BharatPe: Merchant Lending Model

Company Background

BharatPe was founded in March 2018 by Ashneer Grover and Shashvat Nakrani as a fintech company focused on enabling digital payments and lending for small merchants in India. According to an interview with Ashneer Grover published in Inc42 in August 2019, the company's core value proposition was to provide merchants with a single QR code that could accept payments from multiple UPI apps without charging any merchant discount rate (MDR). The company positioned itself as a B2B fintech platform serving small merchants, kirana stores, and micro-enterprises across India. As stated in a press release from June 2020, BharatPe aimed to build India's first "zero MDR payment acceptance service" while simultaneously enabling access to credit for underserved merchants.

The Merchant Lending Model: Structure and Approach

Lending as a Core Value Proposition

According to Suhail Sameer, CEO of BharatPe, in an interview with The Economic Times in November 2020, the company's business model was built on the premise that "payments are a loss-making business, and lending is where we make money." This statement clarified that BharatPe viewed its zero-MDR payment infrastructure primarily as a customer acquisition channel for its lending business. In the same interview, Sameer explained that the company's strategy was to onboard merchants through free QR codes and payment acceptance, then leverage the transaction data generated through these payments to underwrite loans. He stated, "We use the payment flow data to assess creditworthiness and provide loans within minutes."

Data-Driven Underwriting

BharatPe's lending model relied on analyzing transaction data flowing through its payment platform. According to a company blog post from September 2019, the platform assessed factors including transaction volumes, frequency of payments, ticket sizes, and consistency of cash flows to evaluate merchant creditworthiness. In an interview with Mint in January 2021, Ashneer Grover explained that traditional banks were unable to serve this merchant segment because they lacked transaction visibility and found it expensive to underwrite small-ticket loans. He stated that BharatPe's advantage was that "we already have the payment data, so we can underwrite loans at near-zero marginal cost."

Loan Products and Ticket Sizes

According to BharatPe's website as documented in various news reports from 2019-2021, the company offered unsecured business loans to merchants ranging from ₹10,000 to ₹7 lakh with tenures between 3 to 18 months. The loans were positioned as working capital loans for inventory purchase, business expansion, or cash flow management. In a CNBC-TV18 interview in December 2020, Ashneer Grover stated that the average loan ticket size was around ₹50,000 to ₹1 lakh, with repayment terms typically ranging from 6 to 12 months. He noted that these loan sizes were well-suited to small merchants and kirana store owners who needed quick access to capital without extensive paperwork.

Growth and Scale

Merchant Network Expansion

According to a press release issued in June 2020, BharatPe claimed to have onboarded over 5 million merchants on its platform. By September 2021, as stated in another press release, this number had grown to 7.5 million merchants. In an interview with Business Standard in October 2021, Suhail Sameer stated that the company was adding approximately 300,000 to 350,000 merchants per month to its network.

Funding and Investor Confidence

BharatPe raised significant capital from prominent investors based partly on the strength of its merchant lending model. According to press releases and regulatory filings:

• In February 2019, BharatPe raised $15.5 million in Series A funding led by Sequoia Capital India

• In October 2019, the company raised $50 million in Series B led by Ribbit Capital and existing investors

• In February 2021, BharatPe raised $108 million in Series D funding led by Coatue Management, valuing the company at $900 million

• In August 2021, the company raised $370 million in Series E funding at a valuation of $2.85 billion

  
  

According to a press release from August 2021, Ribbit Capital's Micky Malka stated that "BharatPe has built a unique lending model that serves an underserved segment and has shown strong unit economics."

Regulatory Environment and Challenges

RBI Guidelines on Digital Lending

In September 2021, the Reserve Bank of India (RBI) announced increased scrutiny of digital lending platforms and fintech companies acting as loan service providers (LSPs). According to an RBI press release from September 2021, the regulator expressed concerns about unfair practices, excessive interest rates, and unauthorized use of customer data by digital lending apps. In June 2022, the RBI released guidelines on digital lending requiring that all loan disbursals and repayments must occur only between the bank accounts of the borrower and the regulated lending entity. According to the RBI press release, loan service providers (like BharatPe) were not permitted to hold customer funds or process repayments directly through their own accounts.

Corporate Governance Issues

In January 2022, BharatPe co-founder Ashneer Grover went on voluntary leave following allegations of financial irregularities. According to a company statement released in January 2022, BharatPe's board initiated an independent audit by consulting firm Alvarez & Marsal to investigate the allegations. In March 2022, BharatPe announced the termination of Ashneer Grover's employment "for cause" based on the findings of the governance review. According to a company press release from March 1, 2022, the investigation found that Grover and his family members engaged in "extensive misappropriation of company funds." These governance challenges created uncertainty about the company's operations and strategic direction during 2022. However, no verified information is publicly available on how these issues specifically affected the merchant lending business or loan portfolio performance.

Strategic Evolution

Diversification Beyond Lending

According to press releases from 2021-2022, BharatPe expanded beyond its core merchant lending model into several adjacent businesses:

• In June 2021, BharatPe launched "12% Club," a peer-to-peer lending platform for consumers

• In October 2021, the company announced the launch of BharatPe Small, a small business banking account in partnership with ICICI Bank

• In June 2022, BharatPe partnered with Unity Small Finance Bank to launch "Unity Small Finance Bank powered by BharatPe," aiming to offer banking services.

  
  

According to an interview with Suhail Sameer in The Economic Times in November 2021, this diversification was aimed at building "a full-stack financial services platform for small businesses" beyond just lending.

Leadership Changes and Strategic Recalibration

Following Ashneer Grover's exit, BharatPe underwent significant leadership changes. According to press releases:

• In January 2023, Nalin Negi was appointed as CEO, replacing Suhail Sameer who transitioned to a strategic advisor role

• In July 2023, the company announced cost optimization measures and organizational restructuring

Market Context: Digital Lending in India

Growth of Digital Lending Ecosystem

According to a report by TransUnion CIBIL published in October 2021, digital lending in India grew from ₹33,000 crore in FY17 to ₹4.4 lakh crore in FY21. The report projected this to reach ₹20 lakh crore by FY25. A report by Boston Consulting Group (BCG) and FICCI published in September 2021 estimated that digital lending could account for $350-400 billion in cumulative disbursements by 2023, with small and medium enterprises (SMEs) representing a significant portion of this opportunity. These reports highlighted the structural opportunity that BharatPe was positioned to capture through its merchant-focused model, though the reports did not specifically analyze BharatPe's performance or market share.

Competition in Merchant Lending

BharatPe operated in a competitive landscape with several players targeting small merchant lending:

• Paytm, another major payments platform, offered merchant loans through partnerships with NBFCs, as reported in The Economic Times in June 2020

• Amazon Pay offered loans to sellers on its marketplace platform, according to Amazon press releases

• Traditional players like Capital Float and Lendingkart focused on SME lending with digital underwriting

Business Model Economics

Revenue Generation

According to interviews with company executives, BharatPe generated revenue from its lending business through two primary mechanisms:

1. Platform fees from lending partners: In an interview with Mint in January 2021, Ashneer Grover stated that BharatPe charged partner NBFCs and banks a "platform fee" for sourcing merchants and facilitating loans. He indicated this was typically a percentage of the loan amount disbursed, though he did not disclose the specific percentage.

2. Processing fees from merchants: According to the company's website and loan terms documented in news reports, merchants were charged a processing fee on loans, typically deducted upfront from the loan amount. No verified information on the exact fee structure is publicly available.

Limitations

1. Credit Performance Metrics: No publicly available data exists on non-performing assets (NPAs), default rates, collection efficiency, or loan loss provisions for BharatPe's facilitated loans.

2. Unit Economics: Specific metrics on customer acquisition cost (CAC), lifetime value (LTV), contribution margin per merchant, or cohort-based profitability have not been disclosed publicly.

3. Risk Management: Details on underwriting models, risk assessment frameworks, collection mechanisms, or portfolio management practices are not available in public sources.

4. Financial Statements: As a private company, BharatPe has not released audited financial statements showing revenues, expenses, or profitability specifically attributable to the lending business.

5. Merchant Behavior: Data on repeat borrowing rates, cross-sell effectiveness, or merchant retention is not publicly documented.

6. Impact of Governance Issues: The specific operational and financial impact of the corporate governance challenges in 2022 on the lending business has not been disclosed publicly.

7. Current Performance: As of late 2023 and 2024, minimal verified information has been released about the lending business's performance, scale, or strategic direction.

Key Lessons

Strategic Insights

Leveraging Transactional Data for Credit Assessment: BharatPe's model demonstrated that payment transaction data could potentially serve as an alternative to traditional credit bureau data for underwriting small merchants. According to statements from company executives, this approach enabled faster loan approvals and lower underwriting costs compared to traditional methods, though the specific efficacy and risk outcomes of this approach have not been publicly verified.

Asset-Light Financial Services Model: By operating as a lending marketplace rather than a balance sheet lender, BharatPe reduced capital requirements and regulatory complexity. As explained by Ashneer Grover in multiple interviews, this partnership model enabled rapid scaling of loan volumes without the need to raise debt capital or obtain an NBFC license. However, this also meant the company captured only a fraction of the lending economics and had limited control over credit decisions and pricing.

Cross-Selling and Customer Lifetime Value: The strategy of using zero-MDR payments as a customer acquisition tool for lending represented a classic loss-leader approach. According to company executives, the logic was that the value captured through lending would exceed the costs of providing free payment acceptance. However, no verified data on the actual economics of this approach has been made publicly available.

Operational Considerations

Dependence on Partner Institutions: BharatPe's reliance on NBFC and bank partners created potential vulnerabilities. Changes in partner risk appetite, regulatory constraints, or partner business priorities could impact BharatPe's lending volumes and unit economics. The exact nature of these partnerships, including revenue sharing arrangements and control over credit policies, has not been publicly documented.

Regulatory Evolution: The digital lending ecosystem in India has faced increasing regulatory scrutiny, particularly around data privacy, fair lending practices, and the role of fintech companies as loan service providers. The RBI's 2022 guidelines on digital lending demonstrated how regulatory changes can require significant operational adjustments for fintech lending platforms.

Importance of Corporate Governance: The governance challenges at BharatPe in 2022 highlighted how founder-related controversies can create uncertainty and potentially impact business operations, partner relationships, and employee morale, regardless of the underlying business model's soundness.

Market Dynamics

Large Addressable Market: The merchant lending opportunity in India remains substantial, with millions of small businesses lacking adequate access to formal credit. Reports from industry analysts consistently identified this as a high-potential market segment during BharatPe's growth period.

Competitive Intensity: Multiple well-funded players competed in the merchant lending space, including both fintech startups and technology arms of traditional financial institutions. Sustainable differentiation in such markets requires clear advantages in customer acquisition, underwriting, or unit economics.

Technology as Enabler, Not Guarantee: While digital underwriting and instant loan disbursal created better customer experiences, technology alone did not guarantee superior credit outcomes or sustainable profitability. The actual performance of digitally underwritten loans relative to traditional methods requires verification through complete credit cycles.

Conclusion

BharatPe’s merchant lending model demonstrates how payments can be strategically used as a distribution and data engine rather than a revenue driver. By offering zero-MDR QR payments, BharatPe rapidly onboarded small merchants and captured high-frequency transaction data, which became the foundation for credit underwriting. This data-led approach allowed the company to address a critical gap in India’s MSME ecosystem—access to quick, unsecured working capital. While regulatory scrutiny and sustainability of lending economics remain ongoing challenges, BharatPe’s model highlights a fundamental fintech insight: in India, scale in payments creates trust, data creates credit access, and lending creates monetization.

Discussion Questions

1. Business Model Sustainability and Unit Economics: Evaluate BharatPe's strategy of offering zero-MDR payment acceptance as a customer acquisition channel for lending. Under what conditions would this model generate positive unit economics at scale? What assumptions about merchant behavior, cross-sell rates, and lending margins would need to hold true? How would you assess whether the model was actually working as intended given the limited public information available?

2. Credit Risk Management in Data-Driven Underwriting: Analyze the potential advantages and risks of using payment transaction data rather than traditional credit bureau data to underwrite merchant loans. What types of credit risk might be visible in transaction patterns, and what risks might be missed? How would you design an experiment to validate whether this approach produces better credit outcomes than traditional methods? What additional data would you want to see to evaluate the portfolio quality?

3. Regulatory Considerations in Fintech Lending Models: Examine how the RBI's evolving regulatory framework for digital lending platforms impacts business models like BharatPe's. What are the strategic trade-offs between operating as a lending marketplace versus obtaining an NBFC license and lending from one's own balance sheet? How should fintech companies design their operating models to be resilient to regulatory changes while still achieving venture-scale growth?

4. Corporate Governance and Operational Resilience: Assess the relationship between the governance challenges BharatPe faced in 2022 and the underlying health of its merchant lending business. How can investors and stakeholders distinguish between founder-related controversies and fundamental business model problems? What governance structures and operational safeguards would help insulate a company's core operations from leadership turmoil?