Payment is not like sending a chat message or Insta post: PhonePe's Nigam

“We got lucky as we bet on UPI (unified payments interface) before everyone jumped on the bandwagon,” said Sameer Nigam, founder and chief executive officer of PhonePe, during a fireside chat at the Business Standard BFSI Insight Summit in Mumbai on Monday.

The fintech startup’s UPI play gave it a boost, even as many banking and tech companies failed to tap digital payments at scale. Today, one in every four Indians is a PhonePe user, and its market share by UPI total payments value stood at 50.54 per cent as of March this year.

“Now some wallet players like Paytm, Mobikwik and Freecharge are also trying to become UPI players. They were deeply rooted in this value proposition that a wallet is better than a bank. Banks were not interested and (thought) the banking app was better. We were the only ones screaming from the rooftops that UPI was better,” Nigam said.

Later, big tech companies like Google, Meta-owned WhatsApp and Amazon also came up with UPI-based platforms. But PhonePe, according to Nigam, had the belief that it would win because it was willing to deploy a large workforce on merchant acceptance and operations.

“Payment is not the same as sending a chat message or an Instagram post. If a post doesn't refresh, you will be bummed, but you will go to sleep,” said Nigam. “But money is critical. It evokes the most anxiety besides health. So, you have to put people on the ground.”
 

Indeed, PhonePe has about 10,000 employees on its rolls. There also are some 20,000 people working on contract. During the Covid-19 pandemic, PhonePe got about 150,000 freelancers to acquire merchants in rural India. The company successfully digitised over 36 million offline merchants across Tier-II, -III and -IV towns, and beyond, covering 99 per cent of India’s PIN codes. Payments were enabled through millions of PhonePe QR codes, including smart speakers installed at small businesses across the country.

“That's what it takes to have a QR code everywhere. I don't think big global tech companies are comfortable putting 150,000 people in rural India,” said Nigam.

The other important factor in PhonePe success, he said, was that it welcomed regulations and was comfortable with being regulated. Many big tech companies have resisted processes, such as being audited, know your customer (KYC), and initiatives to work deeply with the banking system. “Well-established big tech (companies) have always resisted regulation because they have never been regulated.”

Though PhonePe is owned by Walmart, Nigam said that the retail giant's backing only came after the firm had set up its guard rails. Its investors paid Rs 8,000 crore in tax, largely led by Walmart, to allow the firm to change its domicile from Singapore in India.

There is also a view that PhonePe’s journey would not have been as smooth and successful if banks were tech-savvy. To this, Nigam said the UPI model itself was all about the experience layer and building robust, scalable technology. “That's not what a banker's core purpose or reason for existence is. That's ours,” he said. “The day people start saying that their banking app services them better than PhonePe, GPay or Paytm, it is over for us.”

Comfort with regulations

Asked how comfortable PhonePe was with the National Payments Corporation of India (NPCI), an initiative of the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA), Nigam said his firm was working very closely with NPCI in institutionalising the right practices and standard operating procedures.

“At nearly 50 per cent market share, I think we have a seat on the table. But most people think that fintechs have it easy. We get audited at least once a week or over 50 times a year,” said Nigam. “On the policy part, sometimes there's a conflict. It is not because they are (NPCI) owned by banks. Banks also compete. Then you have the BHIM app from NPCI; that competes too. Everybody competes, and that's okay. It's an interoperable platform.”

NPCI, which operates the UPI digital pipeline, has extended the deadline for UPI players to adhere to a market cap of 30 per cent by two years to December 31, 2024. First introduced in November 2020, the guidelines require each UPI third-party app to adhere to a cap of 30 per cent transaction volumes. When this becomes a regulation, how will PhonePe, which already has a market share of over 50 per cent, deal with it? According to Nigam, there is no answer to this yet. “If there are 600 million more people left, should the market leader tell them not to use its app and go to the next person? That burden can’t follow me anyway. NPCI wants the market to have more participation. There are Tata Neu, Zomato, and Flipkart — everybody has become a TPAP (third-party application provider). As long as there is no barrier to entry, there is no demonstration of abuse of dominant share. As long as we're playing right, I won't feel the burden of trying to tell customers not to use my app because I'm more popular.”

What if the regulators asked the company to split into two in the future to reduce its market share? Nigam did not want to focus on hypotheses. “I don't have to worry about this. I can only focus on governance, meaningful growth, and fiscal responsibility.”

IPO plans

Nigam, who founded PhonePe in December 2015, has transformed it into a full financial services platform. Besides payments, it provides services ranging from insurance and mutual funds to digital gold. It recently forayed into stock broking space with Share.market and into e-commerce by launching Pincode, a shopping app on the government-backed Open Network for Digital Commerce (ONDC) platform. The company also launched Indus Appstore developer platform to confront the might of Google in the app marketplace.

Nigam said the company was now laying the foundation for an IPO. It was also trying to bring more independence to its board. “We will list in India and are ready from two or three different angles, including business readiness,” said Nigam. “We need to have a lot of engagement with our regulators and, possibly, even the government, in terms of the structure and makeup, how we list, and whom we need to have on the cap table. I think it will take us a couple of years. But I'm very excited about it.”