Sound of money: Fintech startups are in the race for soundbox domination
Fintechs are in a race to one-up their peers by bundling services together in a cost-effective manner for smaller businesses. Pricing, distribution, and maintenance will remain key in winning the target market.
Soundboxes are having their moment in the sun as small businesses in India are increasingly adopting instant audio payment confirmation devices. Two major fintechs on Monday launched new devices for “offline payments”.
launched ‘Mini’—a visual and audio confirmation payments machine for merchants that allows contactless card payments as well as QR code scanning. Meanwhile, launched ‘Card Soundbox’, a new PoS terminal that accepts card and QR code payments along with giving audio confirmations.
“Paytm enters with a USP in this market and captures a larger pie in the PoS space which was led by Pine Labs for a long time,” notes Yogesh Sharma, senior executive, Growth and Strategy at Cashfree Payments.
While Pine Labs, whose core business centres on PoS terminals, made its entry into soundboxes, Paytm had already hinted towards unveiling a similar all-in-one device. The idea behind the latter’s new offering is to make card terminals affordable to smaller businesses and put all its services (soundbox, QR, card) in one device.
The Vijay Shekhar Sharma-led company already has a strong presence in the space. It first launched the soundbox device back in 2019 to assist kirana stores with verifying payment receipts using loud audio alerts and notifications
Other fintechs like Walmart-backed , , , and either continue to offer soundboxes and card machines separately or plan to come out with new devices. Even banks like IndusInd and AU Small Finance Bank have introduced their own products.
Meanwhile, players like , , Reliance, and State Bank of India (SBI) are in the pilot stage.
BharatPe is also looking to add sound and digital receipt features in its recently launched Bharat Swipe Android PoS device.
One thing is clear: fintechs are in a race to one-up their peers by bundling services together in a cost-effective manner for smaller businesses.
Why are soundboxes attractive?
While soundboxes, which come with a monthly subscription fee, offer a cross-sell opportunity, they are also an important revenue-generating stream for fintechs as UPI payments (via QR scan-and-pay) generate no money (zero MDR).
Paytm managed to improve its revenue margins on the back of a shift towards high-margin soundbox and lending, analysts at BofA Securities noted. In FY23, the company’s payment revenue increased 44% to Rs 4,928 crore led by an increase in payment volume and higher subscription revenue from device merchants. Over 13.72 billion online payment transactions were processed through its Soundbox devices.
“The subscription model via soundboxes is improving merchant stickiness for the company,” they added, which helps fintechs cross-sell products.
More importantly, Soundbox has helped Paytm scale its lending business.
On a similar note, enabling card tap-and-pay also generates revenue for fintechs via Merchant Discount Rate (MDR), which can go as high as 3% depending upon the network.
“Many may integrate loyalty programmes or rewards points to push small value card transactions via these machines,” a digital payments expert tells on the condition of anonymity.
In an interview with Rest of World, Upsana Taku, Co-founder of digital payment app MobiKwik, said the soundbox enables fintech companies to gain deeper insight into transaction patterns and business operations.
“This data can be used to develop more targeted and effective marketing campaigns, and identify new cross-selling [or] upselling opportunities for other products and services,” she said.
Is there a winner?
It may be too soon to call out the winner but several factors measure the success of these devices and to what extent they can penetrate the segment.
One is pricing, which has an important role to play as the fintechs target lower- and mid-sized merchants—specifically 25 million medium-sized SMEs and 15-17 million smaller ones, BofA Securities noted.
A solo sound box comes free of charge, sometimes with a small upfront cost of Rs 200-300, with a monthly subscription rental (Paytm: Rs 125–150 per month; PhonePe: Re 1–49 per month). On the other hand, a basic PoS device costs around Rs 2,000.
Pine Labs’ Mini has been priced at Rs 1,999, along with a subscription fee based on the volume of payments processed. On the other hand, Paytm’s Card Soundbox starts from Rs 999 with a monthly subscription fee and allows a maximum payment of Rs 5,000 per tap.
“Pine Labs’ Mini looks good but doesn't add value to the customer service offered by SMEs. It could be a good fit for premium segments as it already has their trust. SMEs look for cheaper options with multiple features loaded, and Paytm may be better placed,” a merchant shares anonymously.
BofA Securities found that Paytm dominates the soundbox market in Mumbai, with some competition from PhonePe due to better pricing. The study noted that Paytm’s device was received better due to higher quality, battery, and "overall positive" payment reconciliation (logging transactions with bank statements) despite a higher monthly rental.
In several shops, PhonePe's soundbox was preferred. "These merchants, in most cases, were using Paytm Soundbox earlier and shifted for a cheaper alternative," BofA analyst Sachin Salgaonkar observed.
However, Paytm’s first mover advantage may help it gain better market share, and can add 15 million new customers for soundboxes in the next 2-3 years, he noted.
Sharma of Cashfree Payments lays down two major challenges for fintechs—procurement of MID (Merchant Identification Number) and installation of machines (soundbox and PoS) within a day.
All the players, including Paytm, PhonePe, Pine Labs, and BharatPe have the advantage of ecosystem play i.e. their presence in both offline and online payments (payments app, online gateways, devices, soundboxes), which can eventually benefit merchants and customers with competitive pricing.
“Soundbox distribution (to merchants) is operation intensive, requiring local reach and manpower. Whoever holds advantage in this, will win,” says a digital payments lead of a fintech firm.
(Infographics and feature image by Winona Laisram.)
Edited by Kanishk Singh