No concentration risk, UPI is interoperable: PhonePe cofounder Rahul Chari

Rahul Chari, cofounder and chief technology officer, outlines his plans for the next decade and addresses concerns around concentration risk

PhonePe, India’s largest Unified Payments Interface (UPI) app, is seeking to deepen its offerings for existing users as the company completes a decade of operations this year. The Walmart-backed firm temporarily paused its listing plans in March, citing the West Asia conflict amid heightened market volatility. Rahul Chari, cofounder and chief technology officer (CTO), outlines his plans for the next decade and addresses concerns around concentration risk, in an interview with Ajinkya Kawale in Mumbai. Edited excerpts: 

 

Where will growth come from for PhonePe in the next decade as you complete 10 years? 

 

There is still depth to be created in the existing set of users. We have over 100 use cases inside PhonePe app, but there is still a strong pareto towards the top 10 use cases. Growth is going to come from taking consumers from the journey of sending money to spending money into savings and investments.

 

We have sachet-sized products for people building those habits. There is a universal ticketing platform, which is trying to bring about a singular way to cover everything from transit to all sorts of ticketing. That area still is very fragmented and if you formalise it, that will again have an all pervasive use case.

 

The second part is about the challenge in bringing the next set of users. We have 700 million registered users, and collectively, UPI has about half a billion active users. There is still a large set of users that has to be brought into the fold.

 

We launched (UPI) for feature phones on the SMS protocol, not just for sending money and recharges, but also for bill payments and scan-and-pay on that small device.

 

The idea is to actually build the network, get them into the receiving network, and from there take them to other use cases as they graduate into the smartphone world.

 

Is market concentration risk a solved problem for you from an engineering perspective? 

 

I do believe that systemic risk is a solved engineering problem. We have three data centres spread across the country. We have multiple payment service provider (PSP) partners — Yes Bank, Axis Bank, ICICI Bank.

 

Our consumers have multiple PSP handles that they can create and therefore be de-risked.

 

Having multiple data centres and being able to fail over across these data centres (at the same time) means there is essentially no systemic risk.

 

From a concentration risk perspective, we have maintained that UPI itself is fully interoperable, and (apps) are completely substitutable.

 

Consumers have a choice and are never held hostage to a platform. We believe there's no concentration risk. Systemic risk is very important, and needs to be taken care of.

 

How do you see your mix of payments and financial services evolving, given a large chunk of revenue today comes from payments? 

 

We look at our business from three broad lenses — payments, distribution on top of payments, and distribution-based lending. We look at payments and distribution continuing to be a very, very large part of our overall revenue.

 

We entered lending three years back and it has been growing well. It’s a matter of time that financial services, lending in particular, would become a healthy chunk of our revenue.

 

Given the sheer scale and size, and the opportunity that payments plus distribution presents, we see that category being a very large part which would continue to grow. 

 

Is your focus on financial services contingent upon you getting the non-banking financial company (NBFC) licence? 

 

The opportunity to be a loan service provider (LSP) or a distributor, supporting lenders — whether NBFCs or banks — by helping them underwrite using our own transaction risk and behaviour scores is a huge opportunity right now.

 

Unless that plateaus and unless we reach a point where our scores are good enough to underwrite but there isn't enough risk appetite to go into the new-to-credit market, the need to actually have an NBFC licence is less.

 

It should be more on the basis of data — where you're able to actually lend to somebody who is creditworthy but the partners on the board are not letting you move fast enough.

 

Maybe those are the areas where an NBFC licence helps. But at this point, we are a pure LSP.

 

How do you recoup the gross merchandise value (GMV) lost on suspended categories such as gaming and rent payments? 

 

I don’t think we have ever taken a view of recouping a particular category. We always take a view of the average revenue per user (ARPU), over the lifetime value. A platform of scale always has to assume that there'll be continuously new categories that come on the platform, giving you an opportunity to be an intelligent distributor. There’ll be times where certain categories will plateau, start degrowing, or new categories will emerge. I don't necessarily look at any one particular distribution category as the one that I'm significantly dependent on.

 

Diversification is very important. Overall, from a revenue point of view for an active customer, when you look at a lifetime value of that customer, it will keep going up because you'll add more categories. 

 

Merchants fear disintermediation and fintechs are building for agentic payment use cases. How do you align these things? 

 

For any third-party as a payments provider on the business-to-business (B2B) side, it is important to support any new payments model that comes in.

 

If the market moves towards a point where there is a need to be a backend processor for agentic commerce, we will do that.

 

It’ll be part of our B2B business like a service provided to merchants.

 

What I can do is be ready with that offering in case the traffic and commerce moves to those platforms.

 

There is an opportunity to go agentic within the PhonePe app where there is conversational discovery about the products to be sold. Then, maybe, we will have an agentic interface to help entire form-filling procedures for Know Your Customer (KYC) and purchases.

 

We will keep transforming into agentic commerce within the app where it matters.