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Bengaluru: Since the start of 2020, the digital payments industry hasn't had it easy. The slashing of transaction fees of payment firms for unified payments interface (UPI) and RuPay transactions, and then, the ongoing covid-19 crisis and lockdown has further put the brakes on the growth of digital payments.

Fintechs are now looking at alternatives to cover on lost revenues. Flipkart’s digital payments arm PhonePe is also seeing an impact, but believes that the bet on its O2O (Offline-to-Online) strategy is paying off. In a telephonic interview, PhonePe co-founder and CEO Sameer Nigam speaks about turning profitable, initial public offering (IPO) plans and synergies with Flipkart. Edited excerpts:

With the current lockdown, transaction fee being slashed to zero and the recent outage due to the Yes Bank moratorium, what has been the impact on PhonePe?

With transaction fee being zero, it is a clear handicap to the entire UPI and RuPay ecosystem, as there is no incentive for fintechs. On the recent outage, we were lucky since integration with ICICI Bank was already planned and had a playbook ready for a doomsday scenario like this. On covid-19 impact, overall transactions on our platform have dipped by 35% because kiranas are closed and daily offline payments have fallen.

What are the new strategies PhonePe is eyeing to covid-19 crisis?

We took a bet on O2O (Offline-to-Online) strategy back in 2018, and are trying to help users discover products online, exactly like offline stores. We are also informing users on which shops are open and delivering, and working with delivery fleets like Swiggy Genie to meet our offline network stores and deliver goods to customers.

PhonePe has also introduced a chat service between merchants and users, which also helps small kiranas run offers and communicate that to customers, in the long run. Our in-app platform, ‘Switch’ is emerging as a lucrative cheap option for smaller digital fintechs to reach out to our customer base, and list services.

PhonePe takes a commission on the revenues on the business generated by a partner through the ‘Switch’ platform.

There were talks about PhonePe trying to secure external strategic investment and getting new investors on board. What’s the status?

Walmart has been a phenomenal investor, and, as far as the strategic investment is concerned, we have the necessary capital availability and don’t need external capital. Going international can open up our consideration for an external partner.

CRM, advertising and inventory display strategy online will turn into paid streams of revenue. With profit pools now opening up, we are growing our business to profitability, rather than focusing on newer investors.

Tell us more about your profitability plan.

PhonePe has a line of sight to becoming profitable by 2022 and will file for an IPO in 2023. Currently, O2O contributes for less than 5% of our revenues; payment distribution will be 40% and 35% will be advertising, the rest is financial services.

Cost of acquiring users and need for capital is lower now than what we spent in 2018 and 2019, thanks to the ‘network effect’. But, we will spend on direct consumer marketing. We will exit this year with more than 275 million users using PhonePe, and gather another 220 million in the next 2 years.

What are the synergies you foresee with the Walmart/Flipkart ecosystem?

Going forward, the Flipkart app could be listed on our ‘Switch’ platform or Ekart (Flipkart’s logistics arm) to help with hyperlocal deliveries of essentials from our offline network. These are just ideas for potential growth. Using Flipkart’s ‘Pay Later’ credit line, users can are already paying bills on PhonePe. It makes sense for us to look at more opportunities tactfully.

Will PhonePe look at inorganic growth through acquisitions?

We will not acquire to aggregate market share. We have always believed in organic growth, however if we might look from a pure innovation standpoint at the ‘adtech’ space or IP around ‘scoring’ and ‘risk modelling’ in the financial services space.

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