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BharatPe in talks to bag USD 100 million investment from New York-based Coatue

The new funding is expected to double Bharat Pe’s valuation to USD 500 million.

Photo by Josh Appel on Unsplash

New Delhi-based financial services company BharatPe is on a high tide.

New York-based hedge fund Coatue Management is in talks to lead a USD 75 million to 100 million round in the one-and-half-year startup that helps offline merchants accept money from any UPI (Unified Payments Interface) app through a single QR code as well as provide them with short-term working capital loans. UPI is a government-backed payment tool to facilitate money transfer digitally.

According to the local media Economic Times (ET), BharatPe’s existing investors such as Ribbit Capital, Insight Partners, and Steadview Capital are also likely to participate in the new round. The new funding is expected to double Bharat Pe’s valuation to USD 500 million, the report said. Some of the startup’s previous backers include American venture capital fund Sequoia and Japan’s Beenext.

“There is a high appetite among global investors to tap businesses that focus on digitizing small shop owners and creating a layer of financial inclusivity,” one of the investors directly aware of the deal told ET.  “As long as retention numbers remain high, there is potential to build a very large financial services play.”

The company claims to be the fourth-largest UPI player in the country despite staying clear of peer-to-peer transactions.

“This is significant considering Paytm, Google, and Walmart have each put billions of dollars while we haven’t even invested USD 30 million to get where we are,” Ashneer Grover, CEO of BharatPe, said in a recent interview with ET.

The new development comes five months after the company closed USD 50 million Series B round at a valuation of USD 225 million. At the time, Bharat Pe, not wanting to dilute its stakes,  reportedly rejected investment offers from American giants Google and Amazon, both of which by then had already entered India’s USD 200-billion-plus digital payments market. With the Series B in its kitty, the company raised a total of USD 65 million at that time.

Beginning from the end line

When UPI was launched in India in 2016, it did many things.

Not only it changed the way digital payments were done by allowing consumers to directly transfer money from and to their accounts, but also it forced the country’s major payment services to tweak their business models.

Additionally, it set the foundation on which BhararPe was set up.

Founded by Ashneer Grover and Shashvat Nakrani in 2018, roughly two years after the UPI was launched, the startup became a success in a short span of time by targeting small offline merchants. Playing smart, it launched an interoperable QR code that could be used by retailers for free to receive payment from any UPI-enabled app. Most of the merchants who were juggling with a multitude of payments servicesPhonePe, Paytm, Google Pay, Amazon Pay, and government-backed BHIM, among othersopted for BharatPe, since it made the payment process far simpler for them.

On the face of it, BharatPe seems like a collaborator which works with merchants and digital payment services to facilitate UPI transactions. However, it is one of the most aggressive rivals for the big-wigs like SoftBank-backed Paytm, Walmart-owned PhonePe, Amazon Pay, and Google Pay.

While the major payment services have been shifting their focus from peer-to-peer transactions to peer-to-merchant transactions over the past one year, wooing merchants to come on board so that they can cross-sell financial services such as loans and credit, BharatPe, which started the other way round with offline-merchant focus, is already eating their lunch. The company claims to have three million merchants on its platform and has offered loans to thousands of them through partnering up with banks. It has also reportedly applied for an NBFC (non-banking financial company) license so that it can start lending from its own books.

Other than loans, it offers merchants a digital ledger service to record their cash and credit sales, request accounts receivable from customers via SMS payment links, and keep track of accounts payable to suppliers, among other things.

 “We started with payments, launched the lending business and now we also have a deposit product, giving high interest back in the tune of 12%, (sic)” Grover said in the same ET interview.

The battle to grab a larger pie of India’s soon-to-be USD 1 trillion digital payments market has become cut-throat over the last couple of years with global tech companies—Amazon, Google, Walmart, and Facebook-owned WhatsApp jumping into the fray. Meanwhile, homegrown rival Paytm has become more aggressive, trying to defend its territory.

All of them have been eying the world’s second-most populous country’s half a billion smartphone users to drive growth. However, the peer-to-peer transactions have hardly made any money for any of them. Hence, the next target for them is India’s millions of small retailers, from whom they can earn money through credit and lending services.

According to Kunal Shah, founder of mobile wallet FreeCharge and credit card payment startup Cred, digital payments won’t be able to earn money for companies.

“All the players are going to systematically move into credit. They will do lending and go for other financial services like insurance and wealth management. The cross- and up-sell of financial services is the only way to make money in payments,” he said in an interview mid last year.