[The Turning Point] How a failed startup led these former Flipsters to launch fintech platform PhonePe

The seeds of digital payments major PhonePe were sown in 2012 when Sameer Nigam and Rahul Chari launched Flyte, a music downloading platform, while working at Flipkart.

Flipkart had ventured into the online music store business with the acquisition in 2011 of MIME360, a digital media distribution company founded by the duo. However, the venture didn’t pan out as expected and Flipkart had to shut down the business, owing to the lack of solutions for payments and micro-transactions.

“We were working in the music industry and learned the very hard way that you don’t make money in the music industry easily,” Sameer said in a previous interaction. 

 The duo continued working at Flipkart, convinced by Sachin and Binny Bansal’s vision of building and growing the ecommerce platform “by putting customer and technology first”.

Noticing the failure of payment systems and gateways during the Big Billion Day sales in 2014, the duo realised the need for a platform that made financial services and payments simple. 

This time they wanted to build a product that had technology “not as the enabling function, but as the reason for existence”. 

Sameer and Rahul, along with Burzin Engineer, came up with the idea for PhonePe in 2015, and launched the app in 2016. Their experience at Flipkart, where they took on multiple roles, is what helped them build and grow PhonePe, helping them identify much larger markets. 

Cut to now. 

A couple of days back, PhonePe claimed to have achieved the milestone of processing more than 100 million transactions in a single day.

The Bengaluru-headquartered fintech startup is based on the Unified Payments Interface (UPI), an instant real-time payment system developed by National Payments Corporation of India. 

The Walmart-backed startup has the largest share – close to 50 percent – in terms of UPI transactions in the country, as per data from NPCI.

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Learnings along the way

“One learning in the music industry was if the size of the pie is big enough, you can meander around and strike gold. The second was we’re much better at building large-scale platforms, and we enjoyed a lot more as technologists, building large-scale, massy, and high-social impact platforms that ensured great experiences,” Sameer said. 

They were “looking at working with a bunch of the big banks on IMPS, building that brokering layer that eventually actually UPI itself was”, Sameer said. 

Convinced by the Reserve Bank of India and NPCI’s confidence in UPI, Sameer and Rahul decided to give it a try. 

Sameer expressed surprise that “a few of the incumbents did not bite harder on UPI”. 

“It was really just us and the banks. Perhaps people did not think that all the big banks would join UPI fast enough,” he said.

In 2016, Flipkart acquired PhonePe, after which PhonePe’s team joined Flipkart, but continued working independently. 

Demonetisation in 2017 helped the company acquire more users and grow - it crossed  10 million users that year. 

Over time, it forayed into financial services. Since 2017, it has introduced several microapps, insurance products, and others, including an option to buy 24-karat gold. 

The pandemic also drove a massive rise in digital payments across country, and the user focus shifted from person-to-person to regular commerce payments. 

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Plans for the future

Today, with over 360 million registered users, of which 165 million are active on a monthly basis, PhonePe processes about 2.5 billion transactions every month at an annual total payment value run rate of $780 billion. 

The fintech startup claims to have digitised over 27 million offline merchants spread across Tier 2,3, and 4 cities, covering 99 percent pin codes in the country.

Earlier, this month, the company said it planned to double its workforce by December 2022. It has 2,800 open job positions across levels and functions for engineering, product, analytics, business development, and sales teams that it aims to fill in the next 12 months across Bangalore, Pune, Mumbai, Delhi, and the rest of the country.

PhonePe was valued at $5.5 billion last year.