BharatPe banks on engineers

In June, a three-year old fintech startup won a rare banking licence from the RBI—a prize that has eluded many of India’s biggest business barons. BharatPe now plans to launch India’s first merchant-focussed bank in the next three to four months. We spoke to several experts to make sense of the company’s foray into traditional banking.

Also in this letter:

  • Mastercard ban gives Visa all the power
  • Why IT services firms are on a hiring spree
  • Govts need to hold NSO Group accountable, says WhatsApp CEO

Making sense of BharatPe’s banking foray

(L-R) BharatPe cofounder Ashneer Grover, Centrum Group chairman Jaspal Bindra, BharatPe group president Suhail Sameer

Hi, it’s Ashwin! Digbijay and I have been working on this story for a while.

On Monday, Ashneer Grover, cofounder and chief executive of BharatPe, posted something on LinkedIn that raised a few eyebrows. The startup, which is looking to hire 100 or so engineers to build “next-generation banking,” is set to offer its new talents BMW superbikes and iPad Pros, among other luxury goods.

Meanwhile, cofounder Bhavik Koladiya took to Twitter the same evening, urging engineers to join BharatPe to build the “bank of the century”. “Engineers need to be appreciated and their time has now arrived,” Koladiya tweeted.

It’s a snapshot of the future. We don’t know how BharatPe’s proposed small finance bank (SFB) with Centrum Finance will shape up, but it’s no surprise that a founder attempting to build “the bank of the century” is offering BMWs and iPads to engineers and not to bankers.

A fintech bank? The unnamed SFB, which will be equally owned by BharatPe and Centrum Finance, is set to be launched in the next three to four months. The central bank’s decision to allow a 44-year old non-banking finance company and 3-year old startup to launch a new-age bank and use it to acquire a scam-laden co-operative bank, has split opinion. Is it a progressive move, or a desperate one?

Over the past few weeks, we spoke to a dozen sources in the banking, payments and fintech sectors, to make sense of BharatPe’s foray into traditional banking. We were surprised by the differences in opinion we encountered.

A veteran banker called RBI’s move “unusual”.

A fintech founder called BharatPe “Paytm on steroids”.

But the most interesting opinion was that of a banking expert, who drew parallels between Yes Bank’s origin story and BharatPe-Centrum’s joint bid.

Flashback: In 2003, in an unprecedented move, the RBI allowed three “professional entrepreneurs” – Rana Kapoor, Ashok Kapur and Harkirat Singh – to set up a universal bank with a Dutch NBFC called Rabobank.

The story of how Rana Kapoor single-handedly (Harkirat Singh was ousted in 2003 and Ashok Kapur died in the 2008 Mumbai terror attack) – built, scaled, and then ran to ground Yes Bank is well-chronicled.

This story is not about Yes Bank or Rana Kapoor, though. It is not even about India’s banking system and its flaws. The RBI’s nod for Yes Bank 18 years ago was a landmark event for India’s entrepreneurs trying to break into the uber-exclusive club of licenced banks. The eventual downfall of Yes Bank in 2020 is equally important to how RBI perceives founders and promoters vying for banking licences.

There is almost unanimous agreement that a fintech startup being allowed to own a banking entity in India is similarly momentous.

The queue for the next set of new-age banks is a long and interesting one too – Sachin Bansal’s Navi, IPO-bound Paytm, and even the likes of Airtel and Reliance Jio want to convert their payments bank into SFBs.

RBI-SFB
Back to BharatPe: There’s a lot to unpack here. The unnamed SFB is likely to be positioned as “India’s first merchant bank”. Its products are expected to largely be composed of MSME loans and micro-ticket unsecured loans. BharatPe is in talks with at least eight Indian banks – both private and public – for various product partnerships, from co-lending agreements to building deposit franchises, sources told us.

BharatPe is also on the verge of closing a $350 million round from Tiger Global, which will make it a unicorn with a valuation of around $2.8 billion. The startup is also looking to hire for senior management roles in compliance, finance, and legal to strengthen its foray into the big bad world of banking.

The firm is also set to grant Suhail Sameer, an external senior management hire, the tag of cofounder, according to our sources. This is because two of the cofounders — Bhavik Koladiya and Shashvat Nakrani — are seen as not experienced enough to head an entity with a banking licence. Grover, in response to our queries, denied this.

Apart from the internal management flux, there are also RBI’s riders to BharatPe and Centrum. Moreover, neither RBI nor the two stakeholders have disclosed the official resolution plan for depositors of Punjab and Maharashtra Co-operative Bank. We put together all these pieces to tell this story.

Read it here.

RBI’s Mastercard ban gives Visa all the power

Smartphone with Mastercard logo is seen in front of displayed stock graph in this illustration
The Reserve Bank of India’s decision to ban Mastercard from issuing new debit and credit cards in India is likely to create a near monopoly in the country’s credit card market.

Visa is expected to corner a significant chunk of new business that would have otherwise gone to its global rival.

Indian players are expected to gain modestly but Visa is likely to hold the advantage thanks to its superior rewards for merchants, and the government’s zero merchant discount rate (MDR) rule for the National Payments Corporation of India (NPCI)

Jargon check: MDR is the fee banks charge merchants to process payments. In December 2018, Finance Minister Nirmala Sitharaman had announced that UPI and RuPay transactions would be exempted from MDR.

The spoils: HDFC Bank, which incidentally has also been banned from issuing new credit cards, already has plans to roll out debit cards with Visa and RuPay.

A source also told us that many leading co-branded partnerships through Mastercard, such as Flipkart-Axis Bank and Indigo-Kotak Mahindra Bank, are now expected to go to Visa.

Another area where Visa could win big is the nascent commercial credit card space, which is it dominates along with Mastercard. “Spending on these cards can go up to Rs 500 crore a month for large companies,” said a payments executive. “RuPay doesn’t have any exposure in this space.”

In one quote: “Banks cannot make money through RuPay debit transactions. Unless there is a mandate, as with public sector banks, most others won’t be compelled to shift their card network to RuPay as it won’t make them any money. This puts Visa in a seriously advantageous position in India,” said an industry official.

Tweet of the day

Why IT services firms are on a hiring spree

Hiring
India’s $150-billion IT services sector will hire more than 150,000 fresh graduates this fiscal, boosting its total workforce by nearly a third, according to industry estimates.

  • The biggies — Tata Consultancy Services, Infosys, HCL Technologies and Wipro — will hire over 120,000 freshers, primarily in India. These four firms account for over a third of India’s total IT services revenue.
  • Mid-size firms such as LTI and Mindtree will also hire significantly more college graduates this fiscal.

Why? “IT services companies have exhausted their benches and don’t have enough people to deploy for new projects even as they win large deals,” said Kamal Karanth, cofounder, Xpheno, a staffing solutions firm.

  • TCS recently snagged the Prudential Financial deal, Infosys won the Daimler contract and Wipro bagged a deal from Metro AG.

The companies are also hiring at a furious pace to offset a sharp increase in the attrition rate, particularly in the last quarter. Employees with 2-10 years of experience have been quitting in large numbers, sources told us.

  • The big four, which together employ over a fourth of India’s 4.6 million IT workforce, hired more than 48,500 people in the quarter that ended in June.
  • TCS crossed 500,000 employees after adding more than 20,400 employees that quarter — the most it has ever hired in a three-month period.
  • Infosys meanwhile hired more than 8,200, Wipro increased its staff by more than 12,000, and HCL Technologies added 7,500 people that quarter.

ETtech Done Deals

Edtech
■ Private equity major Blackstone Group has agreed to acquire a controlling stake in edtech startup Simplilearn for $250 million. This comes just a few months after the fund sold its portfolio company Aakash Educational Services, which runs tutorial centres across the country, to edtech startup Byju’s in a cash-and-stock deal estimated at $950 million.

GlobalBees, a Thrasio-style investment platform backed by Firstcry, has raised $150 million in a mix of equity and debt in Series A funding. The round was led by FirstCry and some of its investors and included Lightspeed Venture Partners, the company said on Monday. This is the largest Series A funding round by a Thrasio-style startup in India.

■ Used car retailing platform Spinny has secured $108 million in its Series D funding round led by Tiger Global. The funding, a mix of primary and secondary capital, values the firm at $750-800 million. New York-based Avenir Growth also participated in the round along with existing investor General Catalyst and others.

■ Health tech startup Eka.Care has landed $4.5 million from investors such as 3one4Capital, Eximius Ventures, Speciale Invest and other marquee angel investors.

■ Vaccine technology startup Mynvax, which was incubated by the Society for Innovation and Development (SID) at the Indian Institute of Science (IISc), Bengaluru, has secured $4.2 million in its Series A funding round led by venture capital firm Accel.

■ Fintech startup Razorpay has acquired Bengaluru-based TERA Finlabs, which provides technology, risk and capital solutions to enable embedded financing solutions for businesses.

Infographic Insight

Amazon Web Services rules the cloud space with a nearly one-third market share. The company, along with Microsoft Azure, accounted for more than half of global cloud revenue in the first three months of 2021.

According to Synergy Research Group estimates, global cloud services revenue amounted to $39.5 billion in the first quarter of 2021, putting the industry on track to surpass $150 billion in revenue this year.

Ruling The Cloud

Govts need to hold NSO Group accountable, says WhatsApp CEO

whatsapp ceo
WhatsApp CEO Will Cathcart has urged governments and companies to take steps to hold NSO Group accountable, and impose a global moratorium on the use of unaccountable surveillance technology.

These comments follow an expose by a global consortium of media organisations, which revealed that many human rights activists, journalists, politicians and lawyers have been snooped on by governments in various countries, including India, using hacking software supplied by Israel’s NSO Group.

India’s IT and communications minister Ashwini Vaishnaw claimed in the Lok Sabha that “any sort of illegal surveillance” by unauthorised persons was not possible in the country due to various “checks and balances present in our laws and our robust institutions”.

Meanwhile, Apple has conceded that its iPhones are vulnerable to Pegasus-type breaches, calling the software “highly sophisticated”.

Shiv Nadar becomes chairman emeritus of HCL Tech

nadar
Shiv Nadar on Monday stepped down as managing director and from the board of HCL Technologies, the company he founded with seven others in 1976, and which is now India’s third-largest IT services firm.

  • Nadar, 76, will remain as chairman emeritus & strategic advisor, the company said. C Vijayakumar, president and CEO, will also be the managing director for five years. Nadar’s daughter Roshni Malhotra-Nadar took over as chairperson of HCL Technologies last July.

For over a decade, Nadar backed off from running HCL, trusting his executives to build the business while he focused on setting strategy and philanthropy as chairman of the Shiv Nadar Foundation.

Other Top Stories We Are Covering

Duolingo eyes over $3 billion valuation: Language-learning app Duolingo Inc said it was aiming to be valued at up to $3.4 billion in its initial public offering in the US. About 5.1 million shares will be offered in IPO, priced between $85 and $95 each, which would rake in more than $485 million at the top end of that range.

Zomato CEO Deepinder Goyal joins Magicpin board: Deepinder Goyal, Zomato’s cofounder and chief executive, has joined the board of Magicpin as an independent director, the online business discovery and rewards platform said on Monday.

Global Picks We Are Reading

  • Zoom to buy cloud-based call center operator Five9 in $15 billion deal (Reuters)
  • What China expects from businesses: Total Surrender (NYT)
  • Robinhood Markets seeks up to $35 billion valuation in mega US IPO (Reuters)

Comments are closed.