As digital penetration increases, so-called mobile wallets are exploding as a popular mode of payment in urban India. While plastic money is still more widely used, transactions through mobile wallets – which allow users to transfer money to an e-wallet and then make payments digitally – rose five times in the last two years. The government is looking to encourage this through the Unified Payment Interface, which promises even quicker transactions than the existing mobile wallets.
Launched in April, Unified Payment Interface aims to move India to a cashless economy by allowing payment companies to complete transactions through people's bank accounts. It allows users to pay merchants through their accounts without keying in their debit or credit card details.
Online recharge and bill payment service Freecharge is among the first players to initiate the Unified Payment Interface on its platform by tying up with Axis Bank to provide its services. Scroll.in spoke to its Chief Executive, Govind Rajan, on where the payments industry is headed and whether India can become a cashless economy. Edited excerpts:
Freecharge has entered into a lot of partnerships lately related to the payment ecosystem, one of which is the tie-up with Axis Bank for the Unified Payment Interface. Are payments the next big opportunity? Are you moving away from recharge businesses to payments now?
We were a company focused on recharges until September last year. That's when we pivoted to being a payments company. Snapdeal acquired us in April 2015. Between then and September, we built a lot of technology around payments. I don’t think anybody has built that much technology in six months.
This is a big opportunity because about 90% of retail transactions in India are in cash. We are looking to move as many transactions online as possible and are trying to digitise payment.
Within the first two months of our launch as a payments company, we got to the second position.
We have clocked a million transactions a day in the last seven months and we are aiming to move this to seven million transactions a day by the end of the year.
Do you think by moving to payments you are abandoning the recharge business? Is this because the space is too crowded, with multiple players operating in the market, even as more than 90% of recharge transactions still happen offline?
I don’t think there’s any operator in the country who is looking at recharge as an end in itself. Recharge is a way to address a consumer’s other digital needs. Everyone in India is looking to provide recharges online and we are changing the habits of customers by getting them accustomed to digital transactions.
As we move transactions online, we are able to introduce the digital payments ecosystem to the consumer. We don’t do any recharges on our own – they are provided by the telecom company –but by being the intermediary, we are offering an electronic payment facility.
The online recharge market makes up about 8% of the total market and we feel that there are 700 million Indians of which 250 million Indians have smartphones. Out of these, 200 million people are on prepaid and recharge becomes a great place to start to get consumers to start transacting online.
How is the Unified Payments Interface going to change things for existing players? Do you think existing players are under threat if they don’t tie up with banks for facilitating payments, for instance?
We are among the first ones to move forward with UPI [United Payments Interface] integration. UPI is being promoted by the National Payments Corporation of India as a way to ease the process of transacting online and it is expected to reduce transaction times.
We don’t see UPI as a threat, we see it as an opportunity because consumers to recharge because it will ease the user experience. At present, all transactions on our platform are done within 10 seconds [and United Payments Interface can bring this down further]. We believe that there should not be any typing, there should only be tapping when you're paying for something online.
Consumers are concerned with convenience, more than anything else.
You mentioned that there should only be taps for payments, which makes the facility sound more like an app interface than a desktop interface. Does that mean Freecharge has consciously focused on its mobile app over its desktop site? Where do you stand on this debate?
About 70-80% of our consumers transact on mobile phones for the most part, but also use laptops and desktops sometimes. It’s true that the momentum of transactions is no longer swinging in favour of desktops. Three years ago, the split for Freecharge was also 50-50 but that is no longer the case.
What we are seeing, instead, is that consumers will have different preferences at different times. On Sundays, desktop traffic comes back while on weekdays, mobile traffic is higher. At work, people may prefer to use their desktop for transactions, while they would use their mobile phones if they are on the move.
So we don’t want to make that choice for the consumers. The consumer is best placed to make the decision themselves. We are not going to say that from now on, desktop transactions are not available to you because we think that kind of decision doesn’t respect the consumer.
Freecharge pioneered the model of offering coupons for online purchases on other sites on every recharge but now, every player offers this or an equivalent. How is the model working out for you now after aligning with Snapdeal?
Like I said, we are focusing on payments right now. We don’t want to introduce e-commerce on our site or on our app. Our objective is to find more and more areas where consumers are transacting online and serve those consumers with an easier means to pay for these transactions.
Snapdeal being an anchor merchant for us, it creates a flux of ready users for us. Freecharge wallet is the default wallet on Snapdeal and their entire transaction velocity helps the transaction velocity of our platform. Secondly, it acts as a great discovery platform since every users on Snapdeal sees Freecharge branding on top and that increases brand recall and use-cases. It also moves up trust on the brand.
Freecharge also had a wallet-like offering for a very long time, but it was only after Paytm moved into the space and gained a bulk of users that you started advertising your own wallet. Was that a decision taken because of competitive pressures?
The Freecharge wallet essentially started only in September. What we had earlier was more of a cashback wallet, which just allowed you to get the money back from failed transactions and the likes. As we move towards becoming a payments company, we want users to avail themselves of all the features of an online wallet and hence, we started pushing this new offering.
The earlier offering was not compatible for payments across recharges. Our objective is to serve consumers as well as merchants and the way to do that is to offer a full-service wallet.
At the moment, most players in the e-commerce space are bleeding money, with no profitability on the horizon. Is the payments industry witnessing a similar trend or is Freecharge’s financial performance somewhat different?
We are seeing fantastic growth. We have grown by at least three times since we moved to payments. We are growing 10-15% every month.
Freecharge has always been a small and focused team. We are entirely focused on doing efficient transactions. We are confident that our business model is a sustainable. Less than 2% of Indians transact electronically and our objective is to increase that percentage. I think with scale, there will be profits as well.
But the big opportunity of growing the digital payments space could be hampered by poor internet penetration and/or slow speeds once you move out of the metropolitan cities. Do you think the market is geared to deal with that?
There needs to be a conscious effort to optimise apps and websites to run on the slowest of networks. Our app is less than 10 megabytes in size and that’s because we want it to be accessible on most entry-level smartphones as well. We don’t think it’s a big risk for us. For instance, 20-30% of our customers use 2G at various points of time to access our app and that helps us retain users.
We have the highest retention rates among many of our competitors even after two-months of installation.
But do payment gateways support 2G yet?
Payment gateways don’t discriminate between 2G or 3G. What makes a difference while paying online is that you are able to send packets (of information) efficiently and receive a response in time. So, operators need to optimise their apps for payment gateways, like we have done.
You recently said cash is our enemy. Why did you say that given that this country almost entirely still runs on cash?
I said that cash is our enemy because when we are building a product, we don’t want to just beat the competitor but help the consumer as well. Cash has many disadvantages over digital payments. We believe that by moving some of these transactions online, we can improve user experience.
I don’t think that we are going to become a cashless country any time soon. It might take three or 30 years. I think we should first become a less-cash country. We need to have a long-term vision for this and hope that more people switch to online payments.