Moneycontrol PRO

Exclusive: PhonePe begins work to launch its own payment gateway

The company may target large offline players to offer its payment gateway services. Besides, the foray will also enable in-app purchases for PhonePe, reducing its dependence on external payment gateways.

September 05, 2022 / 08:43 AM IST
Representative image.

Representative image.

Unified Payments Interface (UPI) leader PhonePe is launching its own payment gateway as an extension to its current Quick Response (QR) Code-based UPI payment service and in-app payments. The company will be competing with the likes of Paytm, Pine Labs and Razorpay as it may look at targeting large offline players as well as small and medium businesses to offer its payment gateway to, according to sources.

“PhonePe had been working on this for a while. Around two months ago, they informed their payments partners that they are working on a payment gateway. They had reached out to payment partners in good faith since they will be competing with them,” said a payments executive aware of PhonePe’s plans.

While the Walmart-backed company did not comment on the development, it has recently added a tab for its payment gateway on its website as one of its offerings for businesses.

Currently, PhonePe already processes payments for merchants through an interface where users have the option to pay via UPI, their saved credit card, and debit card. Besides onboarding external merchants, a payment gateway will also help the company’s in-app payments.

Besides UPI, PhonePe’s app enables rent and bill payments, ticket purchases, as well as insurance purchases.

Another executive from a payments company said, “PhonePe sees high volumes on its app for bill and rent payments. Currently, the company depends on external payment gateways for many payments. Its own payment gateway will reduce its dependence on other gateways.”

Meanwhile, the company is awaiting the Reserve Bank of India’s (RBI) nod for its payment aggregator licence application. Like existing payment gateway players, the company can operate a gateway even as it awaits the licence, said industry players.

PhonePe has been rapidly expanding its payments as well as ancillary offerings. Moneycontrol had reported on August 3 that the company has also launched a speaker device for merchants that announces receipt of payments on to its app.

By launching this offering at a lower price, PhonePe went head to head with rival Paytm, which is the third largest UPI player.

Increasing competition

The number of payment gateway operators vying for a share of payment service offerings to large businesses is growing. With the lines blurring between the experience in payments for online purchases and physical payments at stores, large players have adopted an omnichannel strategy.

Over the past year, point of sales (PoS) payments leader Pine Labs launched its own payment gateway Plural and also acquired Mumbai-based online payments startup Qfix.

Razorpay, whose payment gateway is a leader among startup and tech companies, acquired PoS player Ezetap in August to extend omnichannel payments services. Players like Infibeam Avenues have also kicked off their omnichannel strategy and PoS player MSwipe will soon launch its payment gateway, although for small and medium businesses.

With PhonePe too in the fray, all three players are likely to be targeting the same merchants. While Razorpay may look at capturing offline forays of online-only brands which are already its customers, Pine Labs has been focusing on online payments of large retail chains that it provides PoS terminals to.

PhonePe too may look at a similar play, besides focusing on digitising its current customer base of small and medium businesses that it provides QR Code-based payments to.

In an interview with Moneycontrol on August 18 post the Ezetap acquisition, Razorpay co-founder and CEO Harshil Mathur had already expressed its plans to become the largest omnichannel payments provider.

“The competition in the space is going to get intense with all these players targeting the same customers. However, it is not a demarcated space since brands often use multiple gateways and payment providers. Which player has a larger share on an omnichannel level will eventually depend on the offering,” said the leader of a payments services company.

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Priyanka Iyer
Priyanka Iyer
first published: Sep 5, 2022 08:43 am