PhonePe CEO Sameer Nigam defends MDR, takes on Ashneer Grover

I think, hi Chandra and thanks for having me here. I think what we know is that our share of P2M is broadly in line with our overall market share. I'm speaking from the consumer side, somewhere in the 45 to 50% of P2M transactions in the country. Just by virtue of scale, right? So if you have 45% of all payments, you have about 45% of P2M and we have 45% of P2P. So any MDR that comes in is naturally going to be helping us get some much needed revenues and hopefully profits from the payments business. In terms of how much that is in absolute terms, because there are so many carveouts that got published just last evening as you know, I think category managers are furiously trying to figure out, okay, in my vertical how much will I earn? The guys looking at OMCs are like, okay, it's going to be five rupees fixed interchange and our share of that on the acquiring side will be 30%, so one rupee, like some paisa. People in the e-commerce segment are looking at how many transactions are above 75,000 because there's a cap above that, fixed 300. People who are working on the payment gateway business are looking at what share of that market is broking at 0.2% versus regular retail at 4% versus insurance at 5 rupees. Every vertical honestly is different. And then we have a large bill payments business where again every subcategory is cut differently. So I think realistically it'll take us about a week to just process all of this. 13, 14 different verticals. But I think net-net we are obviously very happy. This is a long time coming. I think my industry colleague Vishwas Patel put that number out as an industry of about 100 TPAPs and 100 PSPs. We sort of looked at our balance sheets for the last half a decade, it's almost $5 billion of losses that the sector's absorbed. That's been the cost of really just growing this market so rapidly and we've been hurting. And I know both of you have been tracking this space as well. So this is much needed for the sustainable growth of the UPI ecosystem and honestly just India's digital payments ecosystem. We all celebrate how large the market's become. We all celebrate 500 million Indians doing UPI. I think we should also celebrate that it creates a vibrant market ecosystem.

So you said excluding data centers etc. actually? See again, we play on both sides of the ecosystem. On the consumer side, we are actually more than about 70 now, about 72, 73 crore customers life till date, 720, 730 million. So on that side, just given the sheer volumes that we process, we actually have one of the largest data center footprints in the country now. We have about 30,000 servers, right? So that itself has cost us several thousand crores. Whether there's MDR or not, customers are transacting on P2P or P2M, the sheer volume of transactions requires us to keep scaling that side. On the merchant P2M side, I'd break this up into three parts. In the offline side, we are actually just neck and neck with Paytm because I know their numbers are public. So we are at about 51 to 52 million merchants live, right? Very similar numbers. We cover pretty much every pin code of the country, north to south, east, west. And that again is on the back of a very large sales force on the ground. So we have roughly about 50,000 people in steady state on the ground at any point of time. These are people who go and KYC merchants, educate them about online payments, not just UPI but wallets, cards, RuPay. These are the same people that actually go and sell our smart speakers or celebrity voices for those. These are the same sales force that will now have to educate all of these merchants about what MDR really means to them because I know there's a lot of fear-mongering going on online. I'm seeing it. It's unfortunate but reality is 96% of transactions will bear no MDR. Customer will have 100% of payments free. Merchants will have 96% of payments free. Most merchants will not have any MDR because their transactions don't cross 2,000. It's only the larger merchants where you have 2,000 plus value transactions. So any which way you cut it, it's a very small percentage of merchants overall that are going to actually be paying a bulk of the MDR. And guess what the good news is, about 60 lakh merchants are already actually paying for POS devices and accepting credit cards in the country for the last decade. So there the interchange is anywhere between 1.7 to about 2%. MDR is 2 to 2.5%. So 4% is nothing of nothing right now in this market. It's still the lowest in the world by the way. I don't think people are giving NPCI and the government credit on keeping it that low. I'd love to see it higher at any day of any point of time. But fact is for a broad-based MDR acceptance, that's the right number right now.

I mean this is something that we've been discussing with the policy makers, the network, the regulators for three or four years now as you well know. The promise of MDR, UPI MDR has been there for the last almost three or four years. And it's a question that a lot of investors asked us honestly. You're really large. What does this translate into on the consumer side or the merchant side? I think having a positive response on that will be helpful. It definitely will push us closer to a filing from a business standpoint. There are a few other variables. We're just looking at some of them and once MDR settles in, I think we'll be back on the drawing board and hopefully timelines emerge soon.