There is a $1 Tn credit gap for the Indian middle class, and less than 3% of India has credit cards - this is the TAM BharatX has set its eyes on
BharatX’s architecture does not ask for any documents from the customer to give credit, and uses data points such as phone number KYCs and bank SMSes
The consumer credit venture provides embedded credit on 50+ consumer-facing platforms via its API and software development kit
Much has been talked about the need for financial inclusion, especially for the middle and lower-income segment, in the country. However, every time a user without a credit history reaches the doorsteps of banks (and neobanks), he is turned away. A similar incident with one of BharatX founders, when he was still in college, led to an interesting realisation.
The founder trio and NIT alumni – Mehul Nath Jindal, Eeshan Sharma and Shyam Murugan – found that due to the rise of ecommerce and digital payments, a consumer’s cash flow can be easily tracked by monitoring his messages and emails. This led them to the realisation that raising collateral-free small-ticket loans should be easier for users than it was.
However, only a few companies were able to do it due to limited tech availability and even lesser tech knowledge. So, the trio, while still in college, launched BharatX in 2019 as a white-label, embedded credit product that can turn any consumer internet company into a credit provider with 30 lines of code.
Simply put, the embedded financing startup, which featured in Inc42’s January 2022 edition of ‘30 Startups To Watch’, enables consumer internet companies to offer credit to their users – be it in the form of UPI credit, instalment payment, pay later option or a wholly-customised offering of their choice.
The Market Gap & BharatX’s Offering
Currently, nearly 480 Mn Indians don’t get access to credit due to a lack of documentation, high-interest rates and inadequate supply of credit in the informal sector. There is a $1 Tn credit gap for the Indian middle class, and less than 3% of India has credit cards for making purchases using credit, according to BharatX.
The consumer credit venture provides embedded credit on 50+ consumer-facing platforms via its Application Programming Interfaces (API) and software development kit (SDK). Some special offerings include ‘Khata’, where users can buy groceries and daily essentials on credit, ‘try-and-buy fashion’ (on loan), ‘pay later’ for food delivery and payment apps, and postpaid features for ride-hailing apps.
BharatX acts as the intermediary credit provider and risk-taker, charging a value-based interest rate from consumers and a transaction fee from embedding companies. The startup has a personal loan approval rate of 55% against the industry average of 20%.
According to Jindal, BharatX largely works with D2C brands, edtech and ecommerce companies. “We ask these companies to give credit to their customers so that they can access the platform better and get a credit feature, helping increase the purchasing power of the customer.”
Interestingly, BharatX’s architecture does not ask for any documents. The proprietary tech fetches user information (with consent) on the basis of their transaction history. This helps the company underwrite loans and mitigate any risks, enabling a purely embedded product.
“The companies can use BharatX’s embedded features as threat identification mechanism, get embedded BNPL offerings on an ecommerce store and provide an emergency credit line for a healthcare use case,” Jindal told Inc42.
Currently, the most popular embedded credit product by BharatX, besides the ‘pay in three’ feature, is the khata plan for daily essentials sellers. The feature allows users to buy groceries and other household essentials, and pay next month – similar to an offline khata system or credit card-style feature.
One of the newest features launched by BharatX for the fashion and accessories industry is ‘try-and-buy’. It allows users to buy apparel and fashion products with a payment window of up to 10 days post delivery, solving the returns and delayed delivery issues.
The Data Points That Makes A Customer Eligible For Small Loans
The 30 lines of code that act as BharatX’s ostensible offering are free for companies to copy and embed in their backend system.
On the frontend, while the payment for the product looks like a routine gateway, it offers a ‘pay in three’ option (a feature where users can pay the company in three instalments).
Jindal explained that the companies are directly paid in full. The customer is indirectly connected to a lender, with whom BharatX fundamentally works and underwrites the credits.
“Our system determines whether the phone number has a good traction and it directly fetches the KYC details from the number, whereas the OTP received while making the payments acts as a biometric-style of KYC to ensure the active use of the number. After this, BharatX underwrites the payment and tells the user of the interest rates and other fees. Users pay the downpayment or the instalment and buy the product on credit,” he said.
Based on the mobile number (and sometimes the email address), BharatX’s embedded payment architecture fetches details like bank transaction messages and statements; online payment receipts, among others; information if the account is associated with a salaried person or not; whether the purchase amount matches the ability of the user to payback, among other things.
The BharatX founder stressed that all these data points are fetched from the existing KYC of the user which they have likely done while applying for a bank account, a credit card, a previous loan, among others.
From Manual Checklist To Self-Serve Onboarding – The Roadmap Ahead
BharatX currently needs manual intervention while onboarding B2C companies.
“We do have an intervention process where we manually have to verify the credibility of the merchant through documentation that they submit to us, like the company charges, GST returns, among others,” Jindal said.
However, the early stage fintech startup is building a self-serve signup process to automate and build a faster payment gateway for a larger set of merchants, eyeing to reach an ecommerce user base of 100K+ users in 2022.
The startup recently raised $4.5 Mn from Y Combinator, 8i Ventures, Multiply Ventures and Soma Capital. It has been growing at a monthly rate of 40-50%, and Jindal claimed that it has so far onboarded over 75 merchants.
With an AUM of under $100 Mn and a revenue run rate of $10 Mn for FY23, BharatX is now looking to build a loan book of $10 Bn by 2025. It competes with the likes of PayU’s LazyPay, Falcon, and Rupifi, among others, but believes that it can revolutionise how internet shoppers avail formal credit on merchant sites.