The massive growth in digital payments spurred by last November’s demonetisation has slowed down in the year since, forcing mobile wallet companies to find new ways to persuade their customers to ditch cash and embrace digital money.
PhonePe, the mobile wallet owned by the online retailer Flipkart, this week launched a new calculator-like device which it promises will process digital payments without needing an internet connection.
The company claims the device will “help accelerate the pace of digital inclusion” for millions of small store owners who are currently unable to accept online payments, presumably for want of internet.
But can PhonePe actually make a splash in the cluttered digital payments space?
Before the advent of digital wallets such as Paytm, the only alternative to cash was the credit or debit card. Using the card for purchases, however, requires a point of sale machine, which small shopkeepers and stall owners generally find prohibitively costly to install – apart from the cost of the machine itself, they have to contend with paperwork, mobile internet connection costs and steep commissions that banks charge on each transaction.
On November 8, 2016, the government demonetised 86% of all banknotes in circulation. Suddenly, cash was in short supply, forcing everyone to look for alternatives to carry out daily transactions. Many turned to mobile wallets companies, and they grew like never before. Cash-reliant small merchants everywhere, from big mall to corner shops signed up for platforms like Paytm and MobiKwik to accept payments. Until recently, such merchants didn’t even need to fill out any KYC, or Know Your Customer, documents to process up to Rs 20,000 a month through such services.
A year on, the volume of digital transactions in the country has slid down to pre-demonetisation levels, suggesting the spike was caused by a lack of cash rather than people shifting to digital payments out of conviction. Still, while large companies such as Paytm continue to add more users and merchants, smaller players are being compelled to find new ways of expanding.
Take PhonePe. While Paytm’s expansion model relies on adding more customers, PhonePe, which offers similar services, focuses on volume. According to Srikanth, who runs a website to track digital payments, this means PhonePe has far fewer merchants on its platform, but each transacts much more. “By the very nature of PhonePe’s relationship with PoS companies and merchants, the merchants who are added get higher transaction limits,” he said, referring to companies that provide point of sale machines.
PhonePe’s new device, PhonePe PoS, is supposed to be a match between a traditional point of sale machine and a mobile wallet, and the company is banking on it to narrow the gap with the dominant players. The company claims it has received “enthusiastic queries” from merchants about the new device, and will be deploying 5,000 of them in Bangalore, where it is piloting the device.
The device, which the company says costs around Rs 640 to make, does not need an internet connection to work. It instead uses bluetooth to connect to with a customer’s phone. The customer will need to install the PhonePe app, which can then be used to authenticate payment by dialling a number into the device. After this, the app will display whether the payment was successful or not, using the customer’s mobile internet connection.
PhonePe’s system may seem nifty, especially since the company says it will be cheaper than traditional point of sale machines, but it skips an innovation that its competitors are already using: QR codes. QR codes are scannable barcodes that consumers can just point their phone at to pay immediately.
Mobile wallets, including Paytm, Freecharge and MobiKwik, as well as the government-backed Unified Payments Interface, or UPI, which allows users to directly send money from one bank account to another, support QR codes. The government has its own standard for QR codes, called BharatQR, which is integrated with the UPI. This means anyone with a UPI-based app, offered by most Indian banks, can simply use their phones to scan a BharatQR code and send money directly from their bank account.
QR payments are quick, easy and growing rapidly, and they are being standardised with BharatQR. Over 7,00,000 stores already have a BharatQR sticker, and the government wants to expand that to 1.5 million by early next year.
Though PhonePe does provide QR code stickers for its registered merchants to display in their stores, it is a closed proprietary system and incompatible with Bharat QR. In any case, far fewer merchants display PhonePe QR code compared to the codes of larger wallets such as Paytm and MobiKwik.
So, how is using PhonePe PoS, which only works with phones with PhonePe app, more convenient than QR codes? To use the machine, a customer would have to grant the PhonePe app bluetooth access, connect to the machine while having access to mobile internet and approve the payment. QR codes offer the same service without needing a bluetooth connection.
PhonePe claims its machine gives more control to merchants. It “enables the merchant to enter the amount and broadcast automatically instead of relying on the amount entered by the customer manually,” said Priya Patankar, a spokesperson for the company. She added that “instant confirmation” is provided to both the customer and the merchant though payments through QR codes usually do that as well. Seemingly the only added benefit of the machine is that it doubles up as a calculator.
Ignoring QR codes may not be PhonePe’s biggest hindrance in expanding its services to smaller shopkeepers and stall owners. The real competition may come from cash, which is once again the preferred payment option for most Indians.
Satish Kumar Gupta, who runs a cigarette stall in central Delhi, used Paytm in the months after demonetisation but doesn’t anymore. “Now they cut 3% for every sale, and that eats too much into my profit, so I stopped using it,” he said. Gupta has not even heard of PhonePe.
Sanjay Gupta, another cigarette seller nearby, said, “I buy my inventory in cash and sell it in cash. If all my customers are back to using cash, why should I use Paytm?”
Told about the PhonePe PoS, he said, “Card machines are used in big stores when customers don’t have cash. This is not a big store. I want simple payments.”