Insights
Differentiated approach, customized solutions and timely interventions facilitate merchant acceptance across India
The fast-paced transition in the Indian digital payments landscape bears testimony to its expanding
reach, which is set to triple from US$3 trillion today to
US$10 trillion by 2026. To understand the dynamics of this massive scale, PhonePe Pulse
collaborated with Boston Consulting Group (BCG) and released the report titled,
“Digital Payments in India: A US$10Tn Opportunity”. According to the report,
merchant payments are expected to increase from
20% value today to 65% by 2026, further underscoring that the role of
the ubiquitous merchant cannot be undermined in the value chain of this transformation
In this edition of the PhonePe Pulse Beat of Progress conversation series,
Karthik Raghupathy, Head of Strategy & Investor Relations at PhonePe chats with
Vivek Lohcheb, Head of Offline Business, PhonePe, to deep dive into the merchant
acceptance journey of digital payments. In addition to insights from Vivek, the conversation also
brought to light interesting case studies that reinforce the power of digital payments. Here is an
excerpt of the conversation:
Tackling Challenges
Converting merchant skepticism into confidence in digital adoption has been a labor of constant toil for
PhonePe. In the early days with 93% of the transactions being offline, Vivek highlighted that focused
efforts were required to mitigate challenges such as negligible merchant awareness and lack of UPI QR
codes at PoS, to step up digitisation for merchants. The pandemic was a game changer that reversed this
trend, with merchant payments accelerating from 1% to nearly 20%, as more consumers demanded contactless
transactions. Vivek explained how this scale saw its share of fraudulent practices which had to be
reined in with appropriate solutions. Introducing a Photo QR code to avoid identity theft and smart
speaker validation to confirm payment receipts were some of the solutions that helped combat
unscrupulous transactions and establish merchant confidence.
Addressing merchant diversity through customisation
Vivek articulated how unique merchant requirements required customised go-to-market strategies to target
varied geographies to achieve a high conversion rate. While urban markets offered merchant density,
rural markets were scattered leading to cost inefficiencies. Here, PhonePe initiated tie-ups at the
grassroot level to facilitate merchant acquisitions. He explained differentiated processes were created
for smaller merchants who had recurring low-ticket transactions while larger merchants required
integrated solutions, enabling card payments, and streamlined reconciliations. PhonePe ensured that
every merchant ranging from a high-profile restaurant to a street vendor had been equipped to transact
digitally.
Value addition beyond digital payments
Karthik opined that a few years ago digital payments weren’t viewed as a must-have. However today,
customers can confidently walk into a store with only a smartphone. The shifting dynamics also made
merchants vigilant about providing multiple modes of payment to avoid loss of business. Additionally,
merchants realised how they were able to preserve working capital, manage distributor payments, reduce
visits to the bank, and keep their funds secure from fear of theft by adopting the digital way of doing
business. To keep pace with the growing merchant traction, PhonePe devised unique initiatives to augment
merchant businesses. One such initiative was the launch of the PhonePe Store, which provided a
category-wise ready catalogue of merchants to customers, enabling them to reach out to merchants in
their vicinity via chats or telephone calls to place orders.
Future growth drivers
Vivek foresees tremendous growth potential from rural areas and expects significant contributions to the
growth of digital payments from tier 3 – 6 markets. He believes large-scale investments are required to
make the payment system more resilient and reliable, especially reduction of downtimes which can help in
creating a better user experience. Lauding RBI’s initiatives to drive financial inclusion and their PIDF
(Payments Infrastructure Development Fund) scheme for digital penetration, he also stressed the need for
self-sustainability. He shared that there is an inherent need to move away from zero MDR (Merchant
Discount Rate) to give impetus to innovation and investment for a sustainable digital growth model.
Vivek also highlighted that PhonePe has been instrumental in digitising over 30 million merchants across
India and is relentlessly working on crafting innovative measures to avoid derailing the momentum
achieved. The fireside chat also tracked merchant stories from remote locations in India and how PhonePe
deployed customised approach to address the unique challenges each of them faced in their digital
journeys. Be it a small-time trader located at the foothills of Ayodhya or a car dealer in an urban
market grappling with customer payments, each merchant’s problems were adeptly tackled with innovative
solutions and timely interventions.
Watch the full video of the conversation here