BharatPe’s Merchant-First Playbook Brings FY25 Turnaround; But What’s Next?

In early 2024, when listed fintech giants and unlisted startups were shaken by RBI’s crackdown on unsecured lending, BharatPe went into “silent mode”. 

On Friday, the company announced its FY25 results, claiming profitability on an adjusted basis. It reported INR 6 Cr in profit before tax and excluding ESOP expenses from a net loss of INR 342 Cr in FY24. Curiously, revenue grew to INR 1,667 Cr in FY25 from INR 1,426 Cr in FY24, so the big push towards profitability has come on the back of efficiency.

While Paytm saw a decline in its financial services revenue in FY25 by 15%, BharatPe’s financial services revenue grew by 10% YOY. 

The other listed competitor, Mobikwik reported a 4% growth in financial services revenue on a QoQ basis in Q1 FY26 at INR 58.3 Cr. So what is BharatPe doing right?

CEO Nalin Negi however places the credit on the merchant lending segment, which is not only driving growth for BharatPe but even that of the competitors. At 60% of overall revenues, financial services (primarily merchant lending) brought in nearly INR 1,000 Cr for BharatPe. Nearest rival Paytm which operates on a much bigger customer base reported INR 1,703 Cr revenue in FY25 comprising both merchant and personal loans.

“Unlike in the past few years, we digital lending companies now operate under a much clearer regulatory lens that only builds confidence in the industry. We have been constantly working on our lending business, onboarded 5 more NBFCs this year even if the overall industry climate was gloomy,” Negi told Inc42.

The twin engines of having its own NBFC, Trillion Loans which accounts for 25-30% of overall loan disbursals and a stake in Unity Small Finance Bank has started to bear dividends for BharatPe leading to growth in its core business. 

Breaking down the math behind reaching near breakeven, Negi added “One thing we held onto is to not let the credit disbursal costs even as our scale grew in terms of topline and merchants base.” 

BharatPe’s Merchant Lending Drive

Negi continues to be bullish about the merchant lending business despite the intense competition in this segment, as well as the roving eye of the regulator. 

Fintech startups in India have gained a lot of ground this year while working on stronger underwriting rules, KYC norms, building confidence measures with banks, NBFCs  after the digital lending sector came under RBI’s scrutiny first via digital lending guidelines and later first loss default guarantees among others. 

Despite a much clearer regulatory air, fintechs were conservative in exposure to lending business due to the overall slump in the market and RBI’s tough stance. 

However for BharatPe, merchant lending turned out to be a sweet spot which swung its fortunes in a year that saw many  digital-first lending businesses scale down. 

The fintech unicorn also seems to have moved on from the impact of management tussles, legal disputes after its former co-founder Ashneer Grover’s saga and is bullish on growing its core merchant lending business which drove 60% of its overall revenue. 

“The big focus on controlling the credit disbursal costs. Credit disbursal via merchant lending constitutes a significant portion of our business. This has worked in conjunction with the way we handled credit business and we did not get distracted by what was happening in the industry overall.”

Notably, besides its own NBFC Trillion Loans, the company partnered with five other NBFCs in FY25, taking the total to eight. This has been a key factor in improving efficiency and reducing dependency or exposure to NBFCs that might come under the regulatory eye. 

Is Digital Lending Slowing Down?

There are other potential headwinds in BharatPe’s way as it looks to exit FY26 with net profitability after coming close in FY25. Regulations are the biggest factor, and as we saw in Paytm’s case, they can derail a fintech business in just one quarter. 

In some ways, Paytm is still struggling to get back to its position of strength after early 2024. But Negi believes BharatPe is somewhat immune to this because of its sharp focus on merchant lending.  Currently, the average ticket size of loans is INR 1 Lakh and the weighted average tenure is 11 months.

“I want to clear the air here. We have seen the regulatory crackdown on small-ticket size P2P loans, mostly unsecured ones. BharatPe does not and will not engage in that segment. So, I believe the quality of credit matters a lot and then the underwriting process behind it. At BharatPe, though we call it unsecured loans, in nature it is very different from your unsecured personal loan. Here we underwrite the cash flows of the merchant we lend to. In a way, it is the underwriting of his livelihood and that is no small collateral,” the CEO told us. 

Negi also believes that RBI regulations have only unlocked real value in merchant lending with a renewed focus on quality merchant lending and away from small-ticket personal loans. “The second important factor is the realisation from NBFCs that they would need fintechs for an EMI stack which gives them insights on daily transaction habits of the merchants unlike the EMI monthly installments where they had no such visibility. This again acts as an important leverage for banks and NBFCs,” the former SBI Cards CFO added.

There’s some truth to it. Even payment aggregators (PA) are building lending businesses recognising the huge revenue and efficiency potential. Negi believes more players will enter the space in the next 8-9 months. The likes of Jio Financial Services is about to make a big play for merchant lending, while many fintech startups have adopted the NBFC-first approach, which BharatPe has banked on. 

Negi believes the edge will come from building a trust factor with NBFCs and banks. “Large NBFCs have partnered with us and other fintechs over the last one year. These are the financial service companies who know the credit business which is different from the industry climate several years back.”

BharatPe’s chief also claimed a continuous decline in non-performing assets and bad loans, but no numbers were shared. He added that merchant loans are typically live loans where the fintech platforms provide a merchant’s score card on a daily basis to the NBFC or bank for the repayment tenure.

“ If you are taking a loan which we are facilitating, we will also provide you with a payment solution, give you QR codes or soundboxes or PoS machines, enable credit cards and UPI among other things. This is so much more than what a traditional NBFC can offer to them.” 

Looking Beyond Lending

BharatPe started out as a payments company, but like most fintech companies, it is banking on services for revenue. That could change with UPI becoming chargeable for customers and merchants in the future, as has been speculated. 

The MDR or merchant discount rate question might finally have an answer that could boost and scupper payments apps at the same time. It increases the revenue potential but puts competition into overdrive, potentially leading to higher costs. 

For BharatPe, the revenue share from the payments business which constitutes device subscriptions, QR codes and UPI has almost remained constant in FY25 on a YOY basis. While payments makes up less than 40% of the business, this could change soon.  On the consumer side of the business, it has a separate ‘super app’ for UPI, bill payments, personal loans, cobranded credit cards and credit on UPI. 

It’s hard not to see that the last three are extensions of the broader lending business, and a lot will depend on UPI becoming a better revenue stream in the long run as that has the higher engagement. 

 As for MDR, Negi sees it as a net positive development for the fintech ecosystem, and he is also of the belief that UPI cannot remain free forever given the infrastructure and maintenance costs for apps like BharatPe. He added, “We have been building our business independently of MDR, but if it is brought back it should be good for the ecosystem overall.”

Even though BharatPe is not among the leading UPI players, it needs to have readiness to accept payments and this means a system that’s constantly up and functional. 

The next big challenge for BharatPe will be growing the business as a whole rather than becoming a digital lender in the garb of a fintech company. Negi earmarked the IPO as a milestone and this could define how BharatPe looks at the business as a whole. 

The company is watching how retail markets are reacting towards the upcoming listings of the payments companies. Pine Labs, PhonePe and others are likely to list on the stock exchanges before BharatPe, and their performance would be a litmus test for fintech after the market burned their fingers on Paytm in 2021 and MobiKwik in 2024. 

Perhaps in this context, Negi added, “It is also about how well the industry understands the payment space and that is very important before we come out for the IPO.”