Highest profit pool in payments lies with NPCI: PhonePe CEO Sameer Nigam

PhonePe and Zerodha at Moneycontrol Startup Conclave

The highest profit pool in payments still lies with the National Payments Corporation of India or NPCI and their reported profit is higher than most of the payments company put together, said Sameer Nigam, Chief Executive Officer of Walmart-owned PhonePe.

Nigam was speaking at the Moneycontrol Startup Conclave along with Zerodha's cofounder Nithin Kamath held on July 7th.

Nigam also highlighted that there is market distortion in the payments ecosystem where money is being raised by the private sector but monetisation is getting very difficult.

"Trying to say that your company won't make money on the core business instead doing a societal good and now public good is not a strategy. There are 700 million internet users to whom we need to make digital payments accessible...But in this industry barring a few B2B players it is difficult to make money, In fact, the next highest profit pool last year was actually NPCI's,"

NPCI was established under the aegis of RBI as a non-profit to run a few payment systems such as Immediate Payment Service (IMPS), Unified Payments Interface (UPI), and Bharat Bill Payment System (BBPS). In FY22, NPCI posted a Rs 773 crore profit.

Nigam was alluding to the payment industry's long-standing demand to reinstate MDR or commission for facilitating payments. However, the government had withdrawn MDR to accelerate digital payments in the country and has indeed helped a lot of small merchants to adopt UPI payments.

Nigam also pointed out that there is discord in the ecosystem where there are customers willing to pay as against government interventions coming up on private players to not monetize a service/product.

"There are 700 million people who are the Total Addressable Market (TAM) and their appetite to pay is huge but government interventions saying that firms cannot charge is creating high stress on the profit pools of companies," Nigam said.

Stockbroking firm, Zerodha's cofounder and CEO, Nithin Kamath added that the revenue pool lies in the top 1-3 per cent of the players.

"We need more Indians to move away from FDs and savings and start with a mindset to back entrepreneurs...Wealth creation has to happen more inclusively in this country," Kamath said.

Zerodha's net profit nearly doubled in FY22 (2021-22) as its operating revenue jumps 80 percent, making the bootstrapped fintech startup one of the most profitable new-age technology companies in India.

PhonePe to cross 500 million users

PhonePe will cross 500 million lifetime users by November of 2023, said Nigam as the fintech looks to become an end-to-end online and offline payment service provider in India.

"We will likely cross 500 million lifetime users of PhonePe by Diwali this year and we already touched 300 million active users on an annual basis... This is a superset of any e-commerce or even fintech category because this is payments, which is staple, " Nigam said during a panel discussion with Zerodha founder and CEO Nithin Kamath at the Moneycontrol Startup Conclave on July 7th.

PhonePe's revenues for FY22 crossed Rs 1,900 crore, per data from MCA filings and Nigam said that the firm aims to be operationally profitable by 2025. PhonePe will also likely hit the IPO market in the next couple of years.

"We will go for an IPO only when we hit profits and we are generating enough cash...We want to get enough time in the private market to fully open up in the sectors we have entered.

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Nigam also said that there are too many players entering the segment.

"Revenues and margins are not the same things, If you take payments for example if 90 percent of what you are making goes directly to the manufacturer through inter-change, you are basically playing in that 10 bits...We don't need more Payment Aggregators, the FOMO model that's playing out is a problem," he said.

In early July, PhonePe announced entry into the offline market by launching Point-of-sale (POS) device that enables merchants to accept payments via debit cards, and credit cards.

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On June 14, PhonePe launched its online payment gateway to serve MSME (Micro, Small, and Medium Enterprises) merchants across the country. It also launched its merchant lending platform, allowing banks and NBFCs to provide access to credit in a completely digital and seamless manner to its vast base of over 35 million merchants.