Sameer, welcome to Startup Conclave. The one good thing about talking to you is you always give me at least five headlines. So I'm hoping in 19 minutes you can give me six headlines minimum.
I am hoping after 10 years I have got more metrics.
No, but before we get to the hot button topic, you know that everyone wants to hear about—PhonePe has turned 10. It's already 10 and it just seems like yesterday when in 2016 all of us were trying to figure out what is this UPI? What is this Unified Payments Interface? How do we explain it to our viewers and audience? What does it feel like—I mean, are you already tired? Do you feel like going for the next 10 years? What still keeps you going, or do you find it a little odd when people still call you a startup?
Culturally, I think we still operate like a startup. I mean, the day I stop thinking we are a startup, I probably hang up my boots.
I am also tired because I mean you've been a part of the journey for a big part of the 10 years with us.
10 years ago. We just finished 10 years of the app on August 28th, not so long ago. And we were digging up really old emails, trying to remember what was going on 10 years ago. And we found this really cute email—a chief architect sent this email to everybody in the company, all at PhonePe, maybe 50 people then. And the subject just said 'Memorize.' We opened the email, and it was all the error codes of UPI. 10 years ago, it was so new that most of us in the ecosystem ourselves did not really know when the feedback was coming 'customer not have balance' what is the exact wrong—what is going on, right? I mean, it was a completely new ecosystem. It was just that our app was new, the rails were new, all the banks who had integrated—for them, it was new.
And it's really come a long way. And 10 years ago, honestly, anybody who says they had any inkling that we will be the largest payment trails or largest real-time payments network in the world is lying. Like, we had no idea we'd run this fast. So it's been a ride and then some.
Right. If I look at the first 10 years of PhonePe, right? I mean, it's sort of being dominated by payments and UPI. And in that sense, you said people don't say 'do UPI'—you know, they say 'do PhonePe' and you can see the QR code and everything. What will the next 10 years look like for you? Because this decade has sort of been dominated by payments. You stamped your mark there, but you are getting into other areas. Are you finding the same success? What will it take to replicate that in other areas? You know, you experimented briefly with the Pincode and you obviously entered broking and you have insurances there. What will the next decade of PhonePe look like, or what do you want it to look like? Do you think you're over-indexed on payments now? What do you want the mix to look like a decade from now?
So I think payments still has a long way to go. There is about half a billion people on the payment trails and there is about 25-30 million active merchants because there is a lot of churn on the merchant side that are active in India. So there is clearly a long way to go there. And with payments, now we feel that once we know how to actually sort of grow the Indian market, we're very excited about growing international. We started that journey, right? So next 10 years with Ritesh and UAE approvals, UAE approval, we filed in other markets. So we want to see a homegrown product tech company go global in the next 10 years. That's a very clear ambition. It's damn time.
And I think the second thing is, over the past I'd say five or six years, we've really sort of sowed the seeds across sectors—in financial services distribution. See, where we are doing very, very rapid expansion on our LSP model on lending distribution with banks and NBFCs. In InsurTech again—I know there is a lot of noise around the recent IRD, but from where we see it, the clear signal is they want transparent digital-first distribution at scale, right? And we've played that game before—lower commissions, mass play. So I think payments, mutual fund distribution, gold—digital gold—we launched platinum. 10 years ago, somebody told me PhonePe would be selling platinum, I'd be blown away, right? But we sell bucket loads.
So I think we will keep expanding and my hope is over the next 10 years, 100x the reach of financial services to the Indian population. I think affordability is a big factor, but in the Indian context, digital reduces the cost of distribution exponentially. I mean, you can operate at sub-linear cost of distribution. Once I have access to you on payments, I can start distributing other products from all our partners much, much faster and cheaper.
Right. In the previous session, you know, when the VCs were asked about MDR, they said you know, overall, it's a positive development. But it's also going to be complex in terms of execution because you know, there are so many different stakeholders involved and every day there is a new clarification that's needed from the NPCI. We spoke to you last week on this. You were obviously overwhelmingly positive about it. But you also told us that you know, you are in the process of assessing what kind of positive impact this would have on PhonePe itself because you were awaiting data yourself from various verticals inside PhonePe? Can you give us a sense of how positive this is going to be for you? Have you had a chance to perhaps get some data on that by now?
I won't get into the specific numbers but I will say, for the past six years, justifying continued and aggressive investment in payments on both the consumer and merchant side has obviously been difficult discussions, right, with our investors, even internally—why are we investing so much? And I think it goes back to the mission. If the mission were not to get to a billion, it would have been easy to just pause and say let's focus on something else. We never have.
So I think the fundamental shift is that there is now sustainable monetization in payments again, which will allow not just PhonePe, but PhonePe, PhonePe FMP, and everybody in between, right, to be able to actually build out more and more novel use cases. So I think it's hopefully going to be a nice chunky amount. It will change the math as we look to go into the public markets. It will help with the bottom line. I mean, these are all good things. There is—so, I'm not a hypocrite. We've been asking for this as a sector for six years, you know this well. So it's been a long time coming and just happy it's come.
Right. If I look at the payments industry, Sameer, there were two, you know, overhangs or headwinds. One was monetization which MDR solves for to a certain extent. The other, when it comes to tip apps and UPI apps, is the market share question. NPCI, you know, I think they have given a 30% market share rule by which comes into effect I think by the end of 2026 or early 2027. You once famously said that you will not go public till you had this UPI market cap headwind hanging on your head. I think you said this at Global FinTech Fest. Do you still stand to that, or now is it a better time now, you know, at least the MDR part of the equation is solved?
So in 2023, three things happened. We got hit by a pandemic, we got hit with no monetization, and we got hit by a growth cap. The pandemic is truly, well, and truly behind us—scarred, but it's behind us. The monetization looks like it's getting settled pretty damn soon. Just call me an optimist. I'm hoping this will get sorted too. I won't say anything beyond that because there is yet another deadline looming again. So right, we'll play it out.
Right. In terms of, you know, you mentioned that financial services is going to be a big focus for you. But in the medium term or the short term, the next one or two years, within financial services, what are you over-indexing on or spending a lot of time on?
Lending, for sure. So we were a little late to the game by design. Publicly, we had said we want payments to become sustainable before we dive into lending because as you know, the meme used to be every fintech eventually becomes a lending company. That's the holy grail literally for all fintech. It was a savior in many ways because every other sector was not working out in fintech, right? I think Mithil also talked about this. So we wanted to make sure that we are sustainable first. Now that we went lending with partners, it's a very, very big opportunity. We are able to focus our efforts both on the merchant and consumer side on sustainable and meaningful lending with our partners. So we are putting all our data at play. We are putting our collections and distribution play. So I think lending for the next two to three years is definitely the single biggest focus area for us.
Right. One more announcement that you have made this week is, you know, that you will add 50 lakh merchants in smaller towns and rural areas. In hindsight, do you think PhonePe should have gone more aggressively after merchant acquisitions perhaps a couple of years earlier?
Actually, one just to clear the air first. We started merchant acquiring in 2018 and we have the largest and second largest based on our DRHP and the public filings of others who are public. 50 million odd, 5 crore odd merchants is where all of us are hovering—us and the other last player there. So no, I don't think we could have gone any sooner or gone more aggressively. We are literally from Kashmir to Andaman all the way down and Gujarat to Kaziranga Forest Park. So I think we're omnipresent. I am very happy with the expanse of our network. We talked about 50 lakh new speakers, smart speakers, not merchants.
I think the speakers really do change the comfort level of small businesses because the announcement that comes with the payment collection does change things. And Amitabh Bachchan's voice, Mammootty's voice, Sudeep's voice—there is a lot of celebrities there.
