The pivot towards creating a digital economy in India started circa 2014 with the likes of Paytm and MobiKwik launching digital wallets, where customers could store money and make payments for a host of utilities. These services gained rapid traction after the government banned high-value currency notes in November 2016. But they lost steam after the Unified Payments Interface (UPI) made it possible to directly transfer funds from one bank account to another at the tap of a smartphone screen.

Meanwhile, as mobile wallets reigned supreme, one company appeared to tread a different path since its inception in 2015 by shying away from wallets and focussing solely on UPI-based payments. Cut to 2019. PhonePe’s strategy appears to be paying off. The Bengaluru-based company, founded by three former Flipkart employees, is among the top three UPI-based payments companies in India, along with Google Pay and Paytm; in peer-to-merchant (P2M) payments, it is the largest. And from the looks of it, the company is just getting started.

PhonePe was acquired by Flipkart in 2016, and is now a part of Walmart after the Bentonville-based retailer acquired Flipkart in 2018. It has an annual total payments volume (TPV) run rate of $70 billion and 50 million monthly active users make peer-to-peer (P2P) and P2M payments on the platform, which also serves as a super app for all kinds of services ranging from Ola cabs to train tickets via IRCTC. In an interview, Sameer Nigam, 41, co-founder and CEO of PhonePe, tells Fortune India how the company plans to leverage its user base to sell other products and services and how the affiliation with India’s largest online marketplace and the world’s largest retailer helps its cause. Edited excerpts:

The digital payments space in India is getting crowded with a number of domestic and international players vying for market share. How will PhonePe differentiate itself?

There are a lot of players in the market today. But with the exception of us, Google, and Truecaller, most others are either anchored on closed-loop ecosystems or digital wallets. When UPI was launched, we went all in on creating an interface for UPI-based digital payments. That was our only offering since we felt the potential in this space was disruptive.

UPI launched a few months before demonetisation and we were the first and only non-banking player to offer UPI-based digital payments at that time. As our brand has evolved, there are many new use cases for UPI-based payments that have come to the fore and we have become synonymous with them.

If you think about digital payments in general, the key factor is that people need to trust you the way they would trust a bank. In our case, we established the trust by linking bank accounts and offering a platform for money transfers that was easier than net banking. It started with people paying rent or sending money back home, and then led to utility payments. Now, we have a full app store within the PhonePe app through which people are buying railway and airline tickets and booking radio cabs.

There is massive competition in the market from public sector entities like BHIM and private players like Google, Amazon, and Paytm. Whenever a new player enters the market with cashback and promotions, there is some temporary impact but our market share goes back to where it was within six months.

What is the average volume of transactions that PhonePe is doing and what is its market share?

The total transactions we are doing per month is around 270 million, with 50 million monthly active users. And these are the only users on our app and not those making payments using our interface via other apps like Flipkart, Swiggy, and Myntra. The annual TPV run rate is around $70 billion. We have also on-boarded three million merchants, across online and offline channels.

In UPI-based payments, we have an equal share with Google Pay and Paytm. Our share of merchant transactions is actually well north of 50%. We have an absolute majority when it comes to P2M transactions. Google Pay is largely P2P today and Paytm’s UPIbased interface is also for P2P payments or for loading its own wallets. Our offline business is growing faster than our online. We already have most of the major online players integrated with PhonePe. So, we are seeing steady volume of business from that channel as well.

You agreed to Flipkart acquiring PhonePe barely a year after starting operations. What made you decide that was a prudent decision?

All the co-founders of PhonePe are ex-Flipkartians as were the first 15-20 people we hired. So cultural integration wasn’t a challenge. When the deal with Flipkart happened, the landscape was almost entirely dominated by wallets. We felt the market was overcapitalised with wallets and didn’t think having a wallet would be a way to scale the market. But there was serious capital backing these companies.

We knew that by being a part of Flipkart, we can incubate PhonePe at our own pace. We had a buy-in from the Flipkart board to operate as an independent company. We had capital certainty for three years and it allowed us not to spend time trying to raise money in quick succession. Also in terms of synergy, there is no better or bigger online platform than Flipkart if you are looking for online partners to anchor with. We could spend our entire time developing the business and the product, instead of worrying about functions like security, information technology (IT), and cafeteria, etc.—all these support functions came from Flipkart.

What has Walmart’s acquisition of Flipkart meant for PhonePe?

It has worked out well for both parties. Flipkart is dominant in e-commerce and Walmart has a strong vision on the business-to-business side of retail. The common link is sellers and we are laying out a very large payments network with small and medium merchants. We now have acceptance for PhonePe as a mode of payment at Walmart’s cash-and-carry stores. The next thing is to acquire them for digital payments at the kirana stores. A lot of these kirana stores are looking for working capital and procurement efficiencies, which we can offer them, as well as driving footfall to these stores.

There was a commitment of $500 million investments from Flipkart. How much of this have you utilised and will you look to raise further funds? Will you need to look for funds from outside?

We have availed the first half [investments] last year and are drawing down the remaining funds right now. We will need more capital to grow the business. We can’t comment on whether that capital will come from Flipkart or Walmart or from outside. When the time is right and the money is needed we will have a discussion with the board to figure this out. [According to a news report in March, Flipkart’s board has given in-principle approval for PhonePe to become a company with an independent board, to allow it to raise external funds. The company declined to comment.

PhonePe has recently diversified into other businesses such as wealth management. What is this diversification strategy going to look like?

The Indian market is under-penetrated as far as BFSI (banking, financial services, and insurance) is concerned. There is a very large ecosystem of merchants looking for more ways to increase business and we have to connect with them meaningfully as one of the fastest growing brands and platforms in the country. Eventually, whether selling insurance will make more money, or wealth management, valued-added services for merchants, is too early to say. But it is fair to say that we will open multiple lines of revenue to ensure we become profitable in the not-so-distant future.

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