PhonePe got lucky by betting on UPI before everyone jumped in: CEO

Nigam said the fintech startup's UPI play gave it a boost, even as many banking and technology companies failed to tap digital payments at scale

PhonePe, the fintech firm owned by Walmart, recently crossed 500 million lifetime-registered users on its platform. With this, 1 in every 3 Indians is now on PhonePe. The company said it was the first Indian internet company to have reached this scale globally. This milestone was achieved in just over seven years since the PhonePe UPI (Unified Payments Interface) launched in August 2016. In a fireside chat, SAMEER NIGAM, founder and chief executive officer (CEO) of PhonePe, said that the firm got lucky as it bet on UPI before “everyone jumped on the bandwagon”. The UPI play gave it a boost, even as many banking and technology companies failed to tap digital payments at scale. Edited excerpts:

How has the journey been for you in the last eight years?

It has been fantastic. When we started, there was no UPI – there was IMPS (Immediate Payment Service). You had to use it through your net banking apps. It was painful. You had to add a beneficiary and do Neft (national electronic funds transfer) and RTGS (real-time gross settlement). As for all good ventures, there are moments of serendipity. Nandan Nilekani, and (RBI) and Dilip Asbe, MD and CEO of National Payments Corporation of India (NPCI), said they were doing a hackathon in Bengaluru and invited engineers to build on the new stack called UPI. We suspended whatever else we were doing at the time and started working on UPI. Immediately after that, demonetisation happened, and suddenly every banker, whether by choice or by push, was basically getting on the UPI. We went from zero to about 10 million users in three months. Paytm came out with the wallet play and we came out with the UPI play. I think the entire industry has grown really well.

There is also an assessment that if the banks had been tech-savvy, PhonePe’s journey would not have been as smooth and successful as it is today. How true is that?

I don’t know a banker who was super excited about operating ATMs once they became interoperable. Then why would anybody be excited about digital payments? The UPI model itself was all about the experience layer and building robust and scalable technology. That’s not what a banker’s core purpose or reason for existence is. That’s ours. How long have FMCG companies wanted to distribute themselves and go D2C (direct to consumer)? You’re not going to become a bank overnight because your mood says so. It takes a tonne of work, discipline, governance, skill and all sorts of other stuff. In the same way, with 25 years of working as a computer scientist and usability expert, I think I can defend the turf when it comes to applications. The day people start saying that their banking app services them better than PhonePe, Google Pay or Paytm, it is over for us. I’m sure restaurants can make really good food. They have their own apps but they haven’t won the market. People assume that payments are the natural ‘birth right’ of a bank.

There are some big players who tried to enter this market as well as some of your rivals didn’t make much progress. You’ve acquired over 50 per cent market share. What went right for you and wrong for them?

We got lucky as we bet on UPI before everyone jumped on the bandwagon. There are wallet players who are now also trying to become UPI players, including Paytm, MobiKwik and Freecharge. They were deeply rooted in this value proposition that a wallet is better than a bank. The banks were not interested and (said) the banking app was better. We were the only ones who were screaming from the rooftops saying UPI is better. It’s just luck and we exploited that.

Later (big tech) companies such as Google, Meta-owned WhatsApp and Amazon also started coming up with UPI-based platforms. But we had the (belief) that we would win because we were willing to deploy a large workforce on the merchant acceptance and operating side. I don’t think a (player) like WhatsApp would do that. Payment is not the same as sending a chat message or an Instagram post. If the post doesn’t refresh, you will be bummed but you will go to sleep.

But money is critical. It evokes the most amount of anxiety in life outside of health. So you have to put people on the ground. PhonePe has about 10,000 employees on its rolls and some 20,000 working on contract. During the pandemic, PhonePe got about 150,000 freelancers to acquire merchants in rural India. That’s what it takes to have a QR (quick response) code everywhere. I don’t think global big tech companies are comfortable putting 1.5 lakh people in rural India. The other factor is that we welcome regulations and are comfortable with being regulated. Well-established big tech companies getting into financial services have always resisted regulations. Because they’ve never been regulated. For example, you don’t want to do KYC (know your customer) and be audited. You don’t want to work deeply with the banking system.

PhonePe is owned by Walmart and other pla­y­ers are also international corporations. Wh­at is the difference here?

Walmart’s backing only came after the firm had set up its guardrails. Walmart is a brick-and-mortar retailer. You’re on the ground and operate by the rules of that market. Walmart is (aware) of the fact that we are very heavily regulated. PhonePe paid Rs 8,000 crore in tax last year, (largely led by Walmart) to allow the firm to domicile in India from Singapore. Because the regulator said you’re too large we need to make sure there’s no sovereign risk. Walmart is under tremendous public scrutiny. 

NPCI has extended the deadline for UPI players to adhere to a market cap of 30 per cent by two years to December 31, 2024. When this becomes a regulation, how will PhonePe deal with it?

The earlier deadline to meet the market cap norms was December 31, 2022. The regulator, NPCI, the government, and the Competition Commission of India (at some level), all of them have a view. I haven’t got any answer yet, on whether PhonePe is expected to reduce its market share. If you expect me to reduce my market share, there are 115 other TPAPs (third-party payment app providers). Somebody else has to outspend, work and hustle and pick up their market share. That burden can’t fall on me.

If there are another 600 million people left, are you saying that as a market leader – tell them not to use my app because it’s the most popular? Please go to the next person. That burden can’t fall on me anyway. By the way, it is not a regulation, it is a circular. NPCI wants the market to have more participation. There is Tata Neu, Zomato, and Flipkart, everybody has become a TPAP (third-party application provider). There are so many new entrants. WhatsApp is now also allowed to expand more aggressively. As long as there is no barrier to entry, this is not a CCI matter and there is no demonstration of abuse of the dominant share, it is not a problem. 

What are your thoughts on PhonePe going public and life post IPO?

We are laying the foundation. We are trying to bring more independence to the governance and the board. We will list in India when we are ready from two or three different angles. One is, business readiness. You don’t want to go public and then your business is not speaking the same language in the private and public markets. Second, we need to have a lot of engagement with our regulators and possibly even the government in terms of the structure, how we list and who we need to have on the cap table. These are becoming increasingly regulated. I think it will take us a couple of years. But I’m very excited about it.