PhonePe is looking at ‘Bharat’ for its next phase of growth

• With over 170 million registered users, PhonePe’s strategy for further growing its hold in the segment is to get into smaller cities and encourage adoption of its platform.
• PhonePe launched ‘PhonePe Switch’ in September that lets customers access multiple apps while being on PhonePe.
• Rahul Chari, Co-Founder and CTO, PhonePe says that the challenge ahead of them is to build offerings for a billion Indians who have the means to transact but either don’t know or don’t understand digital payments.

In November 2016, the government’s decision of demonetization led to an unprecedented growth of the digital payments ecosystem in India. That, coupled with availability of cheaper data across the country has also led to a widespread adoption of digital payment apps. However, most in the industry believe that the next phase of growth for the segment will come from tapping into ‘Bharat’, and that is exactly what Flipkart-owned PhonePe is trying to do.

With over 170 million registered users and close to 7.8 million merchants from 215 cities across the country on its platform, PhonePe’s strategy for further growing its hold in the segment is to get into smaller cities and encourage adoption of its platform.

In a recent conversation with Ad & Media Insider, Rahul Chari, Co-Founder and CTO, PhonePe spoke about the platform’s constant efforts at keeping the consumer’s need at the core of all their innovations, and its strategy to take the platform to the next level.

PhonePe’s story so far

When they launched the platform three years ago, the idea was to build an ecosystem centered around payments providing users with speed and security at every transaction touchpoint, while also enabling businesses to reach a new and large consumer base.

Three years since, Chari says that PhonePe has been able to pioneer the growth of UPI based payments as they foresaw its power over wallets in changing the payments landscape of the country. “Our journey has been incredible to say the least, not just in terms of the growth in the number of users and transactions, but also in realizing the social impact payments and financial services can create. With our money transfer and bill payment offerings, wide merchant acceptance, both online and offline, the ‘Switch’ platform that aggregates various merchants on the PhonePe app itself and our foray into financial services with Gold and Mutual funds, it is safe to say that we are truly on the way to realize our vision from three years ago.”

In September, PhonePe launched ‘PhonePe Switch’ that lets customers access multiple apps while being on PhonePe. The aim was to build a partner app ecosystem that offers its users a convenient way to access and engage with multiple apps. Speaking about its reception so far, Chari says, “PhonePe Switch enables our merchant partners to integrate their existing progressive web apps or mobile-sites to the platform, and instantly reach out to around 65 million monthly active PhonePe app users. The future lies in creating solutions keeping customer service at the helm, this is where the idea of ‘Switch’ emerged and we decided to build a ‘super app’ providing a one click entry point to a world of apps on the PhonePe platform." PhonePe Switch currently has around 65 apps in categories such as food, travel, local commuting, grocery and others and the number is expected to touch 500 by the year end.

Where’s the growth coming from?

As per recent regulatory documents, PhonePe’s losses mounted to Rs 1,904.72 crore in 2018-19 from the previous fiscal. However, documents sourced by business intelligence platform Tofler showed that its revenue from operations saw a manifold increase, to Rs 184.22 crore in FY19 as against Rs 42.79 crore earlier. It has also seen an increase in its monthly transaction and its merchants count. Sharing some recent growth figure, Chari said, “We have seen a 2.6X growth in our monthly transactions y-o-y, from 120 million in October ’18 to 440 million in October ‘19. Our merchant acceptance number has grown 18X, from 0.4 million in October ’18 to 7.8 million in October’19.”

He says that the growth has been a direct result of a few strategic bets they took early on. “The conscious choice of UPI, introduced in 2016, had a defining impact on the digital payments industry. Phone was the first payments app anchored on UPI. While the first two years were purely about ramping up user-side of the network, with UPI stabilization, we started ramping up our merchant acceptance network and today we are accepted by millions of merchants across 215 cities in India.”

He believes that another factor that boosted PhonePe’s growth was the open ecosystem approach they took right since inception. “This was completely contrary to the approach the incumbent players in the market had taken. The open ecosystem approach allowed creating as many hooks and connects between the various ecosystem players allowing consumers, merchants, and financial service providers to engage and transact at scale with each other. PhonePe was also the first to introduce the interoperable QR code making it easy and affordable for MSMEs across India to accept digital payments at zero MDR rates,” he says.

Making the platform secure

Despite the government’s efforts at digitizing India, the emergence of digital payment frauds have restricted a lot of people from adopting these platforms. In such a scenario, winning a consumer’s trust becomes critical in ensuring an increase in adopting.

On what PhonePe is doing to make its platform more secure, Chari says that the platform is making significant investments towards building deep tech in the area of fraud detection. He elaborates, “We score every transaction in real-time for authenticity before allowing the user to authorize the same. We also invest in real-time analysis of mobile numbers, devices, cards or bank accounts for patterns of abnormal behavior. Our data models flag entities as high risk resulting in their immediate blocking until they can be reviewed systemically. Our constant endeavor is to fine tune these models and reduce the blocked transactions to provide maximum accuracy.”

Cracking the ‘Bharat’ code

Cheaper data and smartphones have helped take the digital world to the interiors of the country. And PhonePe sees a huge opportunity in making itself desirable to consumers from smaller cities.

Speaking about the increased uptake it has seen in non-metro cities in the past few years, Chari says, “Smartphone penetration, cheaper data, simplified on-boarding process and more mobile specific/local language context are among the top forces propelling the move towards adoption of digital payments. PhonePe has seen tremendous growth in Tier II and Tier III locations and today almost 55% of our transactions originate from non-Tier I cities. PhonePe already has 7.8 Million merchants across 215 cities in India and we plan to tap into smaller cities in the near future.”

Chari said that the platform would continue to grow all parts of its business which includes adding more and more use cases to the PhonePe app, increasing their acceptance at offline and online merchants and adding more apps to the PhonePe Switch platform while also enhancing its financial service offerings. “Going forward digital payments will have to be a lot more inclusive and 'Bharat' will genuinely play an important part in this growth. Our challenge is to build offerings for a billion Indians who have the means to transact but either don’t know or don’t understand digital payments,” he adds.