Private lenders ICICI Bank and Yes Bank have asked homegrown payments startup BharatPe to stop using their names to collect deposits from merchants under its ‘interest income’ feature amid tightening scrutiny by the Reserve Bank of India in regulating the country’s burgeoning digital payments ecosystem.
The ‘deposit’ feature on BharatPe application, which went live in 2019, allows merchants accepting digital payments using the Quick Response code stickers of the New Delhi-based BharatPe to lock their money with the company for interest returns of “up to 12%.”
The funds collected from the merchants are then used to give Peer-to-Peer (P2P) loans in tie-up with a platform called LiquiLoans – which is a licensed entity for facilitating such loans.
P2P lending enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the middleman.
The business model of the tie-up involves BharatPe facilitating lending via LiquiLoans to other small merchants on its own platform at an annual interest rate of 24%, as per multiple industry sources.
ET Prime has highlighted this model in detail in a report published on July 7th.
Meanwhile, the banks’ concerns around the model have stemmed mainly from a risk management standpoint, said sources.
“…if the defaults exceed a certain threshold then who is responsible for guaranteeing funds to merchants?” one of the cited persons explained.
As per RBI’s guidelines on P2P lending, platforms facilitating these loans cannot take risks of default on their own balance sheets.
“An email communication was sent last month by ICICI Bank directing BharatPe to stop using the name of the banks while asking merchants to make deposits,” said one of the sources with direct knowledge. “A similar communication was also issued by Yes Bank later.”
While the source cited above said that the banks’ action was “Suo Motu” and without any regulatory intervention, at least five industry sources told ET that some of practices followed by the payment company in handling and settling of merchant funds have already irked the regulators.
BharatPe denied these charges in an emailed response to ET’s queries.
“Since the product is regulated, it is owned by the P2P NBFCs and BharatPe merely facilitates access to the product through BharatPe platform. As BharatPe is not the lender, we have never been approached by any regulator in this regard,” the company said, adding that they are helping partner NBFCs and banks disburse Rs.700 crore worth of loans in the current fiscal year.
Mails sent to ICICI Bank, Yes Bank and RBI didn’t elicit a response till press time.
Another practice which has drawn scrutiny from the payments industry and the regulators is a new Point of Sale (POS) offering called the Bharat Swipe where BharatPe doesn’t charge any Merchant Discount Rates (MDR) for card payments including credit cards from merchants.
“This is done by delaying the settlement of funds by 15 days and using the float income to give short term high interest loans,” said another source in the know.