We remain firm on timeline for PhonePe becoming profitable in 2022

Walmart-backed digital payment company PhonePe has seen rising adoption of its services amid the Covid pandemic. It eyes doubling its registered user base in the next two years. In an interview with Bizz Buzz, Karthik Raghupathy, V-P (strategy & business development) at PhonePe, says that the recent circular by NPCI of putting a cap on third-party apps won't impact the company as the new norm comes into effect only from January 2023 for existing players

After the initial dip seen during the Covid-induced lockdown, digital payment space has seen a phenomenal rise towards October-November. Do you feel such a growth rate is sustainable?

The digital payment market has been representative of the market cycle. During pre-Covid, PhonePe saw a transaction of 500-600 million in February. Once Covid hit in March-April, transactions got impacted. These were offline transactions, mainly in segments like scan the QR code, and consumer goods among others. However, we saw a significant uptick in recharge and bill pay. But we saw a dip on a net basis. Towards June, we were back to the pre-Covid level of 500-600 million transactions. It is heartening that we are now at almost a billion transactions in the October-November period. So, the underlining is while the pandemic has created havoc throughout the world, it has a silver lining for us as the digital payment industry has got a big catalyst. During this period, we have also seen more numbers and kinds of users. We feel that this growth rate is sustainable.

While demonetization didn't have a sustainable impact on the digital payment ecosystem, why do you think, Covid-19 will have that impact?

I think the digital payment market has to be reviewed in the last three years to form a view. During this period, the market has seen a hockey stick-shape growth curve. Looking at the monthly active users, we can say whether this growth rate is sustainable or not. Our monthly active users are about 100 million and the industry probably has 150 million such users. Another metric to look at is that around 70 percent of our users live in tier-II and beyond. So, the behaviour has picked up not only in small towns but also in rural areas of the country. This indicates true adoption, which gives us great confidence that this trend is sustainable. Also, merchant adoption is growing at a faster pace. At PhonePe, the merchant network was non-existent three years ago, which is 13 million now and we aim to take it to 20 million in near future. So, the monthly active users (MAU), the nature of users, and the adoption by merchants give us the confidence that this is here to stay.

Do you think, PhonePe will be able to stick to its deadline of being profitable by 2022 and going public in 2023 given the disruption?

We stick to our timelines as far as profitability and IPO (initial public offering) are concerned. There is no change in those timelines.

The National Payments Corporation of India (NPCI) has decided to put a 30 percent volume cap for third-party applications offering UPI (Unified Payment Interface), which is likely to affect companies like PhonePe. What are your views on it?

We have assured all our customers that there is absolutely no chance of any PhonePe transaction on UPI failing. Even the circular categorically says that this doesn't apply to the existing players until January 2023. That is still two years ahead.

Will you apply for a banking permit like some of your peers (Paytm, Reliance Jio Payments Bank) which will not be covered under this rule?

Concerning the banking license, we don't have any plans for applying for such a permit. We work with many of the banks very closely. So, we don't have any plans on the banking side. We have always taken an open ecosystem approach and partnered very closely with banks.

What are your overall growth priorities for the next year?

Our growth plans can be elaborated into three parts. The first part is to drive user adoption of digital payments. We have 250 million registered users and put a target of reaching 500 million in the next two years. We have reached the current users' level in four years and now aim to double it in two years.

The second thing is to grow our merchant network. We can't drive digital payments without adoption by merchant network. In this context, we want to increase our reach among merchants from 13 million to 25 million. We aim to go deep into the hinterland, rural areas and reach every pin code of India.

The third priority for us is to ramp up the financial services segment in India. We believe that there is an opportunity to create a market in the financial services segment through higher penetration. This can be done through simple product design and awareness.

To achieve these ambitious goals, will PhonePe require fresh funding? What are your plans in terms of headcount addition?

We never had any concern with regard to funding given the backing of Walmart. It has always been very supportive of our growth plans. On the people side, we have been hiring as per our business needs. Our headcount addition continues even during the Covid period. Despite the lockdown, we hired 500 people across roles since the end of February taking our employee strength to 2,200 and have around 500 vacant positions to be filled up.