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Coatue Management and Ribbit Capital lead a USD 75 million round in Indian fintech startup BharatPe

BharatPe will use fresh funds to set up and expand a non-banking financial company (NBFC) to dive deeper into lending space.

New Delhi-based financial services company BharatPe, which competes with payment services such as SoftBank-backed Paytm and Walmart-owned PhonePe, has raised USD 75 million in its Series C round led by New York-based hedge fund Coatue Management and Palo Alto-based fintech investor Ribbit Capital.

In addition to the US-based venture capital firm Amplo, BharatPe’s existing investors Insight Partners and Steadview Capital also participated in this funding round. The latest investment that takes the total money raised by the startup to date to USD 143 million has shot up BharatPe’s valuation by 100% to USD 425 million, local media Economic Times (ET) reported.

The one-and-half-year old startup 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 instant money transfer digitally.

BharatPe plans to use around USD 70 million from the fresh funding for its non-banking financial company (NBFC), Resilient Capital. The aim is to eventually raise USD 300 million for its NBFC arm to provide loans and credit lines to merchants on its platform, the ET report said. So far, it has been partnering with third-party NBFC entities to lend to its clients. It is to be noted that the company is still awaiting an NBFC license from the Reserve Bank of India (RBI).

“We have already disbursed INR 100 crore (approximately USD 14 million) of term loans to merchants through partner NBFCs and are ready to extend lines of credit to our merchants, for which we need our own NBFC to innovate,” Ashneer Grover, co-founder and CEO of BharatPe told ET. “We applied for the license in August last year and we’re hoping we’ll get the license from the RBI by March.”

The rest of the funding, about USD 5 million, the company said, will be deployed “to build technology and new products.”

Roughly two years after the UPI was launched, Grover and Shashvat Nakrani co-founded BharatPe in 2018 as they saw an opportunity in a growing number of payment apps powered by UPI. With BharatPe, the duo launched an interoperable QR code that could be used by retailers for free to receive payment from any of the UPI-enabled apps. 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 big-wigs like Paytm, 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 transactionsto cross-sell financial services such as loans and creditBharatPe is already eating their lunch as it started its business with a focus on offline-merchants. The company claims to have three million small merchants across 30 Indian cities on its platform. Of the total, it has provided loans to “over 20,000 merchants in the last seven months, since it began looking at loans as a model to monetize its business,” the ET report said.

The startup aims to grow its merchant base to eight million by March 2021. It is also targeting to lend funds to around 300,000 merchants, about 10% of its current merchant base. According to Grover, BharatPe is in a “better position to offer credit solutions to small merchants since it already has data on payments and knows the intent of the business to pay through its term loans product.”

In fact, BharatPe has been quite aggressive in wooing small offline merchants, running various offers and contests. Just last week, it gave away a car worth USD 20,000 (INR 1,500,000) to one of its merchants as a prize. The company has been promoting its platform among merchants as a way to increase earnings.

Last December, it quietly launched an insurance product for merchants. Meanwhile, it runs a program, where merchants can earn up to 12% interest on the surplus amount in their account. Last year, the company made actor Salman Khan its brand ambassador, as he is quite popular among the middle-class audience.

With fresh funds in its kitty, the startup will have a runway for the next two years, Grover told ET, adding that the company has allocated around 5% of its post-money shareholding–around USD 21.5 million–“as employee stock ownership plans in order to remain competitive with giants such as Google, Paytm, PhonePe and others, and attract the best talent.”

Separately, online digital ledger company Khatabook, which has also applied for an NBFC license to take a shot at lending to merchants using its platform, is in final stages of closing a USD 70 million round led by B Capital Group, said another ET report. Its existing investors Sequoia Capital and Tencent may also participate in the financing round, which is expected to triple its valuation “to between USD 275 million and USD 300 million.”