India Payments Research

Can what works for digital payments in India work globally? That is the most pressing question today for the National Payment Corporation of India’s (NPCI) United Payment Interface (UPI) payment rail, the most successful initiative of its kind. While many fintech success stories have come entirely from the private sector, UPI shows that public-private digital financial inclusion efforts can bear fruit when they are implemented well. Having achieved dominance domestically, UPI is now keen to expand overseas.

Walmart-backed PhonePe, one of the biggest players in India’s payments market, is now one of the subcontinent’s most valuable private fintech firms with a valuation of US$12 billion following a mammoth US$350 million capital injection. PhonePe’s valuation more than doubled from US$5.5 billion at the end of its previous funding round in December 2020.

There is a lot of speculation right now about whether India will make good on its promise to cap third-party payment providers’ market share on the United Payments Interface (UPI) at 30%. We argued when the idea was first proposed several years ago that it did not make a lot of sense and would be hard to implement. Now, with December 2022 deadline looming, the National Payments Corporation of India (NPCI), which operates UPI, and the Reserve Bank of India (RBI) are considering extending the deadline.

Paytm’s path to profitability has always been a bit convoluted given the company’s labyrinthine business lines and its determination to compete in so many retail segments that require regular subsidizing of customers. That said, it enjoys a scale that few – if any – of its competitors can boast, the backing of some very deep-pocketed investors and the ability to raise cash cheaply on India’s stock exchange.

Razorpay is the rare fintech unicorn with discipline and focus, as well as a sky-high valuation. Last valued at US$7.5 billion in December 2021, the Bengaluru-based payments gateway is notable for growing through strategic acquisitions and sticking to its B2B focus despite pressure to foray into retail. It is now poised to expand beyond its home market into Southeast Asia.

The National Payment Corporation of India’s (NPCI) United Payment Interface (UPI) payment rail is the most successful initiative of its kind globally, proof that government-led digital financial inclusion efforts can bear fruit when they are implemented well. In the second quarter of the year, UPI recorded over 17.4 billion transactions in volume and Rs 30.4 trillion in terms of value, up 118% and 98% respectively over the same period a year ago. While India remains UPI’s paramount market for now, the company is increasingly targeting global expansion.

For the past few years, the biggest credit story in India has been buy now, pay later (BNPL). Tremendous demand for credit has driven the BNPL boom in the subcontinent, but tighter regulation and slower growth are both now inevitable. After all, you cannot act as a credit provider without being regulated like one forever. As BNPL slows down in India, there may be an opportunity for the overlooked – but better regulated and steadily growing – credit card segment to build market share.

Paytm is in high spirits. Its stock has risen 45% over the past three months, making it an outlier among fintechs. Paytm is even feeling pretty good about losing 6.44 billion rupees (US$81 million) in the first quarter of FY2023, an increase of 70% from a loss of 3.8 billion rupees a year earlier. Paytm attributed the higher loss to increased operating costs and said it is on track to reach operating profitability by the second quarter of the fiscal year. 

India’s fintech unicorn club has a new member, the credit provider OneCard. In mid-July, OneCard announced it had raised US$100 million in fresh funding at a valuation of US$1.4 billion, nearly double its January valuation of US$750 million. Leading the round was Singapore’s Temasek. Other key participating investors existing backers QED, Sequoia Capital India and Hummingbird Ventures. To date, OneCard has raised US$225 million and says it has over 250,000 customers spending about US$60 million with its cards each month.

India’s UPI real-time payments platform has achieved impressive growth since its inception just over six years ago, with expansion being especially turbo-charged during the long coronavirus pandemic. The acceleration of India’s overall digital economy over the past 2.5 years has helped UPI become the most dominant platform of its kind on the subcontinent and even begin nascent international expansion: to the UAE, Bhutan, Singapore, Nepal and now France. The question now is if UPI can build meaningful market share outside of its home country, where it enjoys some inherent advantages.

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