With $700-mn war chest, PhonePe to fight Google, Amazon in rural India

Somewhere this year, as the country was dealing with the Covid-19 pandemic challenge, Sameer Nigam, founder and chief executive officer at PhonePe, adopted a stray cat he found hiding under his car. “It was raining. It came out as soon as I turned on the ignition switch. I took it home,” said Nigam, who is now able to spend time with the cat and also work from home. “Work-from-home is the only reason my wife allowed me to get the cat into the house,” he chuckled.

Despite most of PhonePe’s employees working remotely, the digital payment firm has been able to turn the Covid-19 pandemic challenge into an opportunity. 

PhonePe recently crossed the 250-million registered user milestone, with over 100 million monthly active users generating nearly 1 billion digital payment transactions in October alone. It is targeting at crossing 500-million registered users by December 2022.

“Digital payment volumes have exploded during Covid,” said Nigam, in an interview, adding, “As they say, ‘never waste a good crisis.’ We've seen phenomenal organic uptake.”

Due to the pandemic, people do not want to visit automated teller machines or pay in cash, swipe point-of-sale machines or touch similar devices. They mainly want to rely on using digital payments or quick response (QR) codes. 

“I think we are at the right time and place because we have millions of these QR codes deployed across the country,” said Nigam.

The Bengaluru-based firm had been out in the market for a long time to raise a large funding round, but there were several challenges. However, after a lot of hardships, it has been successful at signing a deal to raise $700 million in primary capital at a post-money valuation of $5.5 billion from existing Flipkart investors, including Tiger Global, led by Walmart, the world’s largest retailer, said industry sources. 

E-commerce firm Flipkart is doing a partial spin-off of PhonePe, which will help it to access dedicated, long-term capital to fund its growth ambitions, including going public by 2023.

One of the ambitions is to deepen its penetration into financial services, whose size could touch $340 billion in the next few years. The aim is to provide financial inclusion to 1 billion Indians. 

The company plans to tap into opportunities ranging from banking, insurance and wealth management to lending. 

This year, PhonePe launched 20 categories in the area of insurance and wealth management alone. The firm sold thousands of insurance policies on its platform, making it the fastest-growing insure-tech distributor in India within nine months of the insurance category going live on the app. 

PhonePe plans to launch systematic investment plan and insurance products in the form of sachets. “Next year, we plan to take a lead in the financial services market at a mass level,” said Nigam.

Digital payments will remain the core part of PhonePe’s business. The new funding replenishes its war chest to take on rivals such as Google Pay, Amazon Pay, and Alibaba-backed Paytm, which are also making significant inroads into the financial services market as well as payments. 

But what differentiates PhonePe from the competitors is its ability to reach millions of consumers with its financial products and services in rural India. It is adding thousands of salesforce to get into every ‘taluka’ by next year. 

Nigam said many of the competitors are not interested in going into rural India because they're not sure about the return on investment, but for PhonePe, it is a home advantage.

“It's intimidating going into rural India if you have barely grazed the surface on engagement with merchants in urban (areas),” said Nigam, adding, “As long as we remain hungry and agile as a start-up to be the first to get into rural India and do a lot of other things as a market leader, I think we'll be fine.”

Among other initiatives, where PhonePe plans to use the new funding is increasing the focus on research and development. 

Its platform called ‘Pay at Stores’  allows consumers to find nearby 'kiranas' or mom-and-pop stores, buy groceries, get them delivered and pay remotely. 

The other initiative is ‘Switch’, which has been to build a partner app ecosystem. It offers its users a convenient way to access and engage with multiple apps.

To help PhonePe scale up fast, Flipkart co-founder Binny Bansal is joining an independent board that is already being formed by PhonePe, along with the company co-founders Sameer Nigam and Rahul Chari. “M

“Binny (Bansal) was my boss at Flipkart. Over the years, he has become a dear friend,” said Nigam, adding, “He is a good mentor. There are learnings about how he dealt with scaling up Flipkart.”

Nigam said despite the challenges thrown by the pandemic, the entire PhonePe team responded incredibly well to keep the business afloat. 

The new funding is helping the company create a tailor-made equity incentive or employee stock ownership plan programme for its 2,200 employees. 

“We are competing with the biggest global platforms,” said Nigam, adding, “We will need to have the best people in every function at the company.”