ashneer Grover.
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Anyone having a genuine long-term banking ambition in India has to first solve for long-term, non-equity, non-dilutive capital, say industry experts. In simpler terms, a banking company needs sources of funds that are not equity investments, because in the long run, that will never be enough.
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While a hot fintech like BharatPe can raise funds easily in the current market, and at attractive valuations, the small finance bank will need serious capital, and that ultimately means debt. At some level, Centrum will be able to bring debt to the table because of its background, but the group is not so large and influential that it will be an astronomical sum.
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“For low cost of funds, you need to have more liabilities,” says the senior banker quoted earlier; liabilities in banking terms generally refers to deposits, as well as the bank’s debt and borrowings, while assets are loans it issues.
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Even after being for so long in the business, the cost of funds for Yes Bank is higher than HDFC and ICICI and SBI.
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“Building liabilities is about trust. Who will derive trust? Centrum is not a retail name, PMC is a failed bank, and BharatPe knows nothing about banking,” says the managing partner at a fintech-focused fund.
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Speaking of merchants, BharatPe is also planning a foray into consumer payments. The company is preparing to take on a direct fight with PhonePe, Google Pay and Paytm, India’s top three UPI apps, by launching a consumer-focused app called PostPe.
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Notably, BharatPe recently acquired multi-brand loyalty programme Payback India from American Express and ICICI Investments Strategic Fund
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In any case, the most immediate outcome of RBI’s decision for BharatPe will be its funding talks and next valuation. Much as when Paytm managed to secure a payments bank licence (something RBI was happy to hand out to several applicants, most of whom abandoned their licences), which “brought money that nobody had ever seen in India”, says the VC firm partner who regrets not investing in BharatPe.
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The whole digital + banking story is certainly going to play massively in favour of this entity, irrespective of who the people behind it are because they have genuinely pulled a coup, thinks the VC firm partner.