‘Payments businesses will not survive if they don’t innovate’

It is hard to make money from payments and those fintech companies that don’t realise this, are going to be putting their businesses at risk, says Suhail Sameer, CEO of BharatPe. In a candid conversation with Malini Bhupta, he says the only way to build a sustainable business is through lending and by driving more traffic to the shops. Edited excerpts:

The current realisation among investors is that you cannot make money from a payments business. Do you agree?

BharatPe was born out of the premise that one cannot make money from payments, especially in India. In the West, financial services companies make money on payments, as the transaction margins are high and interest rates low. India is a different market. In India, you have to think of the shopkeeper. The margins in retail are wafer-thin. Hence, when you tell the shopkeeper that you will settle his money in two days into his bank account, and charge 2% for the payment transactions, he would prefer to stay with cash transactions.

Today, the card companies in India are also making 1-2.5% MDR (merchant discount rate) on cards. I am of the firm belief that MDR will be zero in the times to come. I would like it to happen tomorrow. The government’s agenda is to make the economy tax-liable and do away with cash payments. MDR being zero will act as a great enabler for adoption of digital payments in the country, thus, helping achieve the objective of cash less India.

Why did you work on a model that charges zero MDR given that the payments business is still big for many big companies?

We decided to work on this premise and decided not to charge MDR. We realised very early that if you make payment charges zero for the shopkeeper, he will be willing to accept digital payments. That was a leap of faith. We have worked with zero MDR for QR payments to merchants since inception.Then, one day the NPCI and the government decided to make MDR on these QR transactions zero too. Our biggest cost on the P&L went to zero with this announcement.

My understanding is that the only circumstance where an Indian retailer will pay you is when you will give him capital to invest in his business or to buy more inventory. The second instance for which a shopkeeper will be willing to pay you is when you send incremental customers to the shop and in turn, help him to grow his business. There is limited or no money to be made in transactions or by offering book-keeping type products, especially in offline retail.

What is the future of payments businesses?

Our theory is clear — payments businesses will not survive if they don’t innovate. The sooner one realises that the only way to build a sustainable business is through lending and by driving more traffic to the shops, the better it is. The more you deny, like some larger fintechs have been doing, the more you put your business at risk. Vijay Shekhar Sharma is a very inspirational person and I have huge respect for what he has built, but PayTM went through a similar journey.

Can you share details about your lending business?

We started facilitating lending to our merchants in partnership with a few NBFCs (non-banking finance companies). We started in October 2019, and a few months later Covid hit us. And once we recovered, the second Covid wave came knocking. We had facilitated loan disbursals of $ 5 million until the first wave ensured that businesses come to a standstill. When the lockdowns happened, we were of the view that the money our partners had lend to the offline merchants would be written off, as there was no clarity on how long the wave will last and when normalcy will return.

But money started coming back as businesses restarted and as more and more consumers wanted to pay digitally. It showed us that the business model works even though these merchants were new to credit. Conventional banks find it difficult (or impossible) to lend to these merchants as there is nothing to securitise. On the back of our payment flows, our NBFC partners can lend to these merchants.Share the lending numbers and details about your lending products. Also, please let us know your future targets.

BharatPe facilitates loans of up to 7 lakh to its merchant partners for a period of 3/6/12 months. A few months back, we launched distributor to retailer financing and facilitate loans of upto50 lakh via our NBFC partners. We are preparing to venture into secured loans category — and have launched gold loans with our NBFC partners recently.Today, we have already facilitated disbursals of over Rs 3,000 crore to over 3 lakh offline merchants in India. This business has grown 12x in the last 12 months.

What is your take on the RBI announcement recently on payments?

The fact that the RBI is looking into digital payment charges is a welcome step as we have always believed that MDR should be zero for payments across platforms/ payment modes. UPI has been the key driver for digital payments, clocking 14 crore transactions a day. With the announcements last week, I expect it to grow even faster, and become a de-facto payment option for millions of consumers. The increase in limit will help drive growth. Also, the proposal to make the process flow for small value transactions simpler through a mechanism of ‘on-device’ wallet in UPI applications will help increase success rate on UPI transactions and in turn, drive trust.