With cash of $1 billion in hand PhonePe CEO and founder Sameer Nigam says an initial public offer can wait till 2024-25. Nigam tells Ajay Ramanathan and Tushar Goenka the firm may consider applying for a non-banking finance company (NBFC) licence to test some new-to-credit models.

With wallets on United Payments Interface (UPI) now inter-operable, acquirers will likely pass on merchant discount rate (MDR) to the merchant, where do you see this rate settling?

The interchange on those applied by UPI is 1.1%, to be paid by the acquirer to the issuer. Unless the acquirer is going to loss-lead, they have to charge north of 1.1%. My gut says that it will land between 1.3-1.5%. Prior to the inter-operability of PPIs, when wallet companies were acquiring merchants directly, and using the individual QR codes, the MDR used to be around 1.5%.

With the recent ZestMoney deal falling through, are you looking at other buys?  

We are not actively looking at any acquisitions for sure. We did four last year that were successful and ZestMoney was the fifth that we were looking at. We have forayed into merchant lending right now as a platform-play with partner NBFCs. I think that is scaling really nicely. We need to review the plans on the consumer lending and figure out the timing and approach. Account aggregator is just about to launch, RuPay credit card on UPI just launched, UPI International just launched, health insurance is just about to commercially go live.  

How is the lending business coming along?

We have scaled to north of 3,000 loans in the first week of launch. I think the ticket sizes range from as low as Rs 20,000 to as high as Rs 1 lakh. Ours is only the platform play and we are actually acting as the loan originator where the lender is taking care of everything else. The fee should end up around 3.5-5% depending on performance and we are hoping it will be closer to 4.5-5%. We are looking to get an NBFC licence to test some new-to-credit models but are not there yet.

You had applied for an asset management company licence …

Shortly before our domicile change, we pulled that application. We are launching on the stock broking side and have acquired WealthDesk and OpenQ which comes with an RIA –registered investment advisor–licence. We have our hands full. At our core, I think we are realising more that we are a platforms and consumer tech company and that is our sweet spot.

You had indicated Phonepe might do an IPO in 2023…

We wanted to list in India and now we are domiciled here. We’re not burning that much cash, we have all the money to develop the brands and grow them so we are not looking at an IPO for about 18 months now and will reassess in mid-2024. Also, I don’t think this is a good time for a tech business to go public, the market has changed. We’re now scaling multiple products at the same time. So, with $one billion fund-raise, our focus for the next 18-24 months will be, instead of profitability only on the payments business, how we can scale all other businesses and get to consolidated-level profitability.  

How important was the spin-off from Flipkart before taking Pincode live?

It’s easier to take Pincode live now that we’ve completed the spin-off. Now there’s no expectation of not, softly, stepping on each other’s toes. I don’t believe it’s a big stamp on either’s foot really. So, it’s best to let the two meander around the universe on their own and see where they land.

 What was the need for PhonePe to launch Pincode, a separate app for PhonePe’s ONDC ambitions?  

Consumers think of PhonePe as an app where they can get in and get out very quickly, in seconds, and that is very counterintuitive to what is expected of Pincode, where they browse for longer. Hence, a separate app was needed. We’ll also look at ways to redirect customers from PhonePe to Pincode when they want to only shop, that will help scale. Our relationships with merchants will also allow us to do in-store branding.  

Which cities are you eyeing after Bengaluru?

Mumbai or the NCR belt will likely be the next simply because they have a high catchment area with a lot of digitised stores. We could go live in these areas as early as next month, but it could be three or even six months. Two days ago, we didn’t have a pharmaceutical category but now we have over 30 stores, so categories are opening up really quickly. At our scale, if you go to market early on, there will be 10 million people who will be upset with the experience of Pincode and that’s a terrible start, so we’d rather start with a 0.1 million customers who are happy, then take it to a million and then to the next 10 million.