There’s nothing like a shock to the system to break through inertia and motivate necessary change. The rise of the digital-first economy during the past year is a testament to that as new financial business models and payment methods gained traction at a scale and speed that could only be imagined years before.
But for Indian consumers, the great shock that forced the digital shift didn’t happen in 2020 but in 2016 when in November, demonetization was announced to a population of 1.3 billion people who largely weren’t ready for it.
By way of background, demonetization was the result of a new financial policy Prime Minister Narendra Modi launched in November 2016 when he announced on live television that all 500 and 1,000-rupee notes, roughly equivalent to about $10 or $20 would be banned in four hours’ time.
At the time, Modi’s move was meant to do two things: wipe out the “home cash” savings the country’s citizens were stashing to avoid taxes, and bring an economy that was 90 percent cash into the digital world. It caught the country completely unaware, and lines to withdraw other denominations of cash stretched for blocks.
But payments platform PhonePe was ready. It was at the time the only non-banking app to launch on the new unified payment interface (UPI) when demonetization happened. The UPI is a system that combines multiple bank accounts into a single mobile app (of any participating bank) and introduced peer-to-peer (P2P) payments as well as digital wallets to the country. This meant there was suddenly a massive population of cash dependent consumers who needed to send money in a market that had just banned cash.
“So suddenly everyone had to transfer money, and we were basically the only show in town,” PhonePe CEO Sameer Nigam told Karen Webster.
Within three months, PhonePe had 10 million installs, he said. Within four, it merged into India’s primary eCommerce platform, Flipkart, and as of today, it has just shy of 300 million active users. At a time when the Indian economy was desperate to be connected to new technology, PhonePe was the connector. And now that India has become considerably more digitized, PhonePe is still one of those connectors between technology, consumers and their money.
“We believe that payments will reach a billion people,” Nigam said. “After mobile data and cheap smartphones, I think we will get there. And unless everyone migrates to digital payments, the eCommerce markets [in] all these other categories won’t even really scale up. It’s almost an infrastructure issue.”
Digitization Replaces Monetization
But the opportunity beyond the infrastructure — the services and offering that can be built over and on top of it — lies in the true potential of digitization. For PhonePe it is about opening up access to other financial services like insurance or mutual funds or giving their customers access to a single point where they can shop, buy food and purchase traveling tickets all in a single, simple format.
He said further opportunities to advance the connected economy will be supported by coming changes to the financial sector that will make it possible for consumers to sign on with investment accounts with the click of a button from their phones. It will also be seen in changes to the UPI that will make it possible for merchants to set up subscription services for their customers.
The most exciting change, although one less likely to gain a lot of attention, is a change to the bill pay platform that will open up direct digital payments in 50 or 60 segments nationwide so that even a consumer living in a rural segment will be able to pay for their kids’ school, buy insurance and pay their parking tickets all from their phone, he said.
Consumers’ ability to transact should not be limited to physical locations, Nigam said. But in India’s cash bound past, they were. A cab driver who wanted to get a loan to purchase their car couldn’t because they were paid in cash and had no way to verify their income. Driving digital payments forward in India isn’t about convenience for consumers as it is in so much of the developed world. It’s about building capacity to do things that large segments of the local population have lacked access to.
“These things are just so revolutionary in India,” Nigam said. “For the first time, people in the heartland in rural India are reaping the same sort of technology benefits or dividends that [have] been available to so few of us in the web era. That level of customized services accessible to a farmer in India or to a migrant worker who is stuck during COVID is unprecedented. Because in the formal economy, pre-digitalization, the number of physical branches that people could visit for an insurance broker or a bank, was an absolute limit. This is a technology meeting India’s demographic need.”
Addressing Scale And Innovation Issues
Those needs, he said, will grow increasingly complex as more consumers come flooding into the system, many for the first time, looking to reap the benefits of participation in the digital world. Building the tools they will need will be a team effort. It will require the continued support of the government and regulatory bodies, innovative players like PhonePe and traditional players like India’s banks, which are a critical partner in building the nation’s digitized financial future.
The goal isn’t to compete with them but to find the points of collaboration in features like co-creating credit scores for consumers. Banks are good at being bankers, brilliant at it in fact, Nigam said. PhonePe is good at building apps and platforms, and the market is best served when they aren’t trying to do each other’s jobs, but to help each other do their respective jobs better.
There is a lot of work to do still, he said. The Indian market is becoming increasingly competitive as players from around the world are looking to stake out their territory in the massive global market. It’s a territory where one has no choice but to really go big or go home because half-measures simply aren’t compatible with the market itself.
“It’s just so fiercely competitive that you have no choice but to think about building for the masses,” Nigam said. “You can’t build for the niche of 5 or 10 or 15 million and hope to get [a] $100 billion exit or IPO listing.”
But, he said, there is a lot to be learned and a lot of power to be picked up when firms are forced to think big and design for the massive bottom of the pyramid when it comes to creating a digital front door big enough for everyone to enter.