Walmart-owned digital payments firm is processing 1.5 billion transactions a month and now about 80 per cent of all these users are from tier-2 and beyond cities, said Sameer Nigam, founder and chief executive officer at PhonePe.
“So, I know payments for a fact have started solving the financial inclusion problem,” said Nigam during a fireside chat with YourStory Founder Shradha Sharma at Converge@Walmart, the flagship event of Walmart Global Tech India, along with PhonePe founder and CTO Rahul Chari.
Every other category and sector including foodtech and e-commerce, started in the metros and then reached small towns and cities.
“We have about 20 million-odd merchants, 16 (million) of them are Tier-2 and beyond,” said Nigam. “So, where people had to travel more to pay their bills and were sending money to villages and small towns, all of that is happening on the phone.”
Four years ago, everything changed in India and it is called the Jio effect. Smartphones with cheap data have meant that all basic services have shifted to the phone.
In 2015, there were about 100-120 million people participating in the e-commerce economy which has grown. But payments are already about 3.5 times that in 5 years.
PhonePe have had support for 8-10 languages now for five years. Less than 15 per cent of people choose another language. On the customer service side, more than 50 per cent of people want to talk in their native language. Nigam said if people want to use the app in English but they want to talk in any other language in the country, that problem has to be solved.
Rahul Chari said given the infrastructure problems in the country, technology is the only way one can leapfrog. Whenever PhonePe takes on any problem statement, it looks at it from the lens of ‘can it be scaled to the entire population?’.
“There is almost a maniacal focus on trying to improve at scale,” said Chari. He said if there is one thing about PhonePe that echoes with all its 300 million users is the reliability and speed of the transaction.
PhonePe is focusing on leveraging technology to make the product much simpler for Tier-2 and Tier-3 customers who may be coming onto the platform or on the internet for the first time.
For scaling up such initiatives and expansion across the country, last year in December, PhonePe signed 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. E-commerce firm Flipkart had done 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.
“We needed a runway. We said we want somebody who is giving us long term capital. For the first few years obviously, it was Flipkart, now there is Walmart,” said Nigam. “I remember meeting with Mr. Penner (Greg Penner, chairman of the Walmart Board of Directors) and Steuart Walton and they were talking about a generational shift, of about 25 years. I was like I haven’t ever thought that far - 10 years, yes, 25 years is ridiculous when you are in tech. We have been lucky. We had very patient capital which means the founders have been able to focus inwards - culture, theme, process, all of it.”
Another factor that played a key role in the success of the company is that among the first 50 employees at PhonePe, many of them are a part of the core leadership team. Many of them were ex-Flipkart. Some were people Nigam or Chari had worked with in other parts of their career. “When you have 40 to 50 people who are getting back together for a second run, you start with knowing each other’s strengths and weaknesses and you start with a very high trust and transparency model,” said Nigam.
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.
“We are all extremely excited about financial services which include insurance mutual funds,” said Chari. “The opportunity really is for us to rethink how financial services have been done so far. Like, does this person really need health insurance and if so, what kind of health insurance?.”
PhonePe is in a fierce battle with rivals such as Google Pay, Amazon Pay, and Alibaba-backed Paytm, which are making significant inroads into the financial services market as well as payments. It has a store platform on the PhonePe app, and the firm has digitized 20 million kiranas. “I think we have stayed true to the idea of opening up the market to everyone. No (competition) for the sake of competing,” said Nigam. “We are a PPI and we sell third party gift cards from a company owned by Amazon. We are in bill payments and we work with people who are all our direct competitors. There is an Airtel payment bank, Jio Payment Bank. We think of everyone as our partners.”
Thought PhonePe is more in Bharat than the metros from a user base perspective, Nigam said in the next five years, the firm has to go through a relatively complex and large redesign. Most of the existing leadership is going to be focused on carrying the payments vision forward, making sure it hits the next milestone of 500 million in 2022.
“But we want to get to 900 million people in the next 8 to 10 years, “ said Nigam “Whenever the market gets to them we want to be there. We'll never lose sight of that vision.”