A couple of weeks ago,payments startup PhonePe, founded by ex-Flipkart executives Sameer Nigam and Rahul Chari, was acquired by their former employer in under six months of the duo leaving the company. Now that it is in the Flipkart fold, PhonePe will have access to financial resources to experiment on at least 40 million consumers and their payment habits. PhonePe, in essence, was to be an app that would use an HTML 5 platform to settle payments between merchants, mobile shopping destinations and consumers with a single identity provided by the Unified Payment Interface(UPI). Now, Flipkart's acquisition is significant considering UPI was launched a couple of days ago by the National Payments Council of India (NPCI) to facilitate settling payments in a cashless and card-less manner through a single identity. The UPI will use Aadhaar’s biometric data to authenticate transactions.
With this acquisition, the larger role for Flipkart is to become the checking house for merchant payments after collecting cash from the consumers. Now PhonePe, on top of the UPI platform, is going to make payments seamless for Flipkart. The UPI had recently opened up APIs to startups so that they could build apps that could settle payments and make it convenient to Indians. The objective is to reduce commission structures of banks and international credit/debit settlement platforms, which charge exorbitant commissions,ranging from 1.4 to 1.6 percent per transaction. With Flipkart transacting with at least three million Indians on a monthly basis, the opportunity to offer this convenience is irresistible. However, these are early days and consumers should consciously move away from cashless transactions through the UPI.
How would it possibly work?
In the UPI mode of payment, say a Flipkart delivery boy comes home with the item and uses the Flipkart service app on the tablet to authenticate transaction (essentially the bank account linked to the name of the person). If the command reads 'charge Krishna210330@bank.com Rs 30,000', this message will appear on the PhonePe app or the Flipkart app, where the PhonePe platform is integrated. The issuing and the settlement bank will connect through the UPI and close the transaction. The bank then sends a message on the app saying 'Authenticate transaction', and when the consumer touches the icon 'yes'the transaction is complete. Under this scheme Flipkart has to figure out how one authenticates a transaction when a third party receives it.Perhaps the app should be able to rationalise GPS coordinates of the delivery boy, and link it to the consumer. However, this is a simple problem to solve, it is a question of adoption.
“There are several possibilities on our platform. But our platform is built with the consumer in mind,” says Sameer Nigam, Co-founder of PhonePe.
The market opportunity
The acquisition cost of PhonePe is unknown and sources say that it is an all-stock deal of not more than $45 million, since the startup had no clients or consumer downloads. But the number cannot be verified. However, the 20-member technology team is going to be part of a new journey for Flipkart in the payments space.
Acquisitions in this space have begun to hot up. Recently Momoe, another consumer-to-merchant payment app, was acquired by ShopClues for an undisclosed sum. Startups like FonePaisa are building an ecosystem of banks and are offering their service to several merchants to settle payments. They also believe that the consumer need not use several payment apps to transact with merchants when they use FonePaisa. “Consumers will be the beneficiaries in this ecosystem,” says Ritesh Agarwal, Co-founder,FonePaisa.
The payments market in the country is $1 trillion in India according to consulting firms like PwC and KPMG. The UPI is going to bring many unbanked Indians into the banking ecosystem. The total number of bank accounts in India is not more than 225 million and the country has a credit card penetration of 17 million. Thereare at least 900 million people who have no access to bank accounts. “India’s per capita income is growing and payments through smartphones are going to be big business. Payments for social services on smartphones by using the UID number will bring transparency in the system,” says Nandan Nilekani, Co-founder and former CEO of Infosys.
Snapdeal has Freecharge, there is PayTM and now Flipkart has PhonePe. But between all of them PhonePe will make Flipkart the settlement house for merchants and consumers. It is a far more holistic way of looking at payments than cross-selling vouchers and small ticket items. If PhonePe works then Flipkart would have pulled out a master stroke to usher in a card-less and cashless urban India.