It was around August 2016. Binny Bansal was still the chief executive officer of Flipkart. Four months earlier, the ecommerce giant had acquired PhonePe, a tiny startup primed by top executives who had quit Flipkart in 2015.

Towards the end of a town hall meeting, one among several that Flipkart had organised to address anxious employees, Bansal called Sameer Nigam on to the stage. Nigam and Rahul Chari, the cofounders of PhonePe, now a Flipkart company, demoed an app to the audience.

“Happy to announce that we are now in the App Store in debug mode… we’re going to walk you through what the first version of the app allows you to do,” said Nigam.

PhonePe was first off the block to launch a consumer-facing app built on the Unified Payments Interface (UPI), the new digital payments infrastructure India had put in place. You could send and receive money to another user without really bothering with the user’s bank account details.

For Flipkart, which nurtures ambitions of being India’s biggest internet firm, this was an opportunity to make a fresh play in the country’s fast growing digital payments space. Paytm, a relatively new entrant backed by China’s Alibaba, had already stolen a march on everyone else.

Nigam told FactorDaily in an interview earlier this month that the app now has 15 million active users and close to five million transacting customers. Judging by these numbers and the company’s approach of solving problems in the payments space rather than scrambling to add new users, PhonePe might just pan out to be Flipkart’s best foot forward in a long time.

“Flipkart has a strong focus on driving up the usage of PhonePe independently, which should ensure greater chances of success,” says Mrigank Gutgutia, engagement manager at RedSeer Consulting.

In a press release earlier this month, PhonePe said that it has processed 5.5 million transactions in May out of which 3.5 million were over UPI. Internally, the company has a target of doubling daily transactions every two months. According to latest data from the Reserve Bank of India, 9.2 million UPI-based transactions were carried out in May as compared to 6.9 million in April.

The Indian government’s move to demonetise Rs 1,000 and Rs 500 notes in November and also its push towards creating a cashless economy has been a strong tailwind for PhonePe, just like most other wallet companies.

“We launched card support a couple of months back. We are already doing couple of million card transactions,” Nigam said. By the end of this financial year (March 2018), Nigam reckons 18-20 million Indians will be using the app to transact.

In five years, he wants to “10x” that number — grow it 10 times. “Once we solve for organised and online markets, we’ll start doing much deeper investments in the heartland,” said Nigam. “We should cross Rs 1,000 crore this month and we should be able to get into pole position or be very close in 12 months.”

A recent report from brokerage Motilal Oswal says that the value of digital retail transactions (through point of sale devices, wallets, IMPS and UPI) increased by nearly 50% from less than Rs 50,000 crore in mid-2015 to about Rs 75,000 crore by August 2016. With the note ban of November, “digital transactions got a one-time boost in December 2016 and crossed Rs 140,000 crore,” the report said. However, the value of transactions has stagnated since then. In May, digital transaction value was pegged at Rs 147,900 crore.

Tech play at PhonePe

The numbers speak for themselves, but to put this in context: Nigam is shooting for the top slot even though UPI-based payments have barely scratched the surface when it comes to money that changes hands in India. Going forward, Nigam wants to expand the scope of PhonePe to address a wider set of needs.

To that end, the company is spending its energy in solving core issues that plague India’s payment ecosystem currently. Localisation of its app, increasing reliability of digital payments and working creating scalable systems suited for large volume of online transactions are some of the priorities for PhonePe.

Currently, the State Bank of India offers the best suite of localised apps. PhonePe launched with 11 languages. “I don’t believe that you can actually address banking needs of 400-500 million Indians without languages,” said Nigam.

The success rate of digital payments in India currently hovers around 70%. Nigam wants that to go up to 99%. “That’s the problem statement we are deeply solving because those are the things that will make you the platform of choice,” he said.

Nearly 70% of the company’s total workforce (just over 100 now), are in engineering. “We’ll probably go up to 120-30 engineers but keep the organisation tilted towards engineering. Otherwise, the tendency to take shortcuts to build a business that is not fundamentally based on technology becomes a possibility,” Chari, CTO at PhonePe, said.

“The next wave of initiatives for us is working with banking partners to build highly scalable stacks for the banking system. So that when events like Big 10 or BBD happens, no parts of the stack go down,” said Nigam.

On sale days, for instance, there’s a huge spike of users trying to pay for their purchases at the same time. This leads to higher failure. PhonePe is developing ways to queue these requests so that the transactions still go through. Another case is to avoid giving payment options when they are down for scheduled maintenance.

Trumping incumbent wallet companies won’t be easy. “UPI platforms are dependent on banks and there have been instances where banks have posed hurdles to UPI growth. This needs to get sorted before mass adoption takes place,” says Gutgutia.

Moreover, PhonePe will have to compete with the networks and a large merchant base that existing wallet players have created. Recently, HDFC Bank said that it will charge customers for UPI-based transactions from July 10. But bank said it will reconsider its decision based on a request by National Payments Corporation of India.

Over the next few weeks, the company is set to announce partnerships with large online merchants as well. It also plans to work with offline payments aggregators to offer PhonePe as a payment method.

The bigger battle, of course is with cash. With the effects of demonetisation wearing off, cash is back in play. The Motilal Oswal report said: “…the amount of ATM cash withdrawals fell from more than Rs 7,000 crore per day before demonetisation to only Rs 2,700 crore in December 2016. Nevertheless, with cash crunch easing, ATM cash withdrawal has moved back to Rs 7,200 crore per day, matching the pre-demonetisation levels.”

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