PhonePe replacing ATM?

A payments company steeped in the digital way of things wants to now be in the business of promoting cash. “It’s a crazy idea for a digital payments company,” said a government official responsible for framing policies around digital payments. He requested anonymity due to his role.

But PhonePe’s parent Walmart hailed the move as the best thing yet. “It’s a revolutionary solution with the potential to transform cash in India,” said Judith Mckenna, CEO of Walmart International, at the retailer’s post-earnings presentation to analysts in New York recently, adding that the service will bring a nearly 5X increase in access to cash.

The Solution

A unique solution but not a new one. It’s an idea that the country’s central bank and regulator The Reserve Bank of India (RBI) had as far back as 2009. It allowed people with debit cards to swipe at point-of-sale terminals and collect an equivalent amount in cash, the goal being financial inclusion and lower dependence on ATMs. But it has largely been overlooked as a solution due to accounting hassles for merchants. Even as recently as August 2019, the RBI pulled up the payments industry for not promoting this solution.

PhonePe is dusting the cobwebs off this forgotten mode of payment. It is putting a structure around what was already a naturally occurring solution in case people ran out of cash. “The only service we are providing here is letting you discover stores that you can withdraw cash from, instead of awkwardly going from store to store,” says Sameer Nigam, chief executive officer and co-founder of PhonePe.

While convenient, the feature brings empty calories to the company, full of user numbers that do not amount to any revenue.

The company doesn’t charge the merchant or user for the service. It could actually bring in accounting and tax headaches for the merchants involved. But PhonePe hopes that getting people used to accessing cash through an app will eventually help them go digital.

In one month, the company said it saw several lakh withdrawals, without revealing exact numbers. It added that it saw about 570 million transactions in February 2020, including ATM transactions. It did not break it up between merchant, peer-to-peer, and ATM. Digital payments straddle the Rs 400-Rs 1,600 ($5.47-$21.9) spending sweet spot for users. Users still prefer cash for anything less than that, especially in buses or metros where the value of payments is small. “That’s what we are solving by launching this,” says Nigam.

PhonePe’s cash-related push comes at a time when the Indian government has made concerted efforts under its Digital India campaign to encourage digital payments. Prime Minister Narendra Modi even coined a motto: ‘Say no to cash, yes to digital’. The government also abolished merchant fees on certain modes of digital payments to encourage digital acceptance among merchants.

Despite this, cash still reigns.

The government’s radical demonetisation move brought down the usage of cash for a while, but RBI reports show that bank notes in circulation are climbing back to pre-demonetisation levels.

“There was an intense debate before we launched this [service]. Regulatory issues, fraud, fake notes… we were conscious about that, but still, we went ahead,” says a PhonePe executive. He is not authorised to speak to the media.

Mother of invention

As expected, PhonePe’s rivals are clamouring that its move does not have any regulatory clearances. The National Payments Corporation of India (NPCI), the body that runs retail payments in the country, has hurriedly gone about framing rules. The NPCI has asked PhonePe to stop the service now as it is seeking the regulator’s permission, said an official aware of NPCI’s decision.

The Ken has learnt that PhonePe sought permission from the RBI before rolling this service out, and is now waiting for NPCI to get clarity on it. In the meantime, the payments company has not stopped users from using this facility.

The economic indicators show that digital payments have everything going for it. Retail digital payments have grown at a cumulative growth rate of 56% between 2015 and 2019, according to the RBI. Unified Payments Interface (UPI), in October 2019, reached the milestone of a billion transactions a month and showed the highest volume of transactions among all digital payment modes in the financial year 2019.