"EDITION 10"

Published: 6/5/2020

“EDITION 10”

While yesterday was a huge day for funding announcements, today some big news was dropped about the future of payments in India. Plus, PhonePe has found an interesting adjacent use case (ATMs as a Service) and will be interesting to see how they scale.

  • http://bit.ly/38MfO1t (Entrackr): First up, NPCI set to abolish both the PSP (Payment Service Provider) & interchange fees, (undecided on switching fees) after the Government decided to abolish MDR to 0 (and a bunch of lobbying from banks). “Okay Anmol, I have no clue what any of this means” Okay so essentially, banks used to charge merchants an MDR fees to process transactions. The banks then used this amount to cover the fees they had to pay, which includes i) interchange- fees paid by the merchant’s bank to the card issuer’s bank; ii) PSP- fees paid by the merchant’s bank to service providers; and iii) switching- fees paid by the merchant’s bank to the network provider (namely NCPI). Since MDR was struck to 0 (for RuPay & UPI txs), the banks felt it wasn’t fair that the other fees weren’t 0, since they no longer get to make money that way. What this means for the payment industry is that the UPI apps are making even less (if any) money on transactions through their apps. Products like Google Pay, PhonePe & Paytm are going to have to figure out how to actually make money now and this is especially worrying for Paytm which has already been performing pretty poorly in terms of revenue & losses. The next question I have is, what does this mean for payment gateways, and how (And if) does this affect them?
  • http://bit.ly/37JOakr (Inc42): PhonePe, the popular UPI application, has recently gotten a lot of praise for their “ATM network”. The platform that has over 20M users has onboarded over 75k of its merchants to act as ATMs for users. A user can go to a partner merchant and “withdraw” money from merchants while transferring them money over the UPI network. India only has 200k ATMs and PhonePe plans to expand its network to over 1M merchant ATMs (which is super impressive). And with the company possibly not being able to make money on UPI txs anymore, this might be a path to monetization (small fee to withdraw money). I personally think this is super interesting because it’s essentially promoting India to remain a cash society in the offline world (cash is still by far the preferred payment method so it will probably be around in a large part forever). The only thing I’m somewhat concerned about is around how PhonePe is verifying that all the cash being given to consumers by merchants is not “black money”. Because this seems like an easy way for people to launder money.
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    More tomorrow :) BONUS (Tweet of the day): https://twitter.com/TheSwamy/status/1230477771220013062