PhonePe on Adding Nearly 45 Million Monthly Active Users in COVID-Hit 2020

PhonePe was one of the big winners of the digitisation wave that was propelled by demonetisation in 2016, but the socially distanced lockdown of 2021 was an equally important time for the company, as people (and businesses) both moved away from cash. In 2021, the payments platform says it has more than 300 million registered users and over 125 million monthly active users. In March, PhonePe said it became the first payment platform to process over one billion UPI transactions in a single month, and has been clocking over a billion UPI transactions on its platform every month since then. 

The company added nearly 45 million monthly active users in the last year - many months of which were under lockdown. It also saw a huge increase in adoption from tier 2, 3, and beyond becoming the fastest drivers of user growth. 

There's no doubt that digital wallets are here to stay. Apart from money transfer, PhonePe lets users do mobile recharge, pay utility bills, do online shopping, book travel tickets, and much more. It also provides solutions to merchants and businesses for accepting online payments. PhonePe says that it has on-boarded about 20 million offline merchants across 11,000 towns and talukas.

In the future, PhonePe plans to add more use cases to the app, increasing its acceptance at offline stores and kiranas and enhancing its financial services offerings.  

Expert opinion: TechArc chief analyst, Faisal Kawoosa says, “Digital payments have exponentially grown after COVID. Be it purchasing online or purchasing over the counter, people prefer paying digitally. Merchants are also becoming more acceptable to digital payments. However, there is a need to go beyond metros, major towns and cities. It is also required to generate more awareness and build better ecosystem. Big players in the digital payments landscape can take onus and really expand deep into the country to further grow the infrastructure and make it more accessible to all.”

Rahul Chari, Co-Founder and CTO, PhonePe

Gadgets 360 spoke to Rahul Chari, Co-Founder and CTO, PhonePe to know a bit more about the company's overwhelming journey so far and its future plans.      

1. What were you doing before you began PhonePe?   

I was leading the supply-chain technology division at Flipkart before starting PhonePe. The Flipkart experience was invaluable in contributing towards how we build and scale technology at PhonePe. I came into Flipkart through the acquisition of our earlier entrepreneurial endeavour, MIME360 - that operated in the digital media distribution space. Prior to MIME360, I spent 10 years working in the enterprise embedded software space across companies such as Sun Microsystems, Andiamo systems and Cisco Systems. I began my career at Sun after completing my Masters degree in Computer Science from Purdue University 

2. What inspired you to begin PhonePe? Were there any hurdles you faced during the inception process?   

We started PhonePe with the strong belief that for India to transition to a digital economy, payments and money transfers must be solved holistically allowing each and every Indian to participate in the digital money space seamlessly. Through our Flipkart experience, we had seen that digital payments had a long way to go both from a reach and scale perspective. With the imminent launch of UPI, we saw the opportunity to build on top of this amazing infrastructure to realise our vision. We participated in a hackathon organised by iSpirt to develop apps on India Stack and pioneered the growth of UPI based payments as we foresaw its power and advantage over wallets prevalent at the time. We were convinced of our ability to provide users with speed and security at every transaction touchpoint while delivering the same at scale. The journey has been incredible to say the least, not just in terms of the growth in the number of users and transactions, but also in being able to see for ourselves the positive social impact that easy access to frictionless payments and financial services can have.  

Bringing together the best minds in the industry across functions is always challenging in the early days. I have been fortunate to have known and worked with some very smart people in my earlier stints, and who are now also part of this journey. Their belief in our vision has been the key to our success. In addition to this, partnering with the BFSI industry in the early days was not as simple as it is today for a young startup in the fintech space. The BFSI industry has also come a long way in the last five years to not only acknowledge the potential of partnering with players like us but also to be a fantastic thought partner to bringing new products and experiences to market. 

3.  What was it like in the first year of being in business? What are your key learnings from the early days?   

The focus in the first year was to build a very robust and scalable payments platform that powered use cases we classified as ‘Send Money' and ‘Spend Money'. Send money was all about peer to peer money transfers using UPI. Our platform and the UPI infrastructure were both new and there were a lot of learnings around how to ensure very high success rates by evolving our systems to get predictive about bank uptime and latencies. This was crucial as we realised very early on that failed transactions cause a lot of anxiety and impacts usage. ‘Spend Money' was all about enabling merchants payments using UPI, Debit Card, Credit Card and the PhonePe wallet. We knew that building offline acceptance would be a multi-year effort and are proud that we now have more than 20 million merchants across 11,000 cities, towns and talukas on boarded. But in the first year our entire focus was to drive mass adoption by allowing our users to try out retail payments and online use cases such as recharge and bill payments. Today we have expanded “spend” to include a myriad of use cases - across utility bill payments, offline and online merchants, investments, insurance, digital gold and more. 

4. In which year did PhonePe make considerable progress? Could you offer more details on what happened through that year?   

We as a company are just five years old and have more than 300 million users. This is only possible when you are in a multi-year hyper growth phase, achieving several industry-first milestones throughout. 

In 2016, we were acquired by Flipkart and we registered over 5 lakh users.   In 2017, we crossed 10 million downloads on Play Store while introducing financial services and gold on our platform. In 2018, we crossed 100 million monthly transactions on UPI, becoming the number one player in the UPI segment.  In 2019, we became the second most downloaded finance app in the country, and also hit $95 billion (roughly Rs. 705,169 crores) in annual TPV run-rate mid-year.   In 2020, we hit the 250 million user mark, while registering 925 million transactions per month towards the end of the year. We also processed over 11 million insurance premiums last year and in November 2020, we became the most downloaded Fintech app in India.  This year we have already become the first payments app to process over a billion transactions on UPI and consistently crossed a billion transactions every month ever since. We also hit 300 million registered users with 20 million merchants accepting PhonePe in 11,000 towns and taluks across India. 

5. How was it like sailing through the unprecedented COVID-19 crisis?  How did you deal with the challenges of the lockdown? What was the revenue like last year?  

Last year when the pandemic stuck, we focussed all our efforts towards enabling contactless payments for essential needs such as groceries and medicines during the lockdown. We also launched multiple insurance products to provide comprehensive COVID and health insurance offerings for our users. We enabled the discovery for near-by stores delivering essentials with timings, to make it easy for customers to pay and interact with merchants remotely. The pandemic led to a surge in customers trying digital payments for the first time while also enabling a spike in transactions for categories like mobile recharges, grocery purchases, bill payments, etc.  

Despite our teams working from home, the pace of product development did not slow down. We were able to bring new offerings to the market with the same cadence that we had set for ourselves at the beginning of the year. Our innovations in terms of our organisation structure with empowered pod-based teams, decentralised decision making and existing WFH infrastructure as well as our deliberate hiring based on org design and culture were key contributors in our seamless switch to a post COVID reality of work without any loss of productivity and innovation. 

In terms of some stats showcasing our growth, we added nearly 45 million monthly active users in the last year- many months of which were under lockdown. We also saw a huge increase in adoption from tier 2, 3 and beyond becoming our fastest drivers of user growth.  

6. Could you help give a sense of how far PhonePe has come? From when it began to where it is now. 

PhonePe has indeed come a long way since our launch in 2016. When we started our vision was to build a payments platform for a billion Indians and positively disrupt the ecosystem.  

When we looked at the Indian landscape back then, we felt that payments and banking were the two areas where there was an opportunity to fundamentally disrupt and transform. The last five years have been incredible for us, having crossed a billion UPI transactions per month a few months ago, and processing over 501 transactions per second on our platform now.  

Here are our other key metrics: 

300 million total registered users  125 million active monthly users   Over 1 billion monthly UPI transactions   On-boarded about 20 million offline merchants across 11,000 towns and talukas  Annualised TPV run rate of $390 billion (roughly Rs. 28,94,766 crores)   

7. You have a lot of competition in the Indian market, particularly from Paytm and GPay. What makes PhonePe different from the others?  How did you manage to cross the billion-transaction mark on UPI first?  

PhonePe's key differentiation is (a) our open ecosystem approach and (b) our platform first approach. 

As a payments player, we work to bring together the three players in the ecosystem - consumers, merchants, and BFSI partners. When we launched, incumbent digital payment players had been using a closed ecosystem approach, where consumer choice and merchant choice for acceptance were constrained to a financial instrument like the wallet. We in contrast, decided to go with an open ecosystem approach where a consumer could choose any financial instrument of their choice be it a direct debit from a bank account, their debit or credit cards or a prepaid instrument like wallets and gift cards. Moreover we made it extremely simple and intuitive for users based on the context of the transaction. Our platform first approach meant that we invested in an intelligent, scalable and flexible payments orchestrator that could support different kinds of money flows across one or many financial instruments to complete a transaction or to reverse a transaction. 

Another good example of our philosophy of openness and neutrality is the PhonePe Switch platform which currently has over 600 partners using it to connect with our 300+ million user base. Another example would be our conscious choice of building a payments' container allowing consumers multiple payment options according to their preference (UPI, Debit and Credit Cards, Wallets). Finally, again in line with our open philosophy, we enabled and allowed both third-party wallets apart from PhonePe's own wallet to operate on the platform. 

Our platform first approach has meant that speed and reliability of transactions - the most important factor when it comes to customer trust and experience - is best in class. Because of this our penetration into tier 2, 3 cities and beyond has been rapid with over 80 percent of our users now from small towns and villages across India. This is a testament to the power of technology to democratise access as well as our focus on building simple and intuitive products that can be easily understood and adopted by the masses.  

8. Do you have any management mantra/ advice that you'd like to share with future entrepreneurs?       

There is no real one size fits all management mantra when building a product and company. And every entrepreneur finds their own successful formula, sometimes the hard way. But there have been a couple of things that have held me in good stead over the years - to stay focussed on the problem statement and not get married to the next great idea, giving incremental improvements as much importance as disruptive new products and building a tech-first culture in the company.  

Many times, especially in the early stage, teams chase a number of different ideas because it seems extremely interesting on the face of it. But in the process, focus on the original problem they started to solve gets diluted. Focusing on the problem will also ensure that you don't miss early signals that suggest you should not be chasing this, allowing you to make the right pivots.    

Incremental improvements, especially once you hit a certain level of scale and acceptance, can provide a much larger moat and competitive differentiation as compared to new product features. So ensuring that you give what we all refer to as BAU (Business as Usual) work as much importance as the next breakthrough project is very important.  

Finally, building a tech-first culture when every business is getting transformed through technology is extremely important. It allows companies to make long term investments in technology and also force automation very early on. 

9. What are the big plans for the future?          

We aim to continue growing all parts of our business, by adding more use cases to the PhonePe app, increasing our acceptance at offline stores and kiranas while also enhancing our financial services offerings.  

Going forward digital payments will have to be a lot more inclusive and 'Bharat' will genuinely play an important part in this growth. Our challenge is to build offerings for a billion Indians who have the means to transact but either don't know or don't understand digital payments.  In order to serve a billion Indians in a truly inclusive manner and remove the so-called digital divide - we will need to experiment and build new user experiences and interfaces, build awareness via innovative marketing formats and finally continue to retain a razor sharp focus on being customer and use case driven. 

10. What is the employee strength? Is PhonePe hiring currently?          

We currently have over 2,400 full-time employees. Total employee count, including those under third party payroll, would be about 8000. Our hiring activities continue to progress seamlessly in line with our business needs. We have about 700 positions to close for the year 2021 of which 300 positions have been closed in the last quarter. We are constantly on the lookout for ambitious go-getters who want to make a big impact. Given our aggressive charter, hiring smart, competent and intellectually curious people is going to be key to our long term success.