Flipkart, Amazon, BigBasket witnessing spectacular growth: PhonePe CEO

India has one of the largest and youngest smartphone data connected populations in the world. Due to this digital payments are really becoming omnipresent in India which is really a good sign for the larger e-commerce market, said Sameer Nigam, founder and CEO of digital payments firm PhonePe. He said this is being seen in terms of the spectacular growth witnessed by e-commerce marketplaces such as Flipkart and Amazon and foodtech and online grocery firms including BigBasket.

“At PhonePe, we have a very interesting vantage point, because we work with merchants and partners across all of these categories,” said Nigam, at the Flipkart Connect 2021 event. As the acceptance of digital payments have exploded in the country, Walmart-owned PhonePe is expecting its userbase to grow from 300 million to 900 million by 2026.

“We expect that every Indian would migrate from a feature phone to a smartphone and would have data and make the digital payment transaction,” said Nigam. “That would become the addressable market for e-commerce.”

E-Retail has particularly been a boon during the Coronavirus (Covid-19) pandemic after the setbacks caused by widespread disruption (for consumers and small businesses) and loss of jobs. In the future, the e-retail market is expected to grow to $120–140 billion by FY26, increasing at approximately 25 per cent–30 per cent per annum over the next 5 years, according to the report ‘How India Shops Online 2021’ by Bain & Company in association with Flipkart.

Nigam said that in the last 12 months, since India went through its first national lockdown due to the pandemic, Tier-1 to Tier-3 cities and rural parts of the country, are witnessing the first wave of digital payments. When Jio was launched, India had roughly about 250 million people that were consuming data on smartphones and that has reached about 700 million.

“Post Covid…digital payments has leapfrogged in India,” said Nigam. “It has largely gravitated towards a homegrown network unified payments interface (UPI).”

PhonePe was the first non-banking app launch in the sector and in less than five years it now has over 300 million users. It is processing 1.5 billion transactions a month and now about 80 per cent of all these users are from tier-2 and beyond cities. Over 22.4 billion transactions have happened to date on the platform. It does annualized total payment volume of over $473 billion.

PhonePe is in a fierce battle with rivals such as Google Pay, Amazon Pay, and Alibaba-backed Paytm, which are making significant inroads into the financial services market as well as payments in the country.

“Multiple competitors in this sector are also in that same sort of 300 million mark or range,” said Nigam. This means that digital payments have started coming of age, across the country, in very large numbers and would open the e-commerce market at scale.

Consumer trust is also developing, but there is a lot of work that needs to be done on that front. As digital payments explode, digital fraud and social engineering fraud and other types of systemic risk issues would also crop up. But Nigam said India has a very progressive regulator and robust industry to address those issues. They are bringing in solutions such as two-factor authentication, tokenisation and location-based verification to make sure that consumers remain very confident to continue making digital payments at scale.

Nigam is also expecting to see a lot of data confluence and co-sharing on the risk and fraud side across industry participants. Some of it will be fueled by regulation where fraud lists would get aggregated by PMLA ( Prevention of Money Laundering Act) department or Reserve Bank of India (RBI) and shared so that all ecosystem players have the list of the fraudsters.

The third area, where India is in a very unique position is the development of highly interoperable payment systems. UPI is one such example. This has unleashed the innovation cycles, both on the consumer as well as the merchant side. For example, PhonePe is helping retail or Kirana stores in Tier-2 and Tier-3 cities to get digitized for payments acceptance. Through PhonePe business, a store can also create its profile. A customer can also find the store on the PhonePe app. Once the store gets digitized, it would be looking to upload its catalogue as a seller on Flipkart or work with Flipkart Wholesale.

“As a (Flipkart) Group, we are sitting on a very interesting set of interconnected systems which will really help in transforming millions of lives of MSMEs (micro, small and medium enterprises),” said Nigam.

Most of the MSMEs in India especially during the pandemic, have started looking at digital channels as the means of growth. In some cases during lockdowns, it was their primary means of doing business. “I think that’s going to be an irreversible change,” said Nigam. “The platforms like Flipkart, are going to really enable the next huge change that comes from here. What’s super exciting for us is that we get to play a role in that journey.”

He is also expecting to see the roll-out of lending products that are based on the monetary flow of business of consumer and small firms as opposed to asset-based lending. It is also expected that consumers will not just become credit eligible, but would be actually availing credit for the first time in their lives. This is because India has one of the lowest penetrations of credit cards in the world per capita. Nigam expects that in the next few years, e-commerce, fintech, payment and tech companies would find a way within the legal framework for the consent-based model to collaborate on data. They would be able to start building much richer consumer profiles of people in the Tier-2 and Tier-3 cities and in rural India that don’t exist today.